7 Common Planning Mistakes to Avoid

7 Common Planning Mistakes to Avoid

From time to time, it’s good to review why having a complete, up-to-date estate plan is so important. In addition to confirming our own actions, it can provide us with valuable information to pass along to friends and family who, for whatever reasons, have yet to act. So, here are seven common estate planning mistakes to avoid.

1. Not having a plan. Every state has laws for distributing the property of someone who dies without an estate plan—but not very many people would be pleased with the results.  State laws vary, but generally they leave a percentage of the deceased’s assets to family members. (Non-family members, like an unmarried partner, or step-children, will not receive any assets.)  It is common for the surviving spouse and children to each receive a share, which often means the surviving spouse will not have enough money to live on.  If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount. (Most parents prefer their children inherit later, when they are more mature, or to have the money distributed over time as it may be needed.) It can be difficult to coordinate multiple beneficiary designations and titles so that your beneficiaries inherit the way you want. For example, while the benefit payable from a life insurance policy generally remains the same, real estate and investment values can fluctuate greatly. This makes it quite possible that one beneficiary will receive more and another will receive less than you intended. Keeping beneficiary designations and titles balanced while you are living is a challenge; impossible if you should become ill or incapacitated. Also, if a beneficiary dies, you may want to control who ultimately receives that share of your estate instead of it letting the beneficiary choose who will receive it.

2. Not funding a trust. A trust can only control the assets that are placed into it. The document may be written well and have excellent instructions, but until it is funded (by changing titles and beneficiary designations), it doesn’t control anything.  You might think of this as buying a valuable safe to protect belongings and then placing your jewelry on top of it; you have the means, you’re just not taking advantage of them.

3. Not naming a guardian for minor children. A guardian for minor children can only be named through a will (or a Durable Power of Attorney for periods of incapacity). If the parents have not done this, and both die before the children reach legal age, the court will have to name someone to raise them without knowing whom the parents would have chosen.  What’s more, you may wish to name a guardian to raise your children and someone else to oversee the money for the children.  A proper estate plan can more readily make this distinction.

4. Relying on joint ownership. Many older people add an adult child to the title of their assets (especially their home), often to avoid probate. But this can create all kinds of problems.  When you add a co-owner, you lose control.  Jointly-owned assets are now exposed to the co-owner’s creditors, divorce proceedings and possible misuse of the assets, and the co-owner must agree to all business transactions. There could be gift and/or income tax issues. And if you have more than one child but only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances.

5. Not planning for incapacity. If someone cannot conduct business due to mental or physical incapacity, only a court appointee can sign for this person—even if a valid will exists. (A will only goes into effect after death.) The court usually stays involved until the person recovers or dies and the court, not the family, will control how their assets are used to provide for their care. The process is public and can become expensive, embarrassing, time consuming and difficult to end.

Giving someone power of attorney as a way to avoid the court process can be risky because that person can do anything they want with your assets with no real restrictions. For this reason, a living trust is often preferred for incapacity planning. With a trust, the person(s) you choose to act for you can do so without court interference, yet they are held to a higher standard as a trustee; if they misuse their power, they can be held accountable.  The key is to discuss with your attorney how to best handle these fiduciary roles given your specific circumstances.

Someone also needs to be given the power to make health care decisions for you (including life and death decisions) if you are unable to make them for yourself. Without a designated health care agent and an Advance Health Care Directive, you could be kept alive by artificial means for an indefinite period of time.  What is more, without a Directive giving clear instructions regarding your wishes, you are leaving loved ones to guess or hope they know what you want.  This can be a heavy burden to carry and many face periods of guilt due to uncertainty.

The exorbitant costs of long term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning. Consider long term care insurance to protect your assets.

6. Not keeping your plan up to date. Every estate plan is based on the personal, family and financial situations, and tax laws, in effect at the time it was created. All of these will change over time, and your plan needs to change with them. It’s a good idea to review your plan every couple of years or so and make sure it still does what you want it to do. Your attorney will let you know when a tax law change might affect your plan, but you need to let your attorney know about other changes that could affect it.  You must title newly acquired assets in the trust’s name.  It is not unusual for people to transfer existing assets to their trust but then forget to add new ones. It bears repeating: a trust can only control the assets that are placed into it. Any assets purchased or accounts established after the initial funding is complete must also be titled in the name of the trust so they can be part of your complete, coordinated plan.

7Not using a qualified attorney. Estate planning is not something that should be attempted with a kit or online program. A simple mistake or omission can have far reaching effects that only come to light after you are gone.   Many do-it-yourself programs assume you know the legal ramifications of specific design choices.  An improperly created document may contain damaging or costly unnecessary provisions or omit important details.
Additionally, cookie-cutter forms will often miss important features of your circumstances.  Your documents should be built upon your needs rather than having your needs squeezed into a prepackaged form.

Estate Planning Law Office of Jonathon L. Petty, Inc.  is committed to helping individuals and families reach their planning goals.  We focus on the technical and legal aspects of the plan, but also the important family dynamics and emotional components.  We believe that a plan that leaves questions, hurt feelings, and drama that could be avoided is a plan that does not do what it should.  We have counseled many families and have seen the results of proper and improper planning.  As experienced attorneys, we can guide and assist you in making smart decisions about your estate planning, including who should be the guardian of minor children; how to provide for a child or elderly parent with special needs; how to best ensure that your assets are used for your benefit during a period of incapacity; how to provide for children fairly and in a way that’s best for them; and how to protect assets from creditors and irresponsibility.

Please contact our office. We are excited to help you create the plan you desire or update the one you already have.