Many people make mistakes when planning their estate. Then as they grow older and later die, problems result between family members and others, because the person's true wishes were never known or carried out. Here are some of the most common estate planning mistakes people make, and how you can avoid them.
1. Thinking you don’t need an estate plan.
Almost everyone can benefit from an estate plan and should have one. A properly prepared estate plan provides you with many benefits, including:
• gives you peace of mind knowing your money and property will go to the family, friends and charities that you want to receive it when you die;
• reduces estate taxes as much as possible, which leaves more for your heirs;
• lets you select the person who will take care of your children if you and your spouse die while they are minors;
• lets you select the person who will administer your estate when you die; and
• lets you make decisions about your healthcare now, in case you are unable to speak your wishes later because of a serious illness or major accident.
You need an estate plan to take advantage of all these benefits.
2. Not having the right estate planning documents.
Many people think that just because they have a will, their estate plan is complete. This is rarely the case. There are other documents you likely need, including a living trust, which can help avoid probate and possibly lower taxes, and a power of attorney, which lets you name someone to handle your financial affairs if you are incapacitated. Often just having a few key documents will make sure your estate is planned properly.
3. Failing to update your estate plan.
Estate planning is not a once-only task to file and forget. It’s an ongoing process, deserving attention now and in the future. As your life changes, assets grow, kids are born or get older, you or relatives marry or divorce, you move to another state, and tax laws change. These changes require updating estate planning documents so they reflect your current wishes.
4. Waiting to make an estate plan.
Many people delay making an estate plan because the subject can be hard to confront. But an accident, serious medical problem or other event could happen any time. Then tomorrow is too late. Don’t wait to prepare or update your estate plan. Prepare one as soon as possible.
5. Not naming everyone or all your property.
Many people leave out someone they wanted to receive a gift. To avoid this, make a list of children, relatives, friends and charities you want to receive gifts from your estate. Also make a list of all property you own, including your home, cars, stocks, bonds, furniture, valuables, and all other property you own that you might want to leave to others.
6. Not funding a living trust.
Many people take the wise step of preparing a living trust. But it is necessary to retitle assets going into the trust in the name of the trust. If the assets are not in the trust's name, they won't be part of it, and they will likely go through probate when you die. Don't make the mistake after making a living trust of forgetting to change title to all property you want included in the trust.
7. Ignoring gifts while you’re alive.
Part of your estate plan can involve gifts of money or property while you’re alive. Gifts under a certain amount ($13,000 for 2009) can be tax free to family and friends, and gifts to charities can lower your income and property taxes today.
8. Improper use of life insurance.
Many people wisely buy life insurance to provide for their loved ones when they are no longer here. Unfortunately, though, some people are unaware that life insurance proceeds are includable in your estate for estate tax purposes, even though they are not taxable for income tax purposes. By properly planning your estate, life insurance proceeds can be shielded from estate taxes, which leaves much more for your heirs.
9. Not using all available tax reduction strategies.
There are many ways to reduce estate taxes and pass on more property to your heirs. These include gifts and proper use of life insurance (discussed above) as well as different kinds of trusts. Our law firm can advise you on the tax reduction strategies best for your personal and family situation.
10. Failing to make sure all your assets will pass in accordance with your wishes.
Many people prepare a will and assume that all property and assets they own will be transferred under it. But many assets are not transferred by will, and instead go to beneficiaries named in documents. Examples include 401(k) accounts, pension plans and life insurance. To avoid problems and make sure that all your assets go to the people you want, review all beneficiaries named on assets that do not pass under a will, and make sure they are correct. Many people fail to update beneficiary forms, and problems result when they die.
11. Forgetting to plan for medical problems or disability.
Today’s estate plans cover more than giving away money and property. You need to make instructions for your medical care in case you ever become incapacitated and are unable to communicate. A durable power of attorney for healthcare lets you name someone to make your medical decisions when you can no longer speak your wishes. A living will lets you specify the types of life-sustaining treatment you want — or don't want — if you are terminally ill and can't communicate. The widely publicized case involving Terri Schiavo, the woman who was at the center of a legal battle between her husband and parents over whether to take her off life-support equipment, shows why it’s vital to have a living will and how it can prevent agonizing family disputes over whether life-support equipment should be kept or removed.
12. Adding children to property title for the wrong reasons.
Many people add their children as co-owners of property or bank accounts. They do this as a do-it-yourself estate planning tool. But a child listed officially as co-owner, is a co-owner. The property could be reached by creditors to pay the child’s debts. If the child is married, a spouse could claim an interest. If there’s a falling out, the child could access and misuse the property. It may be impossible for the parent to transfer the property without the child’s consent, and the child could insist on receiving part of the proceeds of a sale. There can also be tax consequences for adding a child's name to title. This step should be taken only in consultation with an attorney.
13. Not holding title to assets in the proper form.
Related to the mistake of adding children to property title for the wrong reason is the mistake of holding title to property in the wrong form. If you own property with someone else and hold title in the wrong form, unwanted results can occur when you die, like an unintended person getting the property or taxes being more than they should be. There are several different ways to hold title to property owned with someone else, including joint tenancy and tenancy in common. To avoid problems, be sure all your property is held in the right title.
14. Not keeping thorough and organized records.
Keeping complete and well-organized records makes it much easier for your executor to do his or her job, which will help keep costs down and get property to your heirs faster. Many people have their estate planning documents and other important papers in numerous locations, which makes it much harder to collect and inventory assets after death. To avoid problems, keep a list of all your assets, bank account numbers and locations, will, living will, and other estate planning documents in a safe place, and make sure your executor or close family knows where these papers are located.
15. Preparing your will or other estate planning documents yourself.
With ads on television, the internet and elsewhere touting low-cost kits or forms for making a will or other estate planning document, some people are tempted to engage in do-it-yourself estate planning. But this is dangerous. Laws vary between states, and many do-it-yourself forms and packages don't account for this or for the fact that everyone's family and personal situation is different. Also, not following the law's requirements when making a will or other document could cause it to be invalidated. It is much better to have your estate planning documents prepared by an experienced estate planning lawyer who can advise you about ways to cut taxes, hold property and other estate planning essentials, and who can tailor your will and other estate planning documents to your particular needs and goals. It is unwise to build a family and work hard to accumulate property during your life and then turn your estate planning over to a generic form or kit that will likely cost your heirs money in extra fees and taxes and lead to expensive and time-consuming legal problems for them.
These are some of the most common mistakes people make when planning their estate. Properly planning your estate and avoiding these and other mistakes will help make sure your estate plan accomplishes all your goals. It will also give you the peace of mind knowing that your true wishes regarding your medical care, disposition of your property and other estate planning issues will be carried out.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.