Whether you’re using a will or a trust, there are a few major pitfalls that can trip up even the best intentions. When you’re pulling together an estate plan (or interacting with one at all, really) keeping these issues in front of mind is critical. A little bit of thought today can save your administrators and beneficiaries a world of heartache later.
Bonds, Surety Bonds
In many jurisdictions, unless it’s explicitly waived in the will, an executor must post a surety bond. This is essentially an insurance policy to ensure they faithfully execute their duties. The bond is typically equal to the total value of the estate, and the premiums can be pricey. Since probate can drag on for two years or longer (especially if a will is contested) that cash outlay can really strain an executor.
Left Liabilities and Liens
When property transfers through an estate plan, it’s easy to forget that encumbrances run with the property. Whether it’s liens, easements, usage rights, back taxes, or outstanding ordinance violations, they don't just disappear when the owner does. I always advise beneficiaries to have the property inspected and run through a title company before they take ownership (Through a deed). This simple step alerts you to any "hidden" obligations. Depending on how long these issues have been looming, a beneficiary may have legal routes to clear up the defects—but you have to find them first.
Title Companies and Trusts
Trusts don’t usually need to be filed with the court to be valid, but that doesn't mean they are invisible. When a title company performs a search to check for potential claimants, a property subject to probate (via will) or a transfer on death deed will show up in the public records. However, a home meant for a trust that was never actually deeded to that trust (Either during the settlor’s life or via transfer on death deed) is a vulnerable property. To ensure no fraudulent transfers or deed defects occur, beneficiaries should verify that the deed is either already in the name of the trust or set to transfer correctly. Always remember this general wisdom – paying for a trust and then never funding it (putting things in it) is just wasted money on the way to probate.
National Firearms Act (NFA) Fiascos
If you own firearms subject to a National Firearms Act (NFA) stamp (like suppressors or short-barreled rifles), the legal impact of an unplanned transfer is nasty. By definition, the possessor of an NFA item must be the registered holder. The law doesn't care if you're the grieving spouse; if your name isn't on the registration, possession can be a federal crime. This is where gun trusts come in. They allow multiple people to be legal responsible persons, ensuring a smooth transfer of possession without landing your loved ones in criminal court.
Tax Tapping Transfers
Loving your grandchildren is a virtue. Triggering the Generation-Skipping Tax is a headache. A quality estate attorney helps you navigate this problem so you aren't hit with unnecessary tax penalties. Similarly, how you fund your trust matters. You have to account for capital gains, the immediate payout rules of retirement accounts, and how insurance proceeds are handled. Financial advisors are indispensable for the strategy, but an estate attorney helps craft the legal solutions once you’ve decided which tax hits are acceptable and which aren't.
In Sum
These five issues are things that I spend a lot of time pouring over in my practice. My goal is to ensure my clients don’t just have a stack of papers, but a plan that actually works when it's needed most. Ready to sort through your estate planning and take deliberate steps to avoid these common traps? Contact me today to get started.