5 Mistakes to Avoid When Planning Your Estate
Estate planning is essential to ensuring a person’s interests, assets, and beloved family members are protected upon that person’s passing. A Last Will and Testament (will), trusts, and other tools used in estate planning are also important in terms of family-owned businesses, divorce, and other aspects of life. Unfortunately, mistakes are made that can be costly and often occur because the individual failed to consider the entire financial picture. In many cases a person may create a will without legal guidance. Regardless of why it happens, there are some common estate planning mistakes to avoid which are highlighted below. Those with questions or who need legal guidance may want to consider scheduling a consultation with Centonzio Law, PLLC at (800) 342-2727 (Missouri) or (727) 245-9025 (Florida).
A Will Is Critical in Estate Planning
Not having a will is one of the most significant mistakes people make. According to a 2017 article from the American Association of Retired Persons (AARP), 60% of Americans do not have a will or living trust. When an individual passes without a will in place, the decisions regarding who will be the executor of their estate and how property will be divided are determined by the state. Many people who are married believe that upon their death, assets and property will automatically pass to their spouse. This is not necessarily the case, and those who are in a second or subsequent marriage or in blended families should be highly concerned about the future of loved ones upon their death.
Limiting Estate Planning Documents to a Will or Living Trust
While wills and living trusts are important in estate planning, they do not provide protection for any scenario that could occur in the future. A living trust essentially “owns” the property that is placed in the trust, and allows the trustee to distribute their property, assets, and possessions to loved ones, friends, or even organizations upon their passing. A good estate plan should also include at the very minimum:
- A durable power of attorney for health care
- A financial power of attorney
- An advanced directive
Health care and financial powers of attorney make it possible to name someone who is highly trusted and capable to make financial or health care decisions in the event you become incapacitated and unable to make critical decisions. Without these estate planning tools, family members may be left to handle all the legalities, which can be a tremendous burden and very costly.
Failure to Update an Estate Plan
There are many reasons someone should consider updating their estate plan. Major life events occur in most peoples’ lives including divorce, remarriage, moving to another state, or changes in a beneficiary’s life. Failing to update is one of the biggest estate planning issues to avoid. Consider the following circumstances:
Those who are appointed beneficiaries in an estate plan may marry or pass away. There may be other life changes impacting a beneficiary that should be cause to review whether beneficiaries should be changed. In some cases, keeping family assets separate is a primary objective, which could be problematic if a designated beneficiary gets married. It is easy to understand why mistakes are easily made in estate planning. Centonzio Law, PLLC is available for those who want legal guidance in what can be a confusing and stressful process.
Many people have children with a prior spouse and remarry. If a living trust or will is not updated to reflect changes, a former spouse or stepchildren may inherit assets or property. This could cause serious issue, including tax issues with the Internal Revenue Service. Most people who remarry prefer their estate plans benefit a current spouse, rather than a former spouse. When a former spouse controls the division of assets and other property, your biological or adopted children may not benefit.
Divorce and Legal Separation
Many people fail to think about or realize that beneficiaries of life insurance policies or IRAs are not invalidated by divorce automatically. A former spouse may be named as beneficiary of a life insurance policy or in other retirement accounts. Beneficiaries must be changed in the event of a divorce. When a couple legally separates, each spouse is still considered married. In this situation it is important to update your will and change beneficiary rights on insurance policies, trusts, and other estate planning documents.
Living Trusts Must Be Funded
Many people fail to fund a revocable living trust. Revocable trusts may be revoked or amended. Assets should be transferred so that they are owned by the trust. Living trusts are typically not created for the purpose of tax savings, however, this type of trust helps family members avoid probate and assists with disability planning. Some examples of assets that should be retitled in the name of a living trust include:
- Real estate
- Money markets, savings, and other cash accounts
- Personal property – boats, pets, cars, jewelry, and other personal effects
- Non-retirement brokerage and investment accounts other than IRAs and 401(k) accounts
- Nonqualified annuities
The importance of funding a revocable or living trust cannot be stressed enough. Without funding, these types of trusts are basically useless.
Failing to Comprehend an Estate Plan
It is not unusual for a person to work with an estate planning lawyer and never really understand what the various documents they sign mean or how they work. How much wealth someone has makes no difference in whether they comprehend the basics of estate planning. It is the job of both the estate planner and the trustee to make certain you understand the fundamentals of how the estate plan works, what is necessary to implement the plan, ensuring it is maintained, and its benefits for both the beneficiaries and trustee.
Consider Visiting with Centonzio Law, PLLC
There is no question that estate planning can be confusing and difficult to navigate. However, it is vital to have a plan in place not only to protect beneficiaries upon your death, but to provide for long-term care and other needs during your lifetime. While some of the most important estate planning mistakes to avoid have been discussed above, most have questions and concerns unique to their own situations. Consider visiting with Centonzio Law, PLLC at (800) 342-2727 (Missouri) or (727) 245-9025 (Florida).