Common Mistakes in Estate Planning
There are a lot of common mistakes that are made by lawyers and others who prepare estate planning documents for their clients via online services other than a lawyer. One of the major mistakes that leads to all the other following mistakes is to not value the estate planning process, and to see it as the documents only – a Will and powers of attorney. Estate planning is not just the documents that result from the process – it is the process itself.
Here are some of the other mistakes that arise during the estate planning process:
Don’t consider how assets are owned
It is unfortunate how common this happens, but a lot of people performing estate planning will not even get the full details of the assets and liabilities involved in the estate and who owns what. Not all assets are estate assets, and each asset should be considered in the planning process to ensure that it will pass to the person that it is intended. Sometimes this might involve changing how assets are owned, or changing trust deeds, or changing the names on bank accounts, or making nominations on superannuation and life insurance policies.
I have already done an article on assets that are not estate assets.
Don’t consider super and equalisation of super
Superannuation is not an estate asset, so it is important to consider how is going to receive the superannuation and how. There are a limited category of people who can receive superannuation directly, with or without tax consequences. The tax consequences should be considered through the Will in most circumstances, and an equalisation clause included in the Will if the testator intends for residue to be split equally. Without an equalisation clause, the effect of the superannuation and the Will may not mean that beneficiaries receive an equal amount.
A common drafting mistake in Wills is to only appoint an alternative executor in the event of the death of the first. However, there are many reasons why the first executor may not be able to act. If the ability for the alternative executor to come forward in these other circumstances is not included in the Will, then the process to act as executor under a grant of representation is complicated. Such a simply change in wording can have a big effect, and yet this is a common mistake in drafting by so many.
Two executors if minor children and guardians
Another common mistake, that thankfully doesn’t get giving effect to much, is not making proper appointments when minor children are beneficiaries. There needs to be more than one executor when minor children are residuary beneficiaries under a Will, and a guardian appointment should be made (along with an alternative guardian) but this sometimes also gets missed. Legislation does correct the mistake of only one executor, by allowing the Court to appoint a second, but this takes the control out of the hands of the testator and should be avoided wherever possible.
I have written a few articles on appointing guardians.
Residue falling into intestacy
Although not as common as the other mistakes, sometimes a gift over clause is not included in a Will, and there is no beneficiary left for the residue. Or, more common, is that the Will divides the residue into percentages and then fails to allocate 100%. There is a rule of law that prefers an estate not fall into intestacy, but this cannot always be avoided. Proper planning and drafting of the Will can make sure that all the estate is considered and nothing is left up to the laws of intestacy.
Giving powers to executors – and digital estate
Finally, it is surprising the number of Wills that do not include a full range of powers for the executors, and the Will just seeks to rely on legislative powers which are rarely sufficient, particularly where there are multiple beneficiaries and assets of various types. Legislative powers for executors are pretty basic, and have not kept up with realities of our modern world with digital assets and the like. Specific powers around digital assets should be included as more and more of us live our lives online and in cloud storage.