Estate Planning pitfalls

Sometimes, people attempt to make an estate plan without consulting legal and financial professionals. They may have a general understanding of estate planning and believe they can do it themselves without paying for professional services. This often fails because of the detailed knowledge it requires to draft the documents that cover the nuances of their lives.

The first mistake is having an outdated estate plan. For example, your parents may have died, so they can no longer be beneficiaries. Your children may have gotten married and had kids of their own. You may have divorced and remarried. Your assets have grown significantly, you no longer own a house or you have purchased property.

One should review their plan once a year. Another reason is the failure to revise your will. The will you had drafted many years ago may no longer apply due to many changes in circumstances. Some people believe that if they scratch out a part of an old will, just add information and initial the document, then it will be valid.

A third mistake is to rely only on joint tenancy to avoid probate. Many assets are transferred outside of wills. For example, joint tenancy assets pass to the surviving joint tenant. Another example is if you and your spouse own a home as joint tenants to avoid probate. This move really only avoids probate on the first death. When the surviving spouse dies, the home will typically end up in probate.

A fourth mistake is not coordinating a will and a trust. Creating a trust and transferring assets to it may help you avoid probate on the first death. However, if you have a will and a trust, be sure the documents are aligned so your wishes will ultimately be carried out.

Mistake No. 5 is that assets are titled incorrectly. You want your intentions to be carried out for all assets, including your primary residence, bank account brokerage accounts, retirements and also vehicles. Be sure to make beneficiary designations and properly title account, designate a beneficiary on IRAs, 401(k)s, company plans and other accounts and review these account annually.

The sixth mistake is not naming a successor or contingent beneficiaries. Let’s say you name one beneficiary on an account and an individual dies. If you do not update the beneficiary designation, there will be no successor to receive the accounts. In that case, the assets may go to someone you did not want to receive them, or they may wind up in your estate. It is important to name more than one beneficiary on accounts and to keep your designations up to date.

Mistake No. 7 is failing to name a person to make the healthcare decisions. Many have heard about the nightmare that may occur when the family members do not agree what to do with a loved one that is on life support. All 50 states permit you to express your wishes as to medical treatment and to appoint someone to communicate for you in the event you become incapacitated. Depending on the state, these legal documents are known as living will, medical directives, health care proxies or advance health care directives. One of these legal documents designates someone you trust to follow your wishes.

With mistake No. 8, a number of individuals rely on outdated or state financial power of attorney. However, after you signed the document, your circumstances or your relationship with that person may have changed.

In mistake No. 9, many individuals fail to consider Medicaid planning. Many people wait too long to plan for a nursing home or extended care and then want to apply for Medicaid. These issues should be reviewed long before a person nears the time when long term care may be necessary.

With mistake No. 10, many individuals believe that estate taxes will not apply. With the relatively generous federal estate tax rules ($5.49 million for 2017, up from $5.45 million for 2016), many believe their estates will not be liable for estate taxes. Keep in mind that many states have their estate tax but are still exposed to a significant estate tax hit imposed by your state. Do not just focus on the federal rules.

Be sure to consult with a Estate Planning Advisor to minimize state taxes, ensure your domicile in the state that you want, to help insure you have a proper solid estate plan so you heirs are taken care of in the way you wish.

Bob Schumann3 Posts

Bob Schumann is a financial advisor in Sabetha.


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