If you’re like most people, you have the best of intentions with regard to how you want your estate distributed when you die or your affairs handled should you become incapacitated. Unfortunately, without proper planning, your best intentions may not be enough. Here are the most common estate planning mistakes I see people make:
Failing to Plan. The biggest mistake is failing to create a plan in the first place. Most people are procrastinators by nature and will not address difficult decisions until they have to. Often this occurs when they go through difficulty or see someone in their circle experience difficulty. Often that is too late. Without an estate plan, your assets will be distributed according to the law in the state where you live. Usually, if you are married, your spouse is entitled to a portion of your estate and the rest is divided among your children (under the law of Intestacy). If you are single, your estate may go to your children, parents, or siblings. If you have absolutely no living blood relatives, then your estate will go to the state. This may or may not what you want to happen. In addition, without an estate plan, you have no way to name who will be the guardian of your children or who will act for you if you become incapacitated. What if you are not married but in a committed relationship where your partner relies on you? What if you have a disabled loved one? There are so many issues that need to be addressed in the event of your death or incapacity.
Not Planning for Disability and Long Term Care Needs. A properly drafted estate plan not only specifies what will happen to your assets when you die, it also plans for what happens if you become incapacitated and unable to independently provide for your own care. It is important to have documents, such as a power of attorney and health care proxy, that appoint someone you trust to act on your behalf if you can’t act for yourself.
Just as important is the concern about your physical care. Today the statistics clearly show that most of us are likely to need long term at some point. Whether that need is modest or is financially devastating and wipes out you, your spouse and destroys your children’s legacy, is something no one knows. What you do know is that at least considering the risk and making choices, even the choice to do nothing, is something that needs to be done.
Doing it yourself. It is tempting to try to save money by using a do-it-yourself online will service or just writing something up yourself, but these poorly drafted documents are likely to cost you or your heirs additional money in the end. Often people contact me and ask me: “What do you charge for a . . . . (insert will, POA, etc. here).” My answer to them that the document is free, I charge for the 22 years of experience in working with families on over one thousand wills, POAs, guardianships, estate administrations and additional business and real estate transactions. It is the questions I ask once I learn about you that provides value. And, frankly, those questions and the answers, save a lot more money (time and stress) than any good, experienced estate planning attorney will charge you for their services.
It is impossible to know, without those years of focused experience (and not in personal injury, divorce or other areas of law), what planning opportunities exist for your unique estate planning issues. The problems created by not getting competent legal advice probably won’t be borne by you; it will be a problem for those you care about as they will have to deal with the mess created by your failure to have a comprehensive plan.
Not Considering All of the Assets. For most people, their estate includes assets that are owned in different ways. People own individual accounts, joint accounts with spouses, significant others and children, corporations, partnerships, real estate, retirement accounts, life insurance, etc. Each asset may require different ways of controlling their disposition when they die and tax consequences. For instance, an IRA has a beneficiary you can designate on the document. If you name your son as the sole beneficiary on that IRA but name all three of your children on your will because it is your intent that all three children share equally in your estate, you have just created an inconsistency in your plan. You will does not control assets that have beneficiaries named on them. There are advantages and disadvantages to using beneficiary designations and there is no one right answer for everyone. And each administrator of an IRA or other tax qualified plan have rules as to what happens if you fail to name a beneficiary.
Failing to Implement Your Plan AND FOLLOW UP. Once you have a plan and the documents are in place, there is often follow up. Beneficiary designation review is one thing, but it does not end there. Make sure all of the important parties in your plan know what your wishes are, know where the documents and make sure you actually make the changes in your assets so that the plan goes as intended. And, as does everything else in life, things change. Your plan needs to be reviewed and changes may need to be made. Do not just stick your documents in a drawer (virtual or otherwise) and forget about it. Anytime a life change occurs: marriage, divorce, death of a loved one, significant change in income or assets, etc. you need to consider how the life change affects your planning. At a minimum you should at least do an internal review every 3-5 years.