Throughout my 30 years in the wealth management industry, I’ve witnessed the outcomes of many people’s estate plans after they’ve passed away. Many times, these estate plans successfully delivered the intended outcomes for beneficiaries.
Unfortunately, I’ve also seen countless estate plan disasters.
This article focuses on the three things most people do not consider with estate planning that can cause significant problems. I hope that upon learning about these problems, you’ll be armed with the knowledge to share these concerns with your estate attorney, so they don’t happen to you.
Before covering the three most overlooked aspects of estate planning, it’s helpful to note what people typically put in place with their estate plan. When people create an estate plan, they will frequently develop a Will, a Durable Power of Attorney, and health care directives. We also commonly see people establish living trusts and credit shelter/bypass trusts. These documents can serve several different functions; unfortunately, they do not typically solve the following three problems.
Problem 1: Estate Planning With Second Marriages
The first problem typically happens with second marriages. If a couple has a second marriage and both bring children from their first marriage, it’s common to see the new couple agree to transfer assets to each other upon death, with the intent to split the remaining assets amongst all children following the second spouse’s death. The problem is that upon the first spouse’s death, the surviving spouse can change beneficiary designations so that all assets go exclusively to his or her children from the first marriage, thereby disinheriting the other spouse’s children from their first marriage.
Similarly, this same problem can occur when a couple has children, and one spouse passes away, and the surviving spouse remarries a person who also has children. To prevent this from happening, certain trusts can be set up while both spouses are living to ensure that children are treated according to the plan agreed upon while both second marriage spouses are living.
Problem 2: Beneficiaries Mismanaging Inheritances
A second problem occurs when children inherit assets from their parents, and one of the children isn’t good at managing money. When this occurs, the old saying, “Easy come, easy go,” seems to prove true from my experience.
I rarely see individuals who worked their entire lives to save a nest egg for retirement blow through their money upon retiring. Unfortunately, it is not uncommon to see beneficiaries squander their inheritance, especially if they have a history of poor money management habits. To prevent this from occurring, parents can create an estate plan that ultimately places the spendthrift child’s inheritance into a trust that regulates how much the child can take out.
These trusts can be created in a variety of different ways based on the parents’ wishes:
- The spendthrift can receive a specified monthly amount
- Additional monetary amounts can be granted to the child for certain emergencies as outlined in the estate plan
- Provisions can be made for a variety of circumstances depending on what the parents wish
Once a plan is created, the trustee who oversees this trust for the spendthrift child will ultimately ensure that the parent’s wishes are carried out after they pass. This trustee can be a known person or a hired company that provides this service for a fee. The benefit of using a company that acts as a trustee is that there is no emotional attachment to the child. If a friend or family member is appointed who knows the child, it could impair the trustee’s decision-making and damage the relationship between the child and the person asked to act as trustee.
Problem 3: Marital Property & Communal Property States
The final problem that gets overlooked with estate planning occurs with people who live in marital property or community property states. These states generally require marital property assets to be split 50/50 upon divorce: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska, Florida, Kentucky, South Dakota, and Tennessee allow couples to opt into a community property system. People who live in one of these states or have a child who lives in one of these states will want to pay special attention to this section.
When money is left to a child who lives in one of these states, and he or she is left an inheritance that he or she commingles with assets from their marriage, it could become community property. In this circumstance, the child could lose up to half of his or her inheritance to his or her ex-spouse amid a divorce. Fortunately, attorneys can create trusts that help ensure a child’s inheritance remains protected, even in the event of a divorce, while living in a marital property state.
I intentionally didn’t outline specific names of trusts due to the technical nature of this type of planning. Now that you understand the three problems that are not frequently discussed when developing an estate plan, you should be armed with the intel to have a productive conversation with an attorney who can help prevent these problems from occurring to your family.
I encourage everyone to have conversations with at least a few reputable estate attorneys before making the ultimate decision about who to use to ensure that their life’s work doesn’t get squandered due to a lack of planning.
Originally published in Forbes on March 5, 2025.
The use of Ty Bernicke’s research or publication of articles he has written does not indicate an endorsement of his work as an Investment Advisor. The publications did not receive compensation for publishing Mr. Bernicke’s work.
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