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Thursday, July 28, 2022

Ten Estate Planning Mistakes to Avoid

The loss of a loved one is always difficult, but that pain can be magnified when there is no proper estate planning in place.  The more complicated the family dynamics and the more specific the wishes of the loved one, the more important it is to make sure the proper estate planning is in place.  While you are enjoying the last month of summer and are sitting on the beach and thinking about the future, here are ten common estate planning mistakes to avoid.

1.  Not having a plan in place.  This one is the most obvious mistake, but is also the most common mistake.  If you do not have a will or trust in place, state succession laws and the probate process will determine where your assets go.  Sometimes this will match the individual’s wishes but not always.  For example, if you have a long-term partner but are not legally married, your partner may not stand to inherit anything when you pass.  Coming up with a plan and speaking with an estate planning attorney will be a great step in avoiding common estate planning mistakes. 

2.  Procrastinating.  Once you have an idea of how you would like your assets distributed when you pass, the next step is to formalize those wishes using proper estate planning.  However, many people check off step one and then take years to get to step two.  There are always more pressing matters in our busy world and estate planning is something that can always “wait until next year.”  The simple truth is we do not know what the future holds and while many people are fine in pushing off estate planning until they are older, not everyone is so lucky.  In the world of estate planning there can definitely come a point where it is “too late.”  

3.  Improper ownership of assets. One question I often ask prospective clients is how they own their house.  Couples will often say they own it together, but do not always know if they own it as joint tenants / tenants by the entirety or tenants in common.  There’s a big difference (tenants in common do not have a right of survivorship).  If a deed is silent on what type of owners the couple is, it defaults to tenants in common.  This is an easy thing to fix during the couple’s lifetime, but far more complicated if one partner passes away.  Similarly, if you decide to put your children on your deed as tenants in common and then one predeceases you, it can lead to a complicated ownership situation.  If you have established a Trust, but have not properly moved your property into the Trust, you may have negated the purpose of that Trust.  Ensuring that your assets are properly owned is paramount to good estate planning.

4.  Not planning for minor children and beneficiaries.  No one can inherit property in their own name until they turn eighteen (18) years of age.  If you have a beneficiary that is eighteen or under and you pass away, there should be a plan in place as to how and when the minor receives the property.  There are many ways of accomplishing this goal, but it needs to be spelled out in the estate planning to take legal affect.  Additionally, a Will is where you will identify who you would want to be the legal guardian for your minor children.

5.  Not updating plans over time.  There is no set time table on when estate planning needs to be updated, but when you go through a major life event, that is a good time to at least review your estate plan.  Lets say you got married at 22 and listed your spouse as the person to inherit your estate and your parents as your alternate beneficiaries and personal representative.  Cut forward to forty years later, let’s say your parents have predeceased you and you have gone through a difficult divorce.  Now your ex-spouse is still your beneficiary on your Will and you have no surviving alternates.  Your estate planning must be updated.  Additionally, once your children are grown you no longer will need to name guardians for them but may want to include them as your personal representatives.

6.  Adding your children to all of your assets too soon.  One common form of estate planning is to add children to the title of assets, most commonly the family home.  However, any creditors or collection agencies that come after your children cane then come after your assets as well.  This risk is minimized as you get to the later point of life.  Additionally, putting your children on your home or bank account could be viewed as a taxable gift that requires you to file a gift tax return.  A durable power of attorney will allow your children to have the authority to manage your affairs without putting your assets a risk and a trust and Will can take care of what happens to your property after you pass.

7.  Not having a declaration of homestead in place.  A Declaration of Homestead is a written legal document that allows homeowners to protect their family home from certain creditors, up to a particular amount. An Automatic Homestead exists on all principal residences, protecting the home to the extent of $125,000. This number can increase to $500,000 if a Declaration of Homestead is filed at the proper registry of deeds.  There is a one time filing fee of $35.00.  Other than that, there is absolutely no downside to a Declaration of Homestead.

8.  Forgetting about your digital assets.  As the world changes and technology advances, so must estate planning.  Twenty years ago there was not a lot of concern about what would happen to a person’s MySpace page after they died.  However, now people have an entire lifetime of photographs stored online.  People have memories on their Facebook pages.  People have digital currency.  These need to be accounted for in estate planning.

9.  Not updating your beneficiary designations.  We often think that all of our assets are controlled by a Will, but that is not the case.  Retirement accounts and life insurance policies (among other assets) have named beneficiaries and are not probate assets.  That is why it is important to make sure to name beneficiaries and successor beneficiaries in the event your primary beneficiaries predecease you.  If your estate is named as the beneficiary, the assets will have to go through probate and could be vulnerable to creditors.

10.  Leaving no inventory of your assets.  Another very common (and easily avoidable) estate planning probate occurs after all of the proper estate planning has been taken care of: not providing an inventory of assets.  While trusts often do include an inventory of what accounts and property are in the trust, Wills typically do not.  If you pass away and have the property estate planning in place, your loved ones will still need to know what exactly you own and where your accounts are located.  You may have told your children that you have life insurance policies in place, but do they know with what company?  Do you use a financial advisor and, if so, do your children know how to contact him or her?  What banks do you have accounts in?  Some people are comfortable having this conversation with their loved ones and others are not.  However, it is important that your loved ones have the ability to know exactly where your assets are located after you pass away and it is equally important to keep an updated list in the event you ever switch banks, etc.

If you have any questions regarding estate planning, please feel free to contact the Law Offices of Samuel S. Reidy for a free consultation.

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