Wills: 7 bequest mistakes
Editor’s Note: The following column is being republished to post it in its correct weekday slot; it was erroneously published in yesterday’s paper.
Almost everyone should have a will or a revocable living trust that says what happens to their stuff when they die. But not all documents are equal. A thoughtful, well-drafted plan can ensure that your goals are met with a minimum of fuss for your loved ones. But a poorly written estate plan can bury landmines for years or decades, mines waiting to explode when you pass away. Below are seven common mistakes to avoid in your will.
Mistake 1: Being too specific when flexibility is necessary
Let’s say you own a 2020 Toyota Tacoma, and you want your son, Bob, to have it when you pass away. So your will says something like: I bequeath my 2020 Toyota Tacoma to Bob. What happens if you sell the Tacoma but never update your will? Bob gets nothing.
What about your house? What if you lived at 123 Plumeria Drive when you made your will but sold it so that you could move across the road to 124 Plumeria Drive? Then a bequest saying that you leave 123 Plumeria Drive to Bob would fail because you no longer own it.
How about bank accounts? What if you bequeathed your Bank of Saipan account to Bob and then Bank of Saipan merged with the Bank of Hawaii? Bob may be out of luck because the account doesn’t match your will precisely.
And the same for stock certificates: If you bequest 10 shares of ABC, Inc.’s stock and then it merges into another company, thus changing its name to XYZ Corp., Bob may be out of luck again for the same reason—it doesn’t match your will precisely.
In short, be careful about getting too specific. The language you use should have some wiggle room for the natural ebb and flow of life because changes will happen. It’s one of the few guarantees in life.
Mistake 2: Giving away property without talking about the mortgage
Now let’s assume you own property encumbered by a mortgage. When you bequeath the property to Bob, did you intend for him to pay for the mortgage? Or did you want your estate to pay off the mortgage? If your will doesn’t say, then your other heirs will likely object to the estate paying off the mortgage. After all, those payments dilute how much the rest of the heirs will receive. To prevent the fight, say who is responsible for the mortgage—the estate or the person receiving the property.
Mistake 3: Giving away a house without saying who gets the contents
Let’s say the will gifts the house to Bob but is silent on the stuff inside the house. Who gets the contents of the home? Not clear. Bob may get everything. Or he might get an empty house without carpets, blinds, appliances, or furniture. It’s much better to expressly state who gets the contents of the house—Bob or someone else.
Mistake 4: Giving someone a percentage of the estate’s value
Sometimes people give a percentage of their estate to someone. Often, it will be a grandparent who wants to give a small percentage to a grandkid. Why is that a bad idea? Because determining the total value of an estate is hard and inexact. And, so, reasonable differences over an appraisal can flash into heated arguments.
If you want to leave a percentage, what should you do instead? Leave a percentage of something easy to determine like a bank or retirement account. Figuring out 2% of a bank account is much easier than figuring out 2% of your estate (which can include cars, collectibles, real estate, and bank accounts).
Mistake 5: Leaving a large, fixed amount to younger heirs
This situation crops up most where grandparents want to leave a fixed amount for their grandkids’ education. For example, a grandparent leaves $50,000 each to three grandkids. The idea is great. But what happens, for instance, if the stock market plummets, sinking your estate’s value with it? Not only is there not enough money for the grandkids’ education funds, your kids get nothing. In most cases, that is not what a well-meaning grandparent intended. So, be wary of making large, specific bequests.
Mistake 6: Leaving significant assets directly to minors
Leaving big amounts of money directly to minors is bad on several fronts. For one, they are seldom ready to handle a surprise windfall. For another, their inheritance will be supervised by the legal system until they become an adult. So, they can look forward to going in and out of guardianship proceeds for the rest of their youth. I don’t recommend it.
A better choice is to leave assets to minors through a trust. This approach allows you to appoint someone responsible who can then access your kid’s inheritance and use it on their behalf without parading in and out of court for each major decision.
Mistake 7: Leaving assets to people receiving government benefits
Many government benefits are means-tested. In other words, people only receive them if they have limited assets. And that threshold can be very small. So, it’s relatively easy for an unexpected inheritance to knock a person out of their government benefits until they’ve spent the inheritance and re-filed for benefits. In many cases, they would have been better off never receiving any inheritance.
To avoid these mistakes, and others, have an experienced estate-planning attorney write your will.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.