An often overlooked benefit of professional estate planning: avoiding mistakes that ruin your best intentions. Here are just a few examples:
Well, it looked like the right place to sign…
In 1962, George Glace signed one of the blank spaces of a pre-printed legal form as follows:
“I, , of Sunbury, Pa., of the County of North’d and State of Pennsylvania, being of sound mind, memory and understanding do make and publish this my last will and testament…”
The document, which went on to say that Mr. Glace wished to divide his property between his daughter and his “Lady Friend, Lillian F. Harvey,” was submitted to the Register of Wills after he passed away.
There was no question that George Glace had indeed signed the will. It was also signed by two witnesses. An alderman signed in the space on the form marked “Seal.”
But after an appeal to the Pennsylvania Supreme Court in 1964, the will was thrown out. The reason? Mr. Glace signed the will in the wrong place. The statute required a will to be signed “at the end thereof.” Even though Mr. Glace signed the will in a logical place, and his mistake was understandable, the courts enforced the statute strictly.
“It is perhaps unfortunate that decedent’s testamentary intentions are frustrated,” the court wrote. “The strictness with which this section of the Wills Act must be enforced is a matter of legislative mandate.”
His entire estate passed to his daughter, and his lady friend (to whom he wished to leave 50%) received nothing.
In re Glace’s Estate, 413 Pa. 91, 196 A.2d 297 (1964).
I think I’ll leave 80% of my $10 million IRA to the Internal Revenue Service…
In his book The Retirement Savings Time Bomb…and How to Defuse It, CPA Ed Slott charts how an inherited Individual Retirement Account can lose 81.67% of its value in estate and income taxes, if not protected by prudent estate planning.
Slott takes the example of an estate containing a $10 million IRA, but no other liquid funds to pay the $4.9 million in federal estate tax. Using rates in effect when the book was written in 2003, he shows how each withdrawal to pay the estate tax falls short because income tax is owed on each withdrawal.
On the first withdrawal of $4.9 million, $1.96 million must go to income tax. To make up the shortfall, another $1.96 million is withdrawn, on which $784,000 in income tax must be paid. Each time another withdrawal is made, more income tax must be paid. By the time the estate catches up, the tabs total $4.9 million for estate tax and $3,266,666 for income tax.
The result? A staggering $8,166,666 (81.67%) of the estate has gone to pay taxes!
Compounding the damage, the heirs have not only lost several million dollars in taxes to be paid immediately, but have also lost the opportunity to stretch IRA withdrawals over their life expectancies – a distinct advantage of inherited IRAs that produces increased growth and savings due to tax deferral.
Proper planning can often prevent such losses. In this case, the IRA owner should have explored other means to pay for anticipated estate taxes, such as life insurance, or the availability of some other liquid asset.
My friend will be so glad I willed him this lawsuit…
In our Summer 2007 newsletter, we related the story of how vague language in a Pennsylvania man’s last will and testament embroiled his friend in a legal battle over the meaning of horse “tack” and “memorabilia.”
To read the full story, click here.
Moral of these stories:
We’re sometimes hired by families to try to pick up the pieces after careless estate planning goes wrong. Such cases can be lucrative, but frankly we’d rather make a living helping people get it right the first time.
It’s one more way our estate planning services add value. If you would like to suggest more examples for this page, email us at [email protected].