The first and most common estate planning mistake is the simplest one: not making a plan at all.
There is a common misperception that estate planning is only for the wealthy — only for the 1%. This is entirely false. Everyone needs a plan.
If you are reading this and you haven’t yet begun to plan, you may be under the impression that you don’t have a plan at all. You might be thinking that you don’t have a will. You would be wrong on both accounts. You do have a plan, and you do have a will — of sorts. It was created and written for you by your local state government. Did you know that? It is called the law of intestacy.
What is intestacy?
When you die without leaving a properly drafted and executed will, you have died “intestate” and you are subject to the law of intestacy. That law will govern what happens to your assets and even to your children. People you have never met — legislators decades ago, judges who don’t know your family — will determine who inherits your possessions and who raises your children.
Intestacy laws differ from state to state, but what they have in common is that none of them were written by you. If you are anything like me, you find that thought unsettling, perhaps even horrifying. When is the last time you wanted the government to decide what happens to you or your money?
Why “the law” is rarely what you would have chosen.
Under intestacy, lineage usually takes precedence over what the decedent would have chosen. That can lead to consequences most people never anticipate.
In some states the law of intestacy provides that your spouse will inherit everything completely and without restriction. If you are not in the happiest of marriages, or if you are divorcing, how do you feel about your spouse inheriting everything? And even if you are happily married — how do you feel about your spouse remarrying after your death and possibly leaving everything to a new spouse who blows through it? Will your money ever make it to your children? Will you have left a legacy at all?
In other states the law of intestacy splits your possessions: half to your spouse, half to your children. What if your children are minors? Who will manage that money for them? How do you feel about the courts making that decision for you? What happens when your children turn the age of majority — usually 18? How many 18-year-olds do you know who have the maturity to handle, save, invest, and spend a meaningful inheritance wisely?
Who raises your children?
But wait. How silly of us to think only of money. If you were to die without a will, who would be appointed to raise your children?
How do you feel about a court making that decision for you? What if the most logical choice for the court is a family member you don’t trust? Or, perhaps you do trust them but you don’t approve of their spouse who is verbally abusive or difficult? Maybe they are wonderful people but you simply don’t see eye to eye about how to raise a child or what values to instill in them? These are your children we are talking about. Can we leave this all to chance? Can we take that kind of risk? (When the time comes to think this through, our post on choosing your fiduciaries and guardians walks through it carefully.)
Started but never signed.
I’m sorry if these words are frightening. I don’t mean to scare you. I do, however, hope to motivate you to action. You must plan. Put your excuses aside and take control over the future of your family. Leaving it for later may mean never getting around to it at all.
Sometimes well-intentioned clients begin the process and never finish. It sounds crazy, but some people meet with an attorney, provide the information, make the difficult choices, take home the drafts to review — and then never sign them.
Only signed documents count. If the documents are not properly signed by you and the necessary witnesses and notaries, they are not valid and cannot be probated. I have had many clients meet me for an intake and ask innocently afterward, “Am I now protected? What happens if I die before we complete the process?” The simple answer is no. They are not yet protected. The mere expression of wishes — without signed, executed documents — counts for nothing.
Don’t fail to plan.
Quick FAQ.
Do I need an estate plan if I’m not wealthy? Yes. Estate planning is about more than money: it is also about who raises your children, who makes medical decisions for you if you can’t, and who handles your affairs if you become incapacitated.
What does intestacy actually look like in New York? If you die with a spouse and children, your spouse takes the first $50,000 plus half the remainder, and your children share the other half. If you have no children, your spouse takes everything. If you have neither, the law walks down a list of relatives. Most people are surprised by how quickly that distribution diverges from what they would have chosen.
What about my house and bank accounts? Those often pass outside of intestacy, depending on how they are titled and whether they have beneficiary designations. That’s a critical point most people miss.
I have a will from years ago. Am I covered? Possibly, but plans go stale. Marriages, divorces, deaths, moves across state lines, and changes in tax law can all undo what was once a perfectly good plan.