We’ve been talking a lot recently about the mistakes we see in estate planning because now, more than ever, we are finding that people feel uncertain, and they want to know their loved ones are secure. Despite the best of intentions, sometimes estate plans just don’t work because they were not set up or maintained properly (or you never had one to begin with). While we all want to feel good about our planning, we also want to make sure it is not a false sense of security. The next few blogs will address the mistakes we often see, and how you can make sure that you don’t fall prey to them!
Mistake #1: Procrastination
One of the biggest and most common mistakes that we see in estate planning is procrastination. For many, creating an estate plan (or updating the one they did 15 years ago) is something they are always meaning to get to but never actually do. The biggest mistake you can make is not having an estate plan, because the probate court has one for you. And for those who do have a plan, their biggest mistake may be not having looked at it in years. Changes in the law, changes in what you own, family changes, job changes, changing your residence, and changing your wishes can all keep an old plan from being effective if it is not updated. In our experience, most estate plans fail because they do not reflect what you want to have happen now.
The solution to this mistake is simple: create an estate plan or update your existing estate plan. Even if you are not quite sure who you want involved or the exact details you want to be included in your plan, someone who specializes in estate or elder law planning will be able to help you with that. Additionally, if you work with a firm that has an ongoing care program, you can always update your plan if you change your mind or if your situation changes.
Mistake #2: Assuming Wills or Trusts Avoid Probate
We frequently hear “I have a Will” or “I have a Trust, so I don’t have to worry about probate.” Unfortunately, wills guarantee probate, and even trusts, which are often created specifically with the idea of avoiding probate, do not necessarily avoid probate. Assets that are owned by a trust or are controlled by a contract will avoid probate (i.e. life insurance policies or IRAs with beneficiaries). In our experience, over 90% of trusts do not own the assets they are intended to protect. This means that after death the family winds up going through probate anyway, despite their loved one having created a trust.
The real issue is asset ownership. That is why the solution to this mistake is to pay more attention to your assets than to your documents. We want to change the conversation away from “funding trusts” to aligning your assets, verifying that the institutions have made the changes as requested, and then tracking your assets on an ongoing basis to ensure that they stay aligned with your plan (even as your life and assets change). Working with an attorney who is integrally involved in this process will help to ensure that your plan works the way it was intended. Here at Family Estate Planning Law Group, we believe this requires an ongoing relationship with your estate planning attorney, something many firms are hesitant to do or simply have no experience doing.
Mistake #3: Leaving Assets to a Child or Special Needs Beneficiary (Directly)
While it makes a lot of sense to want to leave assets to your children or grandchildren, in the eyes of the law, someone is an adult when they reach 18 years of age (or occasionally 21, depending on the situation). How many of you know 18-year-olds who are “adults” when it comes to handling their (your) money? Additionally, leaving assets directly to a special needs beneficiary could jeopardize their governmental benefits, potentially causing more problems than it provides help.
The solution to this mistake is to create a trust and make sure the beneficiary designations on your accounts name the trust instead of the individual directly. This allows the money to be controlled through a trust, thus providing benefit to the beneficiary without shoving it directly into their control (or jeopardizing their governmental benefits).
Mistake #4: Assuming Trusts Take Away Beneficiary Control
We find this mistake tends to go hand-in-hand with mistake #3 since the reason many people leave money directly to a child is that they don’t want to “control from the grave.” However, the assumption that leaving money to a beneficiary takes away control is incorrect. There are techniques to allow children (or other beneficiaries) complete control of an inheritance while also providing asset protection. Naming an individual directly forces them to receive the assets unprotected and exposed to creditors, bankruptcies, and divorces.
The solution to this mistake is Beneficiary Controlled Asset Protection Trusts. Instead of shoving the property directly into your beneficiary’s pocket, this trust gives them a choice (once they reach the “magic age” that you decide upon) to be able to use and control the assets while still protecting them from divorce, bankruptcy or lawsuits.
Stay tuned for our next blog, which will address more of the top ten estate planning mistakes and how to avoid them! To learn more about this, other estate planning topics, and our ongoing client care program, visit our website, explore our blog, and schedule your complimentary consultation today!