Estate planning attorneys start to see the same common mistakes in estate planning. Some are obvious estate planning mistakes while others are more complex or obscure. Regardless, these mistakes all share one thing in common: They can create huge problems for yourself, your loved ones and the administration of your estate. Save your family and loved ones the cost, delays, stress and headaches of dealing with these easily avoidable estate planning mistakes.
Here are the top Estate Planning Mistakes most commonly made and, more importantly, how to avoid them.
- Not Having An Estate Plan. Failing to create an estate plan can be devistating and can lead to results you never intended. If you die in Missouri without a Will, you are considered to have died “intestate“. This means that you relinquish your right to determine who will receive your property and who will serve as the personal representative or executor of your estate. The probate court, applying the laws of intestate succession will dictate who receives your estate. Moreover, your heirs will be forced to endure the probate process that can be both costly and time-consuming. Those who have to go through the probate of a loved one’s estate are the best advocates for avoiding this process.
- Beneficiary Blunders. Failing to update beneficiary designations is one of the most frequent estate planning mistakes and often times has the most negative impact. Failing to update beneficiary designations could mean that an insurance policy or your retirement could go to your parents or siblings, because that is what you put on them years ago when you first started working. Assets potentially going to an ex-spouse who maybe the last person you would entrust your money to. Failing to change an ex-spouse on an IRA could have disastrous consequences for your current spouse and children. People often incorrectly believe that insurance policies and retirement accounts are controlled by their Will or trust, but they are not. Everyone must update their beneficiary designations to make it consistent with how you actually want your estate distributed. Failing to do so may cause your assets to pass in a way or to people you did not intend.
- Failing to Fund a Revocable Trust. There are many great reasons why people create revocable living trusts as part of their estate plan. Revocable or living trusts will avoid the time and expenses of probate court and avoid disclosure of information regarding your assets and beneficiaries in the public. However, in order to enjoy the probate avoidance benefits a trust provides, you must actually fund it during your lifetime. If you fail to do so, prepare your family and loved ones for a lengthy and expensive probate process. To avoid this, first, you must select the assets that you intend to transfer and then complete the steps necessary to transfer these assets to the revocable trust during your lifetime. This can be as simply as re-titling bank accounts, assignments of tangible personal property or quit claim deeds for real estate. Regardless, they are all much simpler then probate court.
- Not Really Understanding the Plan. So many people become somewhat passive when they begin to discuss estate planning with an attorney or financial advisor. The most important decisions in people’s lives are to be made by you, not someone else. While you must have sound advice from professionals, you need to understand the advice that you are given, the consequences of your decision and most of all, understand your estate plan. Part of an estate planning attorney’s job is to create an estate plan that you understand how it works, what needs to be done to implement your estate plan, what needs to be done to maintain your plan and when to update your estate plan, how your plan works in the event of your incapacity or death, and how it will benefit you and your beneficiaries. If you cannot answers these questions, review the summary that was provided to you and if you are still unsure, contact your estate planning attorney to review your estate plan. A well-drafted estate plan should be understandable and clearly reflect your goals and objectives. A detailed understanding of the Rule Against Perpetuities is not needed, but a full understanding of who your beneficiaries are and what they will receive upon your passing is critical. Another good idea is to take notes during your meeting with your estate planning attorney and write down any questions you have as you review your plan.
- Not Updating Planning After Major Life Events. Certain life events have major impacts on your estate plan. If you have recently been divorced, remarried, moved to a new state, or a major change with a beneficiary, you should contact your estate planning attorney and discuss it. Typically, provisions in your will or revocable trust benefiting your former spouse are automatically revoked by law upon divorce. However, gifts made to an ex-spouse by way of an IRA or life insurance policy may not be invalidated by divorce. Failing to update the executor, trustee, guardians or agents under a power of attorney could have unintended results, including your ex-spouse inheriting upon your death or being in charge of the resource left to your children. If you remarry but have children from a prior marriage, your planning must take into account your goals of providing for your children and your new spouse. In Missouri, efforts to disinherit a spouse will likely lead to a will contest. Avoiding litigation between your children and new spouse can easily be avoid by well-thought out planning. If there is a birth, death or marriage of a beneficiary, you should consider how this will impact your estate plan and contact your estate planning attorney if this event was not already addressed through good planning.
- Not Including or Updating Powers of Attorney. Typically, a comprehensive estate plan should include powers of attorney for financial matters along with powers of attorney for healthcare. If you do not have a trust, having an updated power of attorney for finances is critical to avoid probate court in the event you become incapacitated. Otherwise, the probate court will appoint someone who will manage your assets and make financial decisions on your behalf. Even you you do have a trust, a power of attorney for finances is also a good approach if you have failed to properly re-title your assets to your trust. Regardless, you should have a power of attorney for healthcare along with healthcare directives. One of the most loving things you can do for a family member is to create healthcare directives identifying your end-of-life choices. Otherwise, your loved one may experience the guilt and heartache of being forced to make the decision for you.
- Failing to Update Your Plan Following Changes in the Estate Tax Laws. Presently, most people’s estate is not affected by the estate tax laws because the exemption is $11.4 million per person. However, that may change in the future. Five years ago, the death tax exemption amount was approximately $5 million dollars; ten years ago it was $3.5 million; and twenty years ago it was just $650,000. As a result, anyone who created an estate plan years ago taking into account the existing death tax exemptions, likely include tax reduction planning. While it was appropriate at the time, it may now be unnecessarily complex and even detrimental to your estate. Addressing this with your estate planning attorney, financial advisor and account could avoid serious unintended consequences as the estate tax laws change.
Avoiding these common estate planning mistakes will help insure that you, your loved ones and your estate (regardless of the amount) are protected. There are other more obscure issues that can make your estate plan obsolete or outdated. Contacting an estate planning attorney to review your plan can avoid mistakes and the deadly consequences of them.