When creating an estate plan, it is not uncommon for people to overlook important details or resort to shortcuts that lead to complications down the road. Over the years I have become familiar with the many shortcuts people take in their estate planning and the many pitfalls of inadequate planning. If you’re making an effort to create an estate plan, you should do it right the first time.  In this blog post, I will explore some common pitfalls and shortcuts, and discuss how to avoid them.

Common Mistake: Procrastination. People not getting around to writing an estate plan at all 

The number one estate planning problem I see is people’s tendency to procrastinate! Often people completely kick estate planning down the road until it is too late, or fail to update an estate plan when needed.

Common Mistake:  Is creating a will or living trust  enough?

A will only becomes effective after you die. But if you become incapacitated during your lifetime and have not made any arrangements for who will manage your affairs, you could be heading for a guardianship or conservatorship. For a living trust to avoid living probate, your property must be transferred into the trust so that your successor trustee can manage your affairs.

Common Mistake: Adding children to your deed before you die – a big no no

Adding a child or children to the deed of a residence is a very popular estate planning shortcut.

This is most often done to avoid probate. Basically, when the parents pass away, the house is owned by the children already, and so probate is avoided. However, adding children to your deed while you are living involves giving up control of your property. For example, I recently discussed a situation with an elderly person who put their son on the deed of their home. Unfortunately the son had financial problems, and took out a mortgage on the house, then he passed away. The parent struggled to make the payments and needed a reverse mortgage to pay the debt. Because the property was also in the son’s name when he died, a full probate matter had to be opened in order to clear title to the property. This took months and cost the elderly person thousands of dollars.

Common Mistake: Relying on jointly owned property

Owning property jointly avoids probate at the first death, but what happens when the survivor dies?

Other issues relating to joint property include adding one child to an account for assistance with finances etc. At death that account is property of the survivor. This can create animosity if other beneficiaries feel they were treated unfairly. A solid power of attorney, or even better, a living trust, is a much better way to ensure your finances are handled by a trusted party if you are incapacitated, and that the property goes to the intended beneficiaries at your death.

Common Mistake: Relying on pay-on-death beneficiary provisions for accounts and insurance policies

Naming beneficiaries for accounts and insurance policies is a must. But often this information does not get updated when it should. For example, if your spouse is named beneficiary and predeceases you, will you remember to change the beneficiary? I recently met with a family in this situation. The parents had a pretty good estate plan, including a living trust, in order to avoid probate and make everything easy for their children. But a sizable life insurance policy ended up being property of the estate, forcing the family to go through probate. Naming a living trust as a contingent beneficiary will ensure that if your named individuals are no longer around those accounts or policies will be distributed to the proper parties.

Common Mistake: Disinheriting special needs beneficiaries

For people receiving government benefits such as SSI and Medicaid, inheriting property may result in loss of benefits. To avoid this, many people will simply leave a disabled beneficiary out of their estate plan altogether, and rely on the siblings or other family members to provide for the special needs person. This is a lot to ask of someone, and often results in resentments and disputes among the beneficiaries. Furthermore, disinheriting a child opens the estate up to litigation. Instead, special needs trusts should be utilized to provide for these beneficiaries. A special needs trust will provide a lifetime of security without jeopardizing much needed benefits.

Best Way To Secure Your Wealth: An Experienced Estate Planning Attorney

In conclusion, estate planning should include more than just what happens to your assets when you die. It requires a holistic view and requires attention to detail to avoid the common pitfalls and shortcuts that undermine your good intentions. Click below to book an appointment with estate planning attorney Jill M. Santiago.

After creating an estate plan – whether a will or a trust – clients often ask, “When should I update my estate plan?” The simple answer is–whenever necessary! Three things in life are certain: death, taxes and change.  In this post, I will focus on change. There are numerous occasions that would necessitate updating your estate plan, here are some of the most common situations:

Marriage or Divorce

Your spouse has certain rights to a share of your assets at your death. Failing to account for a spouse in your estate plan, or failing to update it when you separate from your spouse can lead to complications. A majority of people name their spouse as an executor, agent under a power of attorney, or successor trustee. If you are newly married, you may want to add your spouse as a representative or a beneficiary. If you are divorced, you may need to appoint new representatives and/or beneficiaries.

Death of a spouse or child

If you named your spouse as a representative or a beneficiary, you will need to update your estate plan when they die. Most people name their children as beneficiaries, thus, if a child predeceases you, who will receive their share of your estate? It could be a surviving spouse or a minor child. You will want to be clear about what happens to the deceased child’s share, and may need to make special arrangements regarding how that share is distributed.

Birth or adoption of child

Under the law, all of your children are eligible to inherit from your estate. I recently handled a probate matter for a family where the decedent failed to name an estranged son in his estate plan. Even though he had not seen his father in twenty-five years, the son challenged the will in the probate court. Will challenges are time consuming, emotionally draining and very, very expensive. Therefore, it is imperative that your estate plan acknowledges all of your living children–natural or adopted. If you choose not to leave anything to a particular child, you should state so specifically in your will or trust. Failure to do so could result in the omitted child challenging your estate.

Child or grandchild turns 18

When naming minors in an estate plan, their inheritance will not be distributed to them until they reach the age of majority, which is generally 18. However, often it is not wise to bestow a large inheritance on someone so young. Consider adding terms such as increased minimum age for distributions to ensure your beneficiaries are mature enough to handle their inheritance wisely.

Beneficiaries with special needs or supplemental needs

If a beneficiary becomes disabled and relies (or will rely) on SSI or Medicaid, you will need to add special needs planning to your estate plan. This will ensure the beneficiary will receive the benefit of their inheritance without losing government benefits.

You acquire new assets

When you acquire Real estate, open new banking or investment accounts, or other types of assets, be sure the new assets are being accounted for appropriately in your estate plan and/or properly transferred into your trust.  This not only makes sure that your new assets are accounted for, but it also allows the assets to avoid probate related issues.

You Start or close a business

If you are starting a business, you must think about business succession. That is, what will happen to your business when you are no longer here to run it. Great news, these provisions can be built into your estate plan!  If you are closing your business, you need to be sure that you update your will and/or trust

Update Fiduciary death or need to change

There are several reasons you might need to update your Representatives, such as: a representative passes away, declines to act as a representative, or perhaps you just change your mind about who you want to leave in charge.

Illness of spouse or to yourself

If you or your spouse become ill, you will want to revisit your estate documents, particularly  your financial and health care powers of attorney

You have Pets

If you have pets, particularly those that are expensive and difficult to care for (like a horse) or a pet with a long life expectancy (like a parrot), you should consider creating a pet trust. This trust will name someone to care for your pet when you are gone and will set aside funds for their care

You Change your mind about beneficiaries

You may just change your mind about who or how much you want a beneficiary to receive from your estate.

Move to a new state

Though wills and trusts are generally valid in all states, it is important to update these documents to reflect the law of the state in which you reside. Also, some states have statutory powers of attorney, some states powers of attorney and  living wills are not valid

Changes in the law

There are several types of taxes you should consider when creating an estate plan, including estate tax (death tax), capital gains tax, and gift tax. The rates and exemptions often change, so it is prudent to review your plan yearly to ensure your plan is still working for you.

Working with an experienced estate planning attorney in Rhode Island can help!

In summary, there are many life events that trigger the need to update your estate plan. An experienced estate planning attorney will advise you about when and how to make appropriate changes to your estate plan.  Click below to book an appointment with estate planning attorney Jill M. Santiago.