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Law Offices of Ronald W. Rutz
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March 8, 2003: Common Estate Planning Pitfalls: Part 1

Q: What are some common pitfalls when it comes to estate planning?

A: There are so many shortcomings that this response to your question will probably become a 2-part serial column. Remember, the following are my observations based on 34 years of practice involving thousands of estate documents and estate administrations and may be disconcerting to some. But you asked and I want to be straightforward, not giving you the cookie cutter listing, which sugar coats but does nothing more.

First, a large number of people still have nothing in place or have tried to do these important legal documents on the cheap. If a person obtains discount documents through an organization or a group, off the Internet, or from a software program, then the recipient is probably getting what he or she paid for.

Unfortunately, during the last ten years or so, I have spent a significant part of my practice amending or replacing existing estate plans (even done by other attorneys) and trying to straighten out estate documents. Feedback from other attorneys suggests that they have experienced the same phenomenon. For a few hundred dollars, why take a risk that your legal home crumbles at your death? Yet far too many people pinch pennies, at least in my opinion, in this area.

The other side of the coin is that far too many are spending much too much. In most circumstances, several hundred dollars (not several thousand) is usually sufficient to get documents in place and generate an estate plan that was quick, cheap, efficient, and easy to operate.

Unfortunately, people who purchase "estate plans" that are four or five inches thick and don't understand what they purchased often expect that their fiduciaries chosen to administer the pile of paperwork will somehow fare better. In my experience, that does not happen. What happens is the person who set up the plan takes over, adding needless settlement costs.

Even though people may have an adequate Will, too many people do not have Durable Powers of Attorney (DPOAs). People who do have DPOAs in place need to make certain that such powers give the authority to act when needed. Often times, the lack of appropriate but required language (especially in the area of elder law planning) or conditions inserted into the document that permit the DPOAs use only at certain times makes them ineffectual. For these and other reasons, a "state approved" boilerplate form, despite being properly executed, may not be usable when the time comes to use it.

The fear of probate seems to be epidemic, especially among the senior population. Remember, each state has its own rules. What happens in New York, Florida, or California may be fodder for a great seminar but may not reflect the Colorado experience.

With unsupervised administration in place, under the Uniform Probate Code, trying to avoid using the Court could mean a much more expensive and complicated estate plan, and even worse, could prevent your estate from taking advantage of certain tax and administrative breaks. Remember, if the family does the probate without an attorney, (which many of the families I work with do), then the costs only include the filing fee ($91), certificates fees (varies but probably averages $25) and the publication fee (around $40). The attorney can be hired on an hourly, advisory basis when needed.

Using unsupervised administration means that the "probate" can be quickly started and things such as distributing property, paying bills, etc. can be done thereafter. Assets are not frozen until the estate is settled. Inventories do not have to be filed. Bonds normally do not have to be posted. Court hearings, reports, etc. are not needed unless there is a problem. And the estate can be closed six months after starting by filing a Verified Statement (one page front and back) saying the estate is complete. So do not fall into the trap of trying to avoid probate. Probate might be the best way to go.

Not having property titled correctly to correspond to the kinds of documents in place is another significant pitfall, second only to having no documents, or inadequate documents, or document overkill.

Unless there is a business or personal reason not to do so, the property that is to go to the surviving spouse should be held in joint tenancy and the surviving spouse should be named as the primary designation on anything payable at death. Unless there is only one beneficiary, such as a child, assets should not be held in joint tenancy with more than one beneficiary (I have written why in other columns and can do so again if needed) and the estate should be the recipient of the payable-on-death proceeds (I have written why in other columns and can do so again if needed), and let the Will disburse the assets if there is no surviving spouse.

I need to stop but can expand the latter points and continue to list pitfalls next month.

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