Five Ways Attorneys Destroyed an EstateOct 02, 2023
I recently reviewed an estate that ended up potentially being destroyed by a few attorneys who really didn't know what they were doing. For this blog, I’ll use the hypothetical Smith family, going back to 1996. At the time, it was John and Jane Smith and their four children, so they worked with an attorney suggested by their bank to create a revocable living trust. They want to set up their estate the right way. They want to protect their inheritance that they're leaving to their four children, and make sure that everything goes smoothly without probate. When they set it up, it was named The Smith Revocable Living Trust.
Mistake 1: One of their children passed on in 2000, and then John Smith passed on in 2020. Soon after her husband passed on, Jane Smith went to a different attorney referred by the same bank to get her trust updated. Instead of amending and restating the old trust, the attorney created a new trust for Jane Smith. What did they call this new trust that was set up in 2021? The Smith Revocable Living Trust. Nowhere in that trust did it say that it was an amendment and restatement of the old one, so now all assets funded in the name of the trust prior to the new trust are still in the old trust and under those terms, not the new one. And from 2021 forward, funding assets into the name of the trust is now more complicated because we don’t know which trust the asset is going into. Then Jane Smith passed on in mid-2023.
Mistake 2: When they listed out the beneficiaries in the 1996 trust and again in the 2021 trust, the attorney made one of the most basic mistakes which was one of the most basic things that attorneys learn when you're drafting estate planning documents: they didn't use “per stirpes” or “per capita.” What does that mean? What's the difference between per stirpes and per capita? Per capita means “among each.” So if you have 4 children and one of them passes on, everything splits three ways. If it is “per stirpes,” that means follow down through the bloodline. With 4 kids and one of them passes on, then the children of the deceased child split their parent’s inheritance. So when the drafting attorney did not use this language nor made specific descriptions of what was supposed to happen, it becomes a potential matter for a court to interpret.
Mistake 3: This is a big one. A real estate attorney in 1996 created a deed to move the house into the trust for the Smith family. So what was the name of the trust the attorney used on the deed? The Smith Trust. Not The Smith Revocable Living Trust, which was the actual name, but just “The Smith Trust.” There was also no other identifiable information to specifically identify the true trust it was transferred into. (Thankfully, the last I heard a real estate attorney has a path to have the house be titled and owned in the name of the updated trust for the sale by the trust.)
Mistake 4: There was paperwork moving the Smith family’s personal assets into the trust. In my firm, we use something called an Assignment of Furnishings, Furniture, and Personal Effects to move the property without title paperwork into the trust. Because of this oversight, all of the personal effects have to go though the probate court process. Unfortunately, there are attorneys who do this intentionally to get the probate work later. In North Carolina, the fees that you have to pay the court are based on these kinds of assets, and this was done in both sets of paperwork for 1996 and 2021.
Mistake 5: Now we’re getting to the fifth mistake, which makes it seem like Mistake 4 was intentional. Whenever there is a revocable living trust, there needs to be a “Pour-Over Will” so that items unintentionally left out of the trust that end up in probate will go directly to the trust. The mistake the attorney made? I leave all of my personal effects, furniture and other items to my three children as one quarter to each child, and the other quarter divided evenly among the deceased child’s three children (meaning the grandchildren)… but held in trust. So now not only are all of the beneficiary names exposed to the public in the probate court process in the court filings, but now each of these beneficiaries is likely to have to sign off on multiple rounds of paperwork in the probate court process when it should have only been the trustee signing to receive the assets on behalf of the trust.
This estate ended up having to be a lot more of a nightmare than it needed to be when working with a revocable living trust. If you want to learn more about how to set things up the right way, check out the free online program at www.freetrustcourse.com. More importantly, don't work with an attorney who doesn't really know what they're doing when it comes to estate planning.
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