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.