Improperly Owning Property Jointly

Joint ownership of property (referred to as owning property in “joint tenancy” or as “joint tenants”) can be an effective and efficient way to hold and transfer property at death. However, it should not be used in all cases. Joint ownership can have very undesirable consequences in second marriage situations or where a couple is expected to have an estate tax liability.

Inadequate Planning with Life Insurance

Oftentimes clients simply don’t own enough life insurance (to cover the loss of income of the deceased or to pay for the interest of a deceased in a closely-held business). When there is life insurance it may not be properly managed. The policy’s beneficiary designation may not be coordinated with the rest of the client’s estate plan. Or the policy may not have a named contingent beneficiary. Or the beneficiary may be the insured’s “estate” subjecting the policy proceeds to probate and potentially to the claims of creditors. The death benefit may be paid too soon (before the beneficiary is mature enough to manage the money) or in the wrong way (outright rather than in trust). The policy may be owned in a manner that increases the client’s estate tax liability.

Failing to Provide for Adequate Liquidity on Death.

At death cash is often needed to pay income taxes, estate taxes, probate or other administration expenses, debts, living expenses of the heirs, operating expenses of the family farm or business, charitable pledges or other specific gifts. Adequate liquidity can be particularly important if you own a farm or other business as liquid assets can be a source of inheritance for the non-farm heirs or those that won’t be participating in the business after your death.

Choosing the Wrong Fiduciary

Choosing the wrong executor, successor trustee, or attorney-in-fact (to act under a power of attorney) can be disastrous. First and foremost, the selection of an appropriate fiduciary involves choosing someone who is honest, trustworthy, and will always act with your best interests in mind. When choosing a fiduciary, you should make sure they will be able to competently perform the necessary duties and that they will have time to do the job. You should avoid choosing someone who may have a conflict of interest or who does not get along with other family members.

Failing to Have a Will or Other Appropriate Dispositive Documents

If you die without a will, the Minnesota (or Wisconsin) laws of intestate succession will determine how your estate is distributed. The distribution provided by the state intestacy laws may not be consistent with your objectives.

Leaving Everything to Your Spouse

Many couples design their estate plan to leave everything to the surviving spouse and then to the children. However, such a plan can be inappropriate if yours is a second marriage and you have children from a prior marriage. Such a plan may also be inappropriate if the value of your estate exceeds the estate tax exemption amount as it could result in the failure to use the estate tax exemption of both spouses and result in unnecessary estate taxes. Leaving everything to your surviving spouse may also be inappropriate if your spouse is ill or disabled. And it may be a bad idea to leave everything to your spouse if he/she simply does not want the responsibility of managing assets (either because of his/her age, infirmity or inexperience) and doing so would cause him/her undo stress.

Making Improper Disposition of Assets

An improper disposition of assets occurs when you leave the wrong asset to the wrong person in the wrong manner or at the wrong time. Leaving a substantial estate to a minor or young adult is a good example. Leaving property to a spouse afflicted with dementia may also be inappropriate. While equal distributions among children is common, it may not be appropriate if one of your children is disabled, or if one or more of your children are involved in your farm operation or your business and other children are not. It is also important to plan for simultaneous deaths or for the “death of someone out of order” in order to prevent improper disposition of assets.

Failing to Properly Plan for Business Assets

If you own a farm or a business, it is important to carefully account for that asset in your estate plan. Not only do you need to anticipate the liquidity needs of the business, you must also be mindful of the fact that your death may decrease business revenue or increase business expense (hiring replacement help). You should also consider whether you need a buy-sell agreement or whether the buy-sell agreement you have accurately reflects your current objectives.

Failure to Keep Adequate Records

Failure to keep adequate records can make your fiduciary’s job difficult and add unnecessary expense to the administration of your estate. You should annually make a list of the names, phone numbers and email addresses of advisors your family should contact. Prepare an inventory of assets and a list of accounts and life insurance policies. Finally, don’t forget about your digital assets. Many people conduct much of their business electronically. Keep a list of user names and passwords so your fiduciaries can access your online accounts. While you’re at it, write down the passwords of your social media accounts as well as those for your cloud storage services. Your family will appreciate being able to retrieve your saved photos and other sentimental items. A well-crafted estate plan will contain documents that explicitly authorize your agents and fiduciaries to access your digital assets