Major Estate Planning Mistakes to avoid
Not understanding the estate plan and the planning process is one of the major hurdles of proper estate planning. Many people who chose to meet the estate planner rely completely on the planner to do everything for them. However, many estate planning attorneys later complain that many of these plans aren’t correctly implemented.
It can lead to the unmanaged distribution of the estate to the beneficiaries or create minor problems during the probate process.
What is Estate Planning?
There is much confusion around when it comes to estate planning. Many middle-class Americans assume that estate planning is only for the rich. If you own a car, house, a bank balance, then you qualify for estate planning.
Estate planning helps to prepare for the transfer of a person’s wealth and assets after their death or incapacitation. Let’s put it this way, estate planning helps to pass off your estate to the right person after your death. If you wish to avoid any legal battle over your property between your family and friends after your death, then you must seek professional legal help in such matters.
Without proper planning and documents, the probate court may lead to the unintended distribution of assets.
Ten Most Common Estate Planning Mistakes to Avoid
Here is the list of ten most common estate planning made by people which can easily be avoided.
Not having an estate plan
Yes, it begins with making an estate plan. As mentioned above, if you own a piece of furniture, you would want to plan your estate so that it goes off to your beneficiary without much difficulty. Everything starts with a will. If you die without one, you give the state the right to decide who will receive your estate and who will serve as your executor.
Did you know? North Carolina law provides that estate owned solely by the deceased spouse to be divided among the surviving spouse and children if a will isn’t present. Not every state works along with the intestacy laws.
Not planning for the unexpected
Every estate plan should include a financial and health care power of attorney granted to someone whom you trust. He or she will act on your behalf if you become unable to manage your financial and health care affairs such as during incapacitation. Preparing a “living will” directs your wishes for end-of-life medical care in case you become unable to communicate your decisions.
Not having a contingency plan
The contingency plan stands for any plan designed to take account of a possible future event or circumstance. If you do not have a contingency plan when it comes to estate planning, you lose the right to appoint an alternate to the power of attorney or an executor of your will. Every estate plan should name alternates to serve as agents under powers of attorney or as executor or trustee under a Will or trust.
If you appoint only one person to serve in a power of attorney and that person becomes unable to serve, a guardianship proceeding may have to be initiated.
Not updating beneficiary designations
Updating beneficiary designation in the will or trust along with necessary updates in insurance policies and retirement plans is necessary to prevent the inconsistency with the distribution of your estate.
It’s common to forget updating beneficiary designation in one or the other. Failure to do so may result in those beneficiary-designated assets passing in a way that you did not intend.
Not updating planning after major life events
1. Moving to a new state — Each state has its individual law regarding intestacy, estate planning, and execution. Documents executed in one state may not be recognized in another state or might cause delays.
2. Remarriage — You would need to plan for separation and remarriage as well. Let’s say if you remarry but have children from a prior marriage, your estate planning should take into consideration your responsibilities that benefit both your new families. If you leave assets outright to a surviving spouse, that will give your current spouse ultimate control over the disposition of your assets.
3. Birth, death, or marriage of a beneficiary –Estate planning should take into account any major change in a potential beneficiary’s life such as marriage or death.
Naming a minor as a direct beneficiary
The problem with naming a minor as a direct beneficiary is that a person under the age of 18 isn’t eligible to receive property directly from an estate. Instead, the state assigns a guardian who manages the estate for the minor. You can avoid this by appointing a guardian or custodian for your minor after your death.
Not funding a revocable trust
A revocable trust is a living trust that can be changed. The greatest benefit of establishing a revocable trust is that it helps to avoid the delay or expense of a probate at your death. It also ensures that information related to your assets and beneficiaries is not in the public record. A revocable trust must be funded during your lifetime, hence it’s important to review your assets and determine which assets need to be re-titled in the name of the revocable trust. Prepare to complete the steps to transfer these assets to the revocable trust during your lifetime.
Adding a child as a co-owner of an account
Naming your child as a co-owner of an account is a smart move but sometimes it can land you difficulties. People often do it to avoid probate. When an account is titled in joint names, at your death the joint account will immediately pass to your child who is the co-owner but distribute equally among all the children. If there are any financial difficulties or legal problems related to your child, your child’s creditors may be able to recover from your account. And, if your child does not survive you, the account will be subject to probate. Consult with your estate planning attorney before making any such steps.
Not considering income tax
Income tax is levied on the estate before transferring it to the beneficiary. With recent changes in the federal estate tax laws, the focus of tax planning for most individuals has shifted from estate tax to income tax. An individual’s tax basis in inherited property generally is reset to the value of the property on the date of the decedent’s death; unrealized gains or losses existing at the decedent’s death are effectively wiped out. Accordingly, a beneficiary can sell the property immediately after inheriting it without income tax consequences. Effective estate planning should seek to maximize your and your heirs’ basis in an asset.
Not updating planning for new estate tax laws
The current estate tax laws came under major refurbishing where most people will not owe estate tax at death. Anyone who has planning that was completed more than a few years ago (or anyone who is a beneficiary of a family trust established under prior law) will be well served by reevaluating whether those plans and trusts are still tax efficient. Many older plans include automatic estate tax reduction planning that was appropriate at the time but which now is unnecessarily complex, and can actually be detrimental from an income tax perspective. Fixing these issues now can save your family time, headache, and money in the future.
Mark Gray Law PLC is a best attorney law firm in Ankeny. Our in-house will attorney in Ankeny and trust attorney in Ankeny specialize in everything related to estate planning, establishing trust and will, guardianship and conservatorship, etc.
