We see tragedy on a day-to-day basis because good, caring folks make these horrid estate planning mistakes regularly. Will you?
1. Not having a plan. Every state has laws for distributing the property of someone who dies without an estate plan—but not very many people would be pleased with the results.
- State laws vary, but generally give a percentage of the deceased’s assets to family members. Non-family members, like an unmarried partner or best friend, will not receive any assets.
- It’s common for the surviving spouse and children to each receive a share, which often means the surviving spouse will not have enough money to live on.
- If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount. Most parents prefer their children inherit later, when they are more mature – and they prefer that their money doesn’t go to court supervision for all those years.
2. Not naming a guardian for minor children. A guardian for minor children can only be named through a will. If the parents have not done this, and both die before the children reach legal age, the court names someone to raise them, without knowing whom the parents would have chosen.
- If no one steps up to take your children, they’ll end up in foster care.
- If more than one person steps up, there will be a fight, pulling the family apart.
3. Relying on joint ownership. Many older people add an adult child to the title of their assets (especially their home) to avoid probate or reduce taxes. Doing so creates all kinds of problems.
- When you add a co-owner, you lose control. Jointly-owned assets are now exposed to the co-owner’s creditors, divorce proceedings, and possible misuse of the assets – and – the co-owner must agree to all business transactions such as sale of property.
- In addition, there could be gift and/or income tax issues – and the gift may disqualify you from nursing home assistance for a period of time.
- If you have more than one child but only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances. This means that you may accidentally disinherit your own children.
4. Not planning for incapacity. If someone cannot conduct business due to mental or physical incapacity and no private incapacity plan exists, only a court appointee can sign for this person—even if a valid will exists. Why? Because a will only goes into effect after death.
- The court usually stays involved until the person recovers or dies and the court, not the family, will control how their assets are used to provide for their care.
- The process is public and can become expensive, embarrassing, time-consuming, and difficult to end.
- Someone also needs to be given the power to make healthcare decisions for you (including life and death decisions) if you are unable to make them for yourself.
- Without a designated healthcare agent, you could be kept alive by artificial means for an indefinite period of time. Remember Terri Schiavo? Terri’s story and information about the Terri Schiavo Foundation can be found at http://www.terrisfight.org.
- The exorbitant costs of long-term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning.
5. Not keeping your plan up to date. Every estate plan is based on the personal, family, and financial situations and tax laws, in effect at the time it was created. All of these will change over time, and your plan needs to change with them.
- It’s a good idea to review your plan every couple of years or so and make sure it still does what you want it to do.
- When you’re our client, we will let you know when a tax law change might affect your plan, but you need to let us know about other changes that could affect your plan.
We help our clients to avoid all 5 of these common estate planning mistakes which often create heartbreaking tragedy. Call now and we’ll make sure your estate plan – and how you own your property – is right for you.