So you set up your revocable trust and your pour-over Will. Your attorney explained that this set-up offers you the greatest chance of avoiding probate on death and offers you with maximum flexibility during lifetime and most privacy an ease of administration after death. BUT he or she forgets to help you move your assets into your revocable trust. What good does it do then? If your revocable trust is not funded with your assets, your estate has to go through the process of probate and this will be costly and time consuming to your heirs. This mistake is easily avoided by having your revocable trust funded during lifetime.
Ignoring issues of liquidity at death
So you have your great estate plan and you know that your family will be taken care of because you have businesses and real estate to give them dividends and income for life. But what about your debts, death taxes and administration expenses? Have you left enough liquidity in your estate to address those issues? If not, your estate will have to have an urgent sale of your illiquid assets. If you are an artist and your estate consists primarily of your art work, this fire sale creates many problems. Flooding the art market with your works indicates to the rest of the world that (1) there is plenty of work, therefore, it is not as valuable and (2) your estate is desperate to raise liquidity and, therefore, they can offer the bottom dollar for your work. The same is true for individuals holding most of their estate invested in real estate or business shares that are not as easy to liquidate rapidly.
Ignoring synchronization among various parts of your estate
There are assets in your estate that will pass under the provisions of your Will or your revocable trust. And then there are those that will pass by operation of law- your IRA accounts, 401K plans and life insurance, to name some. These items are governed by dispositions of the contractual relationships between you and the custodians (i.e. financial institutions) holding your assets. Therefore, your beneficiary designations put in place when you created those relationship (i.e. opened accounts at given financial institutions) govern how your assets will be distributed at death. It is a great mistake to ignore those parts of your estate because the biggest part of your estate may be your retirement account which may have an old beneficiary designation form on file and when you are gone, your executor or trustee will not be able to change it (or even speak to the financial institution).
Leaving you funeral and burial instructions in your Will
If you have specific burial instructions, you should use special forms that allow you to designate an agent in control of disposition of your remains and will offer such agent all the instructions regarding same. If you leave said instructions in your Will, it may be a few weeks after your burial that anyone reads it. Therefore, said instructions should never be made part of your Will and rather be a part of a stand-alone designation.
Leaving assets for your children or grandchildren in so-called “pot” trusts
You can leave assets in one big “pot” trust for all of your descendants to continue until the last one of them dies. Many attorneys advocate this approach because of the alleged lower administration expenses involved in running one big trust. It may seem like a good idea and a simple approach. Why is this a mistake? Because all of your descendants will have different needs and circumstances and their needs and circumstances will continue to evolve and change constantly. For example, your most successful children may be fully self-sufficient and may require the least amount of distributions from the trust once they are out of colleges and graduate schools. At the same time, their education may have cost the trust hundreds of thousands of dollars. Each one of your descendants may start to resent the other for “encroaching” up on his or her share of the trust. Some of your children may have children of their own and may require extra distributions for the care of said children. Some may have special health needs and will require a great deal more distributions than others. Therefore, if you want to achieve equality and the least chance of resentment and litigation among your descendants, leave your assets in separate share trusts for each one of them.