The 3 Most Common Mistakes People Make When Planning Their Estates

by | BiggerPockets.com

This article does not constitute legal advice. We recommend you seek the counsel of an attorney familiar with your specific situation and market to ensure you make the best decisions within your real estate business.

Ever since the Internet came along, every self-proclaimed genius in the world is learning how to “do-it-yourself.” Of course, there are some smart people, like yourself, who are learning to D.I.Y. all sorts of nifty things. We’re assuming you’re smart because you’re reading this: Idiots wouldn’t get past the title, because typically, idiots don’t acknowledge the fact that they can make mistakes at all.

But nevertheless, the mass availability of all sorts of information has convinced most folks they can do anything they please with some knowledge and a little bit of elbow grease. People are making their own decorative flower pots out of fishing twine and tuna cans. They are building bunkers to survive the inevitable collapse of our unsustainable civilization. Women (and some rather fierce drag queens) are learning to contour their faces with makeup to look like any number of tabloid celebrities, whose initials may or may not be KKW. Some are even learning to DIY legal or financial matters, whether they are feeling empowered by newfound knowledge of TurboTax or believe they’ve learned everything they need to know from clicking around on legal dictionary websites for a few hours. And, of course, they are planning their own estates.

Related: 5 Reasons Real Estate Is the Perfect Early Retirement Tool

If you have the time, savvy, and acumen to plan your own estate, you’ll save thousands of dollars. That means another pallet of tuna for your bunker, which is soon to be decorated in lovely flower pots that reflect your perfectly sculpted and highlighted cheekbones. Of course, there won’t be any flowers because there is no natural light in the bunker, but never underestimate the beauty of imagination. You may look like an extra from The Walking Dead from all that contouring in the dark too, but if you think you’re smokin’ hot, you do you, baby.



However, the power of imagination alone does not make you an attorney. We aren’t telling you this to put you down or make you think you can’t assist in forming your own estate plan. Hell, we’re not even telling you this because we busted our asses and sunk tens of thousands of dollars into law school to gain expertise in these matters. My firm has nothing to gain from you, because I’m not your lawyer. Again, you can do you. In fact, as lawyers, we like well-informed clients who take the initiative to even think about matters like estate planning. That’s why this little ditty exists: we want to help you to help yourself.

Of course, you can learn to plan your own estate. But like anything finance driven, it’s more confusing than a Matrix sequel, and you’ve got way more choices than just whether to take the red pill or the blue pill.

So let’s just begin by learning what not to do. Here are the three most common mistakes people make when planning their estates.

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1. Improper Signatures and Witnesses

If you live in a cottage that is illuminated by whale oil, you might be the kind of person who has a handwritten will. If you are reading this, you live in (at least) the 21st century, so you’ve probably written your will on something called a computer, or perhaps a tablet if you have young, nimble fingers. It probably looked similar to the device you are reading this on, or watched the aforementioned flower pot, apocalypse preparation, or contouring videos on. Welcome to the future.

If your will is not handwritten, you need two witnesses to sign it. Failure to adhere to signature and witness requirements invalidates the entire will. Unless you want to tear your family apart while they argue over how to divide up all of your precious whale oil/quills/makeup pallets, you should find some witnesses and get some signatures.

This may sound a little obvious, but remember: You are not a witness. Find two people that aren’t you to get the job done right.

2. Failure to Fund

People like trusts. They can dole out cash to beneficiaries as Gods unto us mortals. If you have a trust and fund a trust, you may not fund it with assets from the trust. This isn’t exactly trustworthy. Funding a trust means that you put the assets you want to be controlled by the trust in the name of the trust.

Let’s say you want to put your house into a trust with a board of trustees. In addition to making those trustees feel important with their fancy new position on a board, you are also giving those trustees complete control over that asset. You are taking it out of your name and placing its ownership and operation in the trust’s name. If the property is not deeded to the trust, your heirs will need to get a judge to transfer the title. Stock, LLC ownership, insurance, investments, and bank accounts should be placed in the trust’s name or the trust should be listed as the beneficiary if you want to save your family a day in probate court. Probate court is a drag for everyone, except the attorneys getting paid to be there.

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Related: How to Effectively Conduct Joint Venture Agreements as a Real Estate Investor

3. Failure to Fully Consider Your Circumstances: Your Situation Might be Unique

Most families have at least one kid who just can’t keep any money in his pockets. Some may have more debts than assets. You might have assets in multiple states or a blood-sucking ex-partner who took the kids and takes all your money. The point is that standardized forms do not cover every case. These unique situations are rarely handled properly when people do their own estate plans. Don’t make this costly mistake. Account for any anomalies in your family or finances.

You can save a lot of money by planning your own estate, but it is advisable to have a pro look it over. You’re working hard to save money. So invest a little bit to ensure it goes to your chosen heirs in a timely manner. Get a qualified estate planning attorney’s help to avoid adding probate court and delay or loss of assets to your loved ones’ grieving process.

Any questions? Common mistakes you’d add to this list?

Leave your opinion below!

About Author

Scott Smith

Scott Smith helps clients nationally and internationally from his office in Austin, Texas. With over 5 years experience in the litigation, Scott works on proactively building defense in anticipation of future lawsuits for real estate investors. Scott is one of the few attorneys in the nation that structures companies for maximum protection with minimum taxes.

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4 Comments

  1. Scott Smith

    Hi Jeff! That certainly wasn’t my intention at all. But I appreciate your feedback. I hope a difference in sense of humor didn’t prevent you from getting value from the article’s information. Promise I’m not really a DB—& am happy to answer any questions you may have. Thanks!

  2. Mandy Walker

    OMG Thank you so much for this article! I’ve been planning my mom’s estate. It’s caused a lot of anxiety. So it felt good to laugh while learning about the subject!

    And I learned I am making two of the three mistakes you talk about. But I’m still laughing. Never thought anything about this situation would be funny. It’s not really, but the author is so right. I really am the person who wants to DIY everything. My makeup looks great bc or online vids, but I’ve been driving myself crazy trying to learn everything I could just ask a lawyer. I need help with this!

    Scott how expensive is it to talk to an estate planning lawyer? Will it help if I come prepared with questions? If author is too busy does anyone know? We don’t have tons of money yet. Can her estate help pay for the lawyer?

    Thanks…I really needed the laughs and the info. This is why I love BP!

    • Scott Smith

      HI Mandy! I’m sorry to hear that planning for your mother has caused you so much stress. But I’m relieved to hear that you enjoyed the article. Sometimes, a little levity is exactly what we need to cope with such serious and often unpleasant subjects. On to your questions…

      All lawyers are different when it comes to pricing. You can certainly shop around. Free consultations are common, but there’s some truth in the idea that you get what you pay for. You don’t have to break the bank to plan your mom’s estate, though. Many highly qualified estate planning attorneys will give you a cheap consultation. If you come prepared with your questions, that will indeed help you make the most of your time! If you do some research on attorneys in your area, you can find one you like that offers an affordable consultation. Then, just show up with your questions and documents in hand. You’d be amazed how much you can get done in a consultation. If a lawyer you like will do a consultation for $200 or less, you can actually get WAY more than $200 worth of information by doing exactly what you said: coming in prepared and knowing what questions to ask.

      Legal fees can be billed to the estate or provided for ahead of time while your mom is still with us. Legal fees can often be written off on your taxes, as well. I hope that information helps you out. Check with a CPA before doing this, of course, and you can also ask the lawyer you consult with about how to get the most return on fees. Most of us are all too happy to help you save your money from going unnecessarily into Uncle Sam’s pockets. Good luck, and feel free to ask me any more questions you may have. I try to help as much as I can, time permitting. You’re off to a smart start by doing your research!

  3. Juris Cooper

    Really enjoyed this, Scott!

    For me, as a younger guy & newer investor, there’s no question.. I’m not DIY’ing our estate planning! But the ‘hard’ or maybe intimidating part is making sure I find the right, trusted person who really knows what they’re doing.

    To that, other than of course google/searching online, any advice or referrals for finding a qualified estate planning attorney in your area? And does it have to be someone local?

    Related, I know they’re not CPA’s, but in the estate planning process is a qualified legal planner going to be able to shed light on/make recommendations around how our accounts/finances/business(es) is structured?

    This can feel like I’m trying to herd a litter of cats when I think about all the moving parts, different accounts my wife and I have to organize.. But again, I know that’s what a professional’s for and like any good investment the return will outweigh the cost (as long as it’s done correctly).

    Thanks for the article and any added insight in advance!
    Juris

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