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Top 10 Estate Planning Mistakes
Estate planning is a complex and highly specialized area of law with many potential pitfalls. Often people who have been financially successful and have planned well throughout their entire lives simply drop the ball when it comes to properly distributing their assets to heirs. These are some of the most common mistakes people make when planning their estate. Obviously, the gravest of planning mistakes, is not having a plan at all.
1) Leaving the Living Trust Unfunded. A living trust is merely a vehicle that allows you to pass your assets outside of probate. However, if there are no assets in the trust, nothing has been accomplished. There is no point in drafting a living trust if the assets are not re-titled to work with the trust.
2) Leaving Assets in Joint-Tenancy. Titling assets under joint-tenancy (with-right-of-survivorship) does avoid probate because the assets pass automatically upon the first death. However, when the second person passes the asset is now subject to probate and may also be subject to federal and applicable state estate taxes.
3) Leaving Assets Outright to Beneficiaries. Assets that are left outright to heirs and beneficiaries are exposed to creditors, predators and divorcing spouses. It is much better to leave assets in trust for their benefit. Assets left in trust are totally asset protected. The beneficiaries still have access to the funds, but creditors, lawsuits and divorcing spouses cannot touch the assets inside the trust.
4) Not Naming a Guardian for Minor Children. You can only name a guardian for your minor children through a will. If you have not done this, and both parents die before your children reach legal age, the court will have to name someone to raise your children without knowing whom you would have chosen.
5) Not Planning for Incapacity. If you cannot conduct business due to mental or physical incapacity (dementia, stroke, heart attack, etc.), only a court appointee can sign for you—even if you have a will. A will only goes into effect after you die. The court usually stays involved until you recover or die and the court, not your family, will control how your assets are used to care for you. The process is public and can become expensive, embarrassing, time consuming and difficult to end. A living trust is preferred in the event of incapacity. The person you choose to act for you can do so without court intervention, yet they are held to a higher standard as a trustee; if they misuse their power, they can be held accountable.
6) Not Using a Qualified Team of Professionals (Your Estate Planning Attorney in collaboration with your Financial Advisor, CPA, and Insurance Professional). Estate planning is not something you should do yourself with a kit or online program. Simple mistakes or omissions can have far reaching effects that only come to light after you are gone. An experienced estate planning attorney understands the technical terms and legal requirements in your state. An experienced estate planning attorney can guide you to make smart decisions for delicate situations, including who should be the guardian of your minor children; how to provide for a child or elderly parent with special needs; how to provide for your children fairly; and protection from creditors and irresponsible spending.
7) Not Communicating with Trustees and Beneficiaries.It is important to let the people who are named in your estate plan, either as trustees or beneficiaries, know what role you are asking them to play. Proper communication with these people will go a long way to ensure a smooth transition during the settlement of your estate.
8) Not Knowing Where All the “Stuff” Is. A scattered estate plan by a secretive decedent may cause some assets to be left uncollected, undistributed and even lost.
9) Not Putting Your “Stuff” into the Trust. Things like furniture, art and clothes do not have a title to them. Therefore, they must be transferred into the trust using a bill of sale. Assets left outside the trust will go through probate. There is no point in probating your “stuff” if it can pass through the trust to your heirs.
10) Not Updating Your Estate Plan. Each year Congress passes new laws, the IRS issues new regulations, and circumstances in your own life change. All of these things can affect your estate plan. It is imperative that your estate plan is reviewed on an annual basis to avoid unintended results.
We want you to have the best possible plan for your family. Since you and your circumstances are unique, give us a call today and let’s explore the options. We look forward to hearing from you. Give us a call at (847) 367-4460, or get started by downloading our Legacy Planning Guide.