5 Common Estate Planning Mistakes
Estate planning involves thinking about topics like death, old age, and disability, many people put it off or simply ignore it all together until it’s too late. Sadly, this can create serious hardship and expense for those loved ones you leave behind.
Estate planning is definitely not a one-size-fits-all endeavor. Even if you think your particular situation is simple, that turns out to almost never be the case. To demonstrate just how complicated estate planning can be, here are 10 of the most common estate planning mistakes, starting with the worst blunder of all: failing to create an estate plan.
1. Leaving No Estate Plan At All
If you die without an estate plan, the court will decide who inherits your assets, and this can lead to all sorts of problems. Who is entitled to your property is determined by our state’s intestate succession laws, which hinge largely upon whether you are married and if you have children. Spouses and children are given top priority, followed by your other closest living family members.
If you are single with no children, your assets typically go to your parents and siblings, and then more distant relatives if you have no living parents or siblings. If no living relatives can be located, your assets go to the state. It’s important to note that state intestacy laws only apply to blood relatives, so unmarried partners and close friends would get nothing. If you want someone outside of your family to inherit your assets, having a plan is an absolute must.
If you’re married with children and die with no plan, it might seem like things would go fairly smoothly, but that’s not always the case. If you’re married, but have children from a previous relationship, for example, the court could give everything to your spouse and leave your children with nothing. In another instance, you might be estranged from your kids or not trust them with money, but without a plan, state law controls who gets your assets, not you.
Moreover, dying without a plan could also cause your surviving loved ones to get into an ugly court battle over who has the most right to your property. Or if you become incapacitated, your loved ones could even get into conflict around your medical care.
2. Thinking A Will Alone Is Enough
Lots of people believe that a will is the only estate planning tool they need. While a will is a fundamental part of nearly every adult’s estate plan, which can ensure that your assets go where you want them to go in the event of your death, using a will by itself comes with some serious limitations, including the following:
● Wills require your family to go through the court process known as probate, which can not only be lengthy and expensive, it’s also completely open to the public and frequently creates ugly conflicts among your loved ones.
● Wills don’t offer you any protection if become incapacitated by illness or injury and are unable to make your own medical, financial, and legal decisions.
● Wills don’t cover jointly owned assets or those with beneficiary designations, such as life insurance policies and 401(k) plans.
● Wills don’t provide any protection or guidance for when and how your heirs take control of their inheritance.
● Naming guardians for your minor children in your will can leave them vulnerable to being placed in the care of strangers.
If your estate plan consists of a will alone, you are missing out on many valuable safeguards for your assets, while also guaranteeing your family will have to go to court if you become incapacitated or when you die. Fortunately, all of the above issues can be effectively managed using a trust.
3. Creating A Trust & Not Properly Funding It
A trust can keep your family out of court, and you may think you can just go online to set up your own trust, or have a lawyer do it with you as a one-size-fits all solution. And while that might be true, particularly if you have very simple assets and few family members, even in that case, you are likely to overlook one of the most important parts of creating a trust: “funding” it.
An unfunded trust is a trust that exists, but that doesn’t hold any of your assets because you didn’t retitle them properly, or because you acquired new assets after creating your trust. This is all too common, and if this is true for you, it will leave your family with a big mess, even though you have officially created your trust.
Funding your trust properly is extremely important, because if any assets are not properly funded, the trust won’t work, and your family will have to go to court in order to take ownership of that property. And when you acquire new assets after your trust is created, you must make sure those assets are properly funded into your trust as well.
While many lawyers will create a trust for you, few will ensure your assets are properly inventoried and funded into your trust, and even fewer will ensure the inventory of your assets is kept up-to-date as your life and assets change over time.
At our law firm, we will not only make sure all of your assets are properly titled when you initially create your trust, but we will also ensure that any new assets you acquire over the course of your life are inventoried and properly funded to your trust. This keeps your assets from being lost, and prevents your family from being inadvertently forced into court because your plan was never fully completed.
4. Not Leaving An Up-To-Date Inventory Of Assets
As mentioned above, even if you’ve properly funded your assets into your trust, your estate plan will be worthless if your heirs don’t know what you have or where to find it. In fact, there’s more than $58 billion dollars worth of lost assets in the U.S. Department of Unclaimed Property right now. And that’s all because someone died or became incapacitated without letting anyone know how to locate their assets.
This is especially critical for digital assets like cryptocurrency, social media, email, and data stored in the cloud, because if you haven’t properly addressed these assets in your estate plan, there’s a good chance they will be lost forever if something happens to you. For all of these reasons, creating and maintaining a comprehensive inventory of all of your assets is a standard part of every estate plan we create. With our support, you can rest assured that your family will know exactly what assets you own and how to locate them should anything happen to you.
5. Failing To Regularly Review & Update Your Estate Plan
In addition to keeping an updated asset inventory, it’s vital that you regularly review and update all of your planning documents. Far too often people prepare a will or trust , then put it into a drawer or on a shelf, and forget about it.
Yet, an estate plan is not a one-and-done deal. As time passes, your life circumstances change, the laws change, and your assets change, you must update your plan to reflect these changes—that is, if you want your plan to actually work for your loved ones and keep them out of court and conflict.
We recommend reviewing your plan at least every three years to make sure its terms are up to date. And be sure to immediately update your plan following major life events like divorce, births, deaths, and inheritances.
Click here to contact me to discuss scheduling a Family Wealth Planning Session so you can create a plan that handles your assets and your medical care in the exact manner you wish, taking into account all of your family dynamics, so your death or incapacity won’t be any more painful or expensive for your family than it needs to be.