As a probate and real estate attorney, located in Summerville, South Carolina, I meet people who have made serious mistakes when setting up their estate plan. There are some things that are tailor-made for Do-It-Yourself projects, however, estate planning should not be one of them. While it may be tempting to save a little money by downloading the forms from online “legal sites,” remember, you get what you pay for. In this article, I will discuss some of the most common mistakes made in estate planning in South Carolina.
“Poor Man’s” estate plan. It is called a “Poor Man’s Will” because it does not require hiring a lawyer for your estate planning needs. While it may seem like a good idea, there have been many cases in which this plan has backfired. Without a Will, your property is subject to distribution by South Carolina Intestacy Laws, which means that your property could possibly be passed on to the state of South Carolina.
Not understanding how assets will pass upon your death. Many people think their Will controls how all of their assets will pass upon their death. Yet because many people hold much of their wealth in the form of retirement plan accounts or life insurance, many assets today pass outside of Wills or Trusts. Wills and trusts control real estate and other property that you own, but there are certain assets, such as life insurance and IRAs, that are not normally subject to probate and which a Will or Trust cannot affect.
These assets will pass to the beneficiaries you name in a beneficiary designation form, however, please note that a revocable trust can be the beneficiary on these types of accounts with the proper Trust provisions. For example, while still single, Donald named his brother as the beneficiary of his retirement plan and his life insurance. Donald later got married. After his marriage, Donald changed his Will, leaving everything to his wife. But because Donald never changed his beneficiary designations on his retirement account and life insurance, the bulk of his estate passed to his brother on his death and not to his wife.
This problem can be avoided by reviewing your beneficiary designations for life insurance policies and retirement plans when major life changes happen to make sure they fit your current situation and your estate planning goals.
Trying to plan your estate around specific assets. Unless there are compelling reasons why a specific asset should go to a specific person, many estate planning attorneys strongly discourage clients from trying to plan around specific assets.
For example, Peter had three children and wanted to treat them all equally and his Will confirmed this. Several years before he died, he transferred half of his home to his older son, added his daughter as a signer on his savings account, and named his younger son as the beneficiary on his life insurance policy. When he did this, all three assets were about equal in value. But between these actions and his death, he sold the home, put the proceeds in the savings account, and let the life insurance policy lapse. The savings account passed to the surviving owner and not pursuant to his Will. By planning around specific assets, he actually disinherited two of his children. This is not what he intended and it could have easily been avoided with proper planning.
Trying to leave property to a minor child or grandchild. No insurance company will knowingly pay $500,000 to a thirteen-year-old. They will only pay it to a court-appointed guardian for that child, who may not be the person you would want to have that responsibility. The cost of obtaining such a court order can also be substantial.
For example, your Will or beneficiary designation indicates that your deceased daughter’s share is to go to her children. If they are minors, a guardian will need to be appointed by the court. The court would give priority to the children’s father, who may be your ex-son-in-law.
Generally, in a guardianship, the money is required to be turned over to the minor once he or she reaches 18 years of age. An inheritance left in Trust for such a beneficiary can specifically indicate who is going to manage the funds and make distributions for college, etc. It can also indicate the age at which the funds will be turned over to the beneficiary or when the child could become the trustee of their own Trust. Many attorneys will encourage clients to select a trustee that is an independent trustee – a successor trustee that is not related to or subordinate to them or their children. With an independent trustee in place, a court cannot force a distribution from that child’s Continuing Trust.
Remember, as long as the inheritance is held in Trust with an independent trustee in charge, it can be protected from:
- your child’s bad spending habits
- your child’s future divorcing spouse
- your child’s creditors or lawsuits lodged against them
Not contacting an attorney after the death of the first spouse. I have seen many instances where a surviving spouse had not contacted an attorney to help with the trust administration after the death of their spouse. A common situation where this is problematic is if the couple had an A/B type Trust. Upon the death of the first spouse, the Trust property is to be split according to the formula laid out in the Trust document into an “A” trust for the surviving spouse (which remains revocable by the surviving spouse) and a “B” trust which holds the decedent’s half of the estate. This is usually in an irrevocable trust for the benefit of the children, passed to them at the death of the surviving spouse.
Failure to plan for significant others. Domestic partners and others who cohabitate and live together do not share the same legal rights as married couples with regard to inheritances, health decisions, and final wishes. Proper planning can ensure that your final wishes are carried out by those whom you love and trust.
Missing asset protection opportunities. While South Carolina statutes provide for limited asset protection; much can be accomplished through advanced planning opportunities to protect what is rightfully yours. Much can be done to keep your existing or future creditors at bay.
Avoiding probate. A common misconception is that with a Will probate can be avoided. However, if assets are owned in a person’s name when they die, such assets will be subject to probate. Probate can be avoided through proper and simple estate planning.
Failure to adequately address children or parents with special needs. If your estate passes by intestacy (without a Will) it is very likely that your loved one with special needs would inherit your assets. Inheriting money, however, would be disastrous as it could keep your loved one from receiving public benefits. Currently, the asset threshold for receiving public benefits in the state of South Carolina is $2,500. Thus, even if you have a small estate a Will is necessary.
Unforeseen divorce. South Carolina is a community property state. When a couple divorces, any assets or property acquired during the marriage have to be divided. States do this in two main ways, community property, and equitable distribution. South Carolina’s marital property laws are, like the majority of states, equitable distribution laws. This means anything you own or leave to an heir could cause added complication without proper planning, in the event of a divorce or separation in determining how property is settled.
Avoiding family discord. Often death brings out the worst in people. When wishes are not clearly stated and given proper legal effect through planning, distrust, doubt, and animosity can arise, destroying personal relationships and adding unnecessary costs and litigation to administering a decedent’s estate.
The necessity for estate planning cannot be overstated. The Watts Law Firm can walk you through the maze of documents and help you secure your wishes, thus, protecting your family.