FIVE COMMON ESTATE PLANNING MISTAKES TO AVOID
September 9, 2016
By Cory Howes
Today, I’d like to review five common estate planning mistakes to avoid:
No Estate Plan in Place
Not having a plan is unacceptable. While every state has laws for property distribution for someone who dies without an estate plan in place, most of us will not like the results of these laws in the event of our demise. These statutes vary, but in general, you will see that it’s common for surviving spouses and children to each receive shares of the estate. This could result in the surviving spouse not having enough money at his or her disposal to make ends meet. In addition, the court will oversee a minor child’s inheritance until the child reaches the age of majority, at which time the child will receive the inheritance in full and will have complete control over the property. We find that most parents do not like the results of the state’s plan. For married couples without children, you may be surprised to know that in North Carolina, if one of you dies without an estate plan, your property will be divided between your spouse and your parents.
Name Failing to a Guardian for Minor Children
A will is the only estate planning vehicle to use for naming a guardian for your minor children. If you have children and haven’t named a guardian in a perfected will, a court will decide who will raise your children in the event of your deaths without knowing your wishes.
Over-reliance on Joint Ownership of Assets
It’s common practice for many older people to add an adult child to the title of their assets (especially their home), often to avoid probate. But this practice can create all kinds of problems. When you add a co-owner, you lose a measure of control over your own assets. Jointly-owned assets are exposed to each owner’s creditors, divorce proceedings, and possible misuse or misappropriation of the assets, and the co-owner must agree to all business transactions, such as selling a home. In addition, this practice can trigger gift and/or income tax issues. Finally, if you have more than one child but only name one to be co-owner of particular assets with you, fluctuating asset values could cause your children to receive unbalanced or unintended inheritances.
Failure to Plan for Incapacity
Even a will can’t help you in the event of your incapacity, because a will only takes effect after your death. If a person is unable to manage his or her financial affairs due to mental or physical incapacity, only a court appointee can sign documents on this person’s behalf. The court usually stays involved until the person recovers or dies and the court, not the individual’s family, controls how their assets may be used to provide for their care. The court process is not only public, but can also become expensive, embarrassing, time-consuming, and difficult to fully resolve. These are all things you never want to experience!
Giving a family member or friend power of attorney as a way to avoid the court process is one remedy, but the power of attorney can be difficult to use because many financial institutions are hesitant to accept powers of attorney. For this reason alone, a living trust is often a preferred document to drive incapacity planning. With a trust, your incapacity trustee simply steps into the role of trustee and can act on behalf of the trust. Generally speaking, the transition is much easier and smoother with a trust vs. a power of attorney. Another advantage of a trust is that you can include personalized instructions regarding your assets and support during incapacity.
Not Thinking About Health Decisions
It’s quite simple, really: someone also needs to be given the power to make healthcare decisions for you (including life and death decisions) if you are unable to make them for yourself. If you have not designated a healthcare representative to oversee your care and wellbeing, your family may have to go to court to have a guardian appointed. This can be a stressful, time-consuming and expensive process. 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. Without insurance, these costs can deplete your estate to untenable levels, leaving your loved ones in need.
Failure to Update Your Plan
Estate planning is based on your personal, family and financial situation, and tax laws. All of these aspects of an estate plan change over time. Your plan needs regular updates in order to reflect these changes. You should review your plan at least every couple of years, ensuring that it remains well-positioned to help you achieve your goals. Updating works both ways in the attorney-client relationship. Your estate planning attorney should provide counsel with regard to changes in tax laws that may affect your plan while you need to keep your attorney advised of changes to your assets, such as acquiring a second home or trading in a vehicle.
As an estate planning attorney, it’s my job to help you avoid these mistakes and to help you make informed decisions that will keep you in the driver’s seat on the journey to achieving your goals in life and after your death. For more information on our estate planning services, email me at the Forrest Firm today.