It’s not always enough to do the right thing; it’s also important to do it the right way. Otherwise unforeseen problems will inevitably arise.
Consider your will, a document that most people create and then forget about. That’s largely fine if the will was well done and your situation doesn’t change afterwards. But if the will contains problems, then much like unexploded World War II ordinance littering the islands, those problems will remain a hidden danger lurking for years, even decades.
To reduce the risk that your will contains unforeseen problems that won’t surface until after you pass away, watch out for the following eight common mistakes.
First, your will should not be the primary place for your funeral arrangements. Why? Because the funeral usually happens long before your will is found or reviewed. So, if you wanted to be buried but your family decided to cremate you, tough luck. By the time your family knows what you wanted, it’s too late.
Similarly, you also shouldn’t rely on your will to tell people you want your organs donated (assuming you want them donated). The reason is the same as for funeral arrangements—by the time your will is being reviewed, the relevant decisions will already have been made.
And the same for instructions about whether you want to be kept on life support at the end of your life: These decisions need to be made weeks or months before anyone might look at your will. Instead of putting those decisions in a will, write them in a living will (which sounds like a will but isn’t).
Now let’s talk about the types of property that you should not try to transfer through a will.
Let’s begin with your 401(k) or IRA, which for many people are their biggest buckets of money. These funds pass by operation of law to whoever you wrote down on the beneficiary-designation form that you filled out when you set up the fund years ago. It doesn’t matter what your will says; it has no power over this money unless you appointed your estate as the beneficiary, which is unlikely. So, the stakes are high if the person you want to receive that money is different than who you designated when you signed up for the account.
A similar issue applies to annuities or life-insurance proceeds. That money is likewise governed by beneficiary forms that you created when you bought the annuity or life insurance. So, if you want to change the beneficiary, do that by signing a new beneficiary form. Don’t try to change it via your will.
If you have a trust, another potential problem is attempting to transfer some of the trust’s assets through your will. The sentiment is fine but the approach is flawed. That’s because once you set up a trust and then give it assets, those assets belong to the trust. At that point, the trust assets will transfer according to the trust agreement, not your will.
If you own an LLC, the same trap exists. Once you transfer assets to an LLC, the LLC owns them, not you. So, you can’t directly transfer assets from the LLC to your heirs via a will. Instead, you’ll have to take some extra steps. For example, if you own 100% of the LLC and want to leave all of the LLC’s assets to one person, then leave all of your ownership stake in the company to your heir. Thus, when you die, your heir will receive the company and, by extension, all of the assets you wanted them to have. Or maybe you own all of the LLC but only want to give some of the assets to an heir. For that situation, you may want to create a second LLC and then transfer the assets you want to give to your heir to the new LLC. At that point, it’s easy for your will to give all of the new LLC’s ownership to your heir, meaning that they will also receive all of that LLC’s assets.
That brings us to our final mistake: Including explanations in your will about why you sliced your assets up in the manner that you ultimately did. In part, that’s because a will should be short, clear, and to the point to avoid creating opportunities for dispute. And in part, it’s because a will is a public record that will be submitted to a court. That’s probably not the best venue for airing potentially dirty laundry.
With that said, if you think your will is going to be controversial for your family, it’s often great to handle the situation proactively—either by sitting everyone down and explaining your decisions or by creating a standalone document that puts your thoughts in writing. But, again, your will is not the spot for that conversation.
To avoid these eight mistakes and a myriad of others, please speak with a qualified estate-planning attorney. After all, an ounce of prevention is worth a pound of cure.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer