Passing on family wealth from one generation to the next, no matter the size of the estate, is rarely easy. Proper estate planning can go a long way towards making the transition smoother, better understood, and less acrimonious. But, for all the time, expense, and effort put into estate planning, many people still make mistakes with its most fundamental aspects.
Here is a list of the most common estate planning mistakes to avoid:
Failing To Plan
If you have no estate plan at all, after you die, the assets you leave behind will be distributed to your heirs according to state law. This may lead to unwanted consequences.
Even if you have done some estate planning, but don’t have the right documents in place, your assets may have to be probated before your loved ones can access them. Probate can be a very time-consuming and expensive process.
So, while estate planning may not be your idea of fun, it can ensure that your assets are distributed to those who you want to inherit from your estate and save them a great deal of unnecessary time, money, and stress.
Not Planning Properly For A Special Needs Loved One
In most cases, a loved one who is receiving Social Security Disability Benefits or Medicaid cannot inherit from your estate directly. This is because doing so may jeopardize their eligibility to continue to receive government assistance.
However, with the help of a qualified estate planning attorney, you may craft a Special Needs Trust or a similar plan that will allow your special needs loved one to benefit from your estate without jeopardizing the much needed public benefit they are receiving.
Failing To Fund Your Trust
People often create trusts to avoid probate. However, for a trust to work as it is intended, you need to fund it with your property.
Funding a trust means re-titling your assets in the name of the trust. This includes your bank accounts, investment accounts, real estate, business interests, and any other assets that you want to bypass probate.
If your estate plan includes a trust and you fail to fund it with your assets, the trust will be effectively useless.
Not Keeping Your Beneficiary Designations Up-to-date
You should periodically review the beneficiary designations on your retirement account, insurance policies, and annuities to ensure that they are up-to-date and still in line with your estate planning objectives. After your death, these assets will be distributed to the person you designate as beneficiary, independently of your other estate planning documents.
If your beneficiary designations are not filled out properly, these assets could end up going to someone who should no longer be receiving them, either because they have died, become disabled, or simply because you no longer want them to inherit from your estate.
Not Reviewing Your Estate Plan
It is important to review your estate plan regularly. As time passes, circumstances in your life may have changed and your estate plan may need to be changed or updated to reflect your new priorities. What was a great estate plan 10 years ago may have become problematic as you, your spouse, and your children have aged.
In general, you should review and update your estate planning documents, as needed, whenever there has been a divorce, marriage, birth, death, or long-term illness in your family, as well as, whenever you have acquired or liquidated any major assets. Even if there have not been any major changes in your circumstances or priorities, you should still review your estate plan every 3 years, at least, to make sure that it still expresses your most current wishes.
Failing To Execute A Financial Power Of Attorney
A properly drafted estate plan addresses not only what will happen to your estate after you die, but also what will happen to it if you become incapacitated due to injury or illness. A Financial Power of Attorney is an estate planning document that authorizes someone, referred to as your agent, to act on your behalf in financial matters if you become incapacitated and cannot act yourself. A properly drafted power of attorney will also name at least one successor agent who will act on your behalf if your primary agent is unable to act for any reason.
Failing to Draft Advance Health Care Directives
Advance Health Care Directives ensure that your wishes regarding medical treatment and end-of-life care will be honored with as little challenge and complication as possible. The two most common types of Advanced Health Care Directives are a Living Will and a Health Care Power of Attorney.
A Living Will expresses, in advance, your consent (or refusal to consent) to certain types of emergency medical treatment and/or end-of-life care if you are unable to express these wishes when the need arises. A Health Care Power of Attorney grants someone, referred to as your health care agent, the authority to make medical decisions on your behalf when you are unable to do so yourself.
Not Discussing Your Estate Plan With Your Loved Ones
Many people are uncomfortable discussing issues regarding money, death, or incapacity with their loved ones. But, open communication is critical to the success of your estate plan. Discussing your estate planning objectives with your loved ones will allow you to:
- Avoid family disputes over difficult medical decisions that may need to be made for your and what you meant to have happen to your estate after you die;
- Make sure that those who you have named as your personal administrator, trustee, and agents understand what those roles entail and are willing to accept the responsibilities;
- Clarify any preconceived ideas about the value of your estate. Children often undervalue their parent’s net worth; and
- Prepare your loved ones to execute your estate plan efficiently. Those who have little or no idea of a deceased loved one’s estate plan or where their important estate planning documents can be found usually experience more stress and incur higher legal fees when handling that loved one’s estate.
Failing To Plan For Long Term Care
There are many misconceptions about what will happen to your assets when you or your spouse needs long-term care in a nursing home or other long-term care facility. Long-term care is very expensive and most families cannot afford to pay for long-term care for an extended period of time without exhausting all of their financial resources.
However, there are many ways to protect your assets from having to be spent down to pay for long-term care or to qualify for Medicaid Long-term Care Benefits. A qualified attorney can advise you on what long-term care planning options are available to you and your family and/or how you can qualify for Medicaid.
Doing It Yourself
Trying to save money by using do-it-yourself estate planning documents or writing something up yourself is always a bad idea. There is no such thing as a one-size-fits-all estate plan and no aspect of estate planning is “simple”. By using DIY estate planning documents, you risk making a mistake that can affect your family for generations.
Working with an experienced attorney can help you create an estate plan. For help getting started with your estate plan, contact us or sign up below for one of our events.