An estate plan can and should give you peace of mind. Your will or trust is the way you bequeath your assets according to your wishes. You can provide for the future of your children and grandchildren, secure your assets for your spouse, or even gift a charity or university that you choose. However, there are some major mistakes that should be avoided at all costs when it comes to your estate plan.
Not Understanding Your Estate Plan
In my time as an estate planning attorney in Southgate, I have always made it a priority to engage my clients in the creation of their will. All too often, people become passive with their estate planner, allowing them to make decisions that have serious implications when the will is executed.
A few years ago, I read a study stating that many estate planning attorneys believed that a high percentage of the plans they prepared were not fully implemented, with the major reason being that the client didn’t understand the plan and failed to execute what they needed to do after leaving the office.
A major function of any estate planning lawyer’s job is ensuring that the client understands how the plan works, what they need to do to maintain and implement the plan, and any potential ramifications that actions or inactions may have. As a client, it is important that you ask questions and be engaged in the process, so you understand how the plan can affect you and your beneficiaries.
Allowing Your Designations To Become Outdated
Another big mistake I see often, and this goes hand in hand with not understanding your plan, is having beneficiary designations become outdated. What does this mean?
When you have retirement accounts, life insurance, or annuities, you fill out beneficiary designation forms. You may have opened these accounts 20 years ago. Since then, you may have gotten divorced, had another child, had grandchildren, or had other major changes occur in your life.
If you have failed to update the designation forms, the beneficiary on the forms will be entitled to that asset, not the beneficiary you designate in your will. Just imagine having an ex-spouse lay claim to your retirement account that you wanted to use to set up a college fund for your grandchild. For this reason, it is imperative that you hire a thorough downriver estate planning attorney when you are ready to prepare your will.
Not Updating Asset Ownership
You may own some assets outright, and others you may have joint ownership of. You may have a joint bank account with a spouse or adult child. You may have assets held in a trust with other family members also.
Much like your beneficiary designations, you will want to ensure your asset ownership is up to date. Does the arrangement still meet your needs? Has anything changed in your life that would impact the ownership status of your accounts?
While it is unlikely that you have a joint bank account with an ex-spouse, you may have other assets jointly owned by you and someone else. If that is the case, and you wish for that asset to be bequeathed to another family member, then you should take the necessary steps to update the ownership documentation.
Failure to Fund Revocable Trusts
Many estates include a revocable, or living, trust. Assets owned by the trust avoid probate, and can help with disability planning and other issues. However, one of the major problems I see is that the trust is not funded after their attorney puts together the estate plan.
Having the trust “funded” means that legal title to any of the assets has to be transferred to the trust. Some assets, like household and personal items, can be transferred by the language of the trust.
When it comes to real estate, you must change the deed to reflect that the trust, and not you, own the property. If you are attempting to have a vehicle in the trust, then it is important to update the registration. If you have financial accounts, you will need to change the name of record with the custodian. Depending on the nature of the account, you may need to open a brand new account under the name of the trust and transfer your funds into the new asset.
While none of this is too difficult, and it isn’t expensive, it still gets overlooked in many cases. It is important, again, to understand your estate plan and the actions you need to take in order for it to be carried out according to your wishes.
Not Coordinating Your Retirement Accounts And Your Trust
You might want to designate your trust as the beneficiary of your retirement account. This can make a lot of sense in many cases. For example, let’s say you want to designate your trust as the beneficiary of your IRA.
While this is a good idea, if you do not have the trust language set up to designate it as a “see-through” trust, your taxes can be accelerated due to IRS regulations. It is important that your estate planning attorney knows the tax laws and implications of decisions when it comes to designating your trust as the beneficiary of an IRA.
Not Updating Powers of Attorney
Again, another relatively simple step that gets overlooked, and can cause major headaches with your estate plan. You should have two powers of attorney, one for financial matters, and one for medical matters (often called an advance medical directive).
It is important to have these designations up to date, for some obvious reasons. Let’s say you have a child that lives out of state, and one that lives right here in Southgate. It may be wise to have the local child making medical decisions, as these can require immediate action. Be sure that these documents are present in your estate plan, and up to date.
Not Updating Your Estate Plan
In my Southgate practice, I routinely encounter plans that are not updated in any of the aforementioned ways. I also see plans that have been neglected in other ways also. It is important to be in touch with your estate planner, especially when major changes occur in your life. The addition of a new grandchild, a divorce, or other changes can severely impact your estate plan in ways you might not realize.