4 Costly Estate-Planning Blunders

3. Leaving lump sums. If you have money to leave behind, be sure it makes a difference in your family members' lives by leaving it in a trust, rather than cash. Donald A. DeLong, an estate, business and tax-planning lawyer in Southfield, Mich., witnessed one case in which a father left $250,000 to his heroin-addicted son, who was penniless six months later.

"He did his own will," says DeLong. "He knew the problems his son had with drugs because his son lived with him. I think he just wasn't aware he had other options. A trust was probably his best option, because it's the best way to protect people from themselves."

With a trust, you transfer property to a trustee, who is bound by a trust agreement. The trust agreement stipulates how you want the property distributed. So rather than giving property outright to a beneficiary, the trustee holds your property and doles it out per your instructions. It's an added layer of protection.

The most common types of trusts — revocable living trusts and irrevocable trusts — can contain so-called spendthrift provisions. "A spendthrift provision prevents the beneficiary from getting advances against or trying to get a loan using his interest in the trust as collateral," says DeLong. "It also leaves the beneficiary's creditors in the cold because the beneficiary has no control over or access to the trust funds in the trust."

4. Neglecting to update your estate plan. Each time the law or your family changes, revisit your estate plan. The all-time record for an out-of-date estate plan may go to a couple who not long ago came to Everett Sussman, an estate-planning attorney in Stratford, Conn. "They said they'd done their wills when their kids were young — that was in September 1957," says Sussman. "Legally, those documents were valid, but they'd have been worth nothing at all. The couple no longer needed guardians for their children, who now have adult children of their own. Their assets were wildly different, and the executor they'd chosen had died many years earlier."

Changes can also require alterations in not-so-old estate plans. Sussman is in the process of "fixing" the estate of a woman who split her assets between her daughter and granddaughter. But when she died, her daughter was again pregnant. "The grandmother didn't update her will when she found out her daughter was going to have a second child because she probably thought her attorney drafted it properly to accommodate for later-born children," says Sussman. "I was brought in to overturn the estate so half would be split among the grandchildren. Had there been feuding children, we never would have accomplished this because the will was valid on its face."

You may also like: Where there's a will ... >>