73 The Alabama Lawyer 264 (2012). Common Estate-Planning Mistakes.

• Author: By R. Mark Kirkpatrick

Alabama Bar Journal

2012.

73 The Alabama Lawyer 264 (2012).

Common Estate-Planning Mistakes

Common Estate-Planning MistakesBy R. Mark KirkpatrickFailing to Have Estate Plan at All (Dying without a Will)

If you die without a will and you have assets passing through probate, state law determines who gets the assets, as follows:

If there are no issue or parents surviving, a surviving spouse gets everything.

If there are surviving parents, but no issue, a surviving spouse gets the first $100,000 and everything else is split 50-50 between the surviving spouse and the parents.

If there are surviving issue, all of whom are from the marriage, a surviving spouse gets the first $50,000 and everything else is split between the surviving spouse and the issue.

If there are surviving issue from a prior marriage and a surviving spouse, everything is split 50-50 between the surviving spouse and the issue.

If there is no surviving spouse, the surviving issue get everything.

In addition, a surviving spouse would be entitled to claim a $3,500 personal property allowance, a $6,000 homestead and a $6,000 family allowance off the top. Let's look at an example of how this may work.

What happens if you die with a modest $100,000 house as your only asset and you are survived by a spouse and children from a prior marriage? The surviving spouse can claim $15,500 in allowances, but after that, everything has to be split 50-50 with the children, making a forced sale of the residence the most likely outcome, a result which probably is not the desired outcome.

Failing to Have a Comprehensive/ Coordinated Plan

Often people will add one child to a large bank or brokerage account so that it passes by survivorship to that child outside of probate and then die with a will that says everything goes equally to all three of his or her kids. This creates confusion about the decedent's true intent and leads to litigation.

Leaving Assets to Minors

Of course, a minor cannot hold title to assets so leaving assets to a minor necessitates the opening of a conservatorship. A conservator has to post bond and file an inventory, tri-annual accountings and a final settlement with the probate court. Further, a conservator is limited to investing in so-called legal investments. A trust is a much more flexible vehicle, allowing the trustee to have broad discretion and investment authority with little or no court supervision, which may be good or bad depending on the trustee. A trust is generally much more cost-effective.

Granting Someone Ownership, rather than Power of Attorney over An Asset

Often, people will add a child as a joint owner on their bank or brokerage accounts to pay bills if they get sick, or add the child to real estate to avoid probate at death. There are several problems with this approach. First, it subjects the assets to the claims of the creditors of the joint owner. Second, as noted above, it may conflict with the person's overall estate plan. Third, it may constitute a taxable gift...