7 Estate Planning Mistakes
Everyone’s estate plan is unique, but it’s common for the same mistakes to occur if you are attempting to do you estate plan yourself without the help of a professional. A majority of estate planning mistakes fall into a few categories, each of which is avoidable with proper planning.
1. Not Understanding Your Estate Plan
Most people rely on their estate planning attorney to ensure everything is in place and done correctly. This creates problems because, even with a robust estate plan, there is some work required to make sure everything is implemented correctly. For example, if you create a Revocable Living Trust to avoid probate, you must fund your Trust for it to work. This includes placing your home and bank accounts into the name of your Trust. A significant reason people are not implementing their estate plan into their everyday lives is that they don’t understand it.
Your estate planning attorney should make sure that you understand how your estate plan works and what you need to do to begin implementing your plan. It’s not required that you know every single legal detail about your plan, but you should know and understand the basics and how it affects you and your beneficiaries.
To avoid misunderstandings, you should spend time with your attorney and go through each document carefully. In addition, taking notes during the meeting may be helpful since you may not remember all of the details months or years from now.
2. Not Updating Beneficiary Designations
Some assets have pre-listed beneficiary designations and are not distributed according to your Will. These assets are typically life insurance, retirement accounts, and annuities. If you would like these assets to be distributed to the beneficiaries listed in your Will, you must update them accordingly.
If you don’t update these, the asset will go to whoever you listed as the beneficiary when you opened the account. If you haven’t updated it in a few years, this could potentially mean that the asset goes to your ex-spouse or a deceased person. You could also unintentionally exclude someone because they weren’t born yet or not part of the family when you created the asset.
You should continuously review your beneficiary designations and make sure they are up to date with your wishes.
3. Not Funding Your Living Trust
Many estate plans include a Revocable Living Trust. Any assets owned by a Trust can avoid probate court if properly placed into it. Unfortunately, a major issue is that people tend to forget this step or skip over it.
Once the attorney prepares the Trust and you sign it, the Trust must be funded. This means titles of assets must be changed into the name of the Trust. For example, if you have a bank account in your name, you must go to your bank and change it over to the name of your Trust.
This is easier for some assets than it is for others. Any personal effects that have no physical title associated with it, such as clothing or jewelry, are transferred into the Trust using language in the Trust. For real estate, it may be more complicated. You must transfer your property out of your name and transfer it into the name of the Trust. In most cases, the attorney will assist with this part.
These steps are simple, but most people forget about them. In the end, you’ll waste your time and money creating the Trust if you don’t fund it because your assets will have to go through probate after you pass away.
To avoid this mistake, you should sit down with your attorney and make sure you understand what steps you need to take to fund your Trust correctly.
4. Not Discussing Your Estate Plan With Friends Or Family
It is essential to let your friends and family know that you have taken the time to create an estate plan. They don’t need to know all the details, but they should know where to find all the documents if anything happens to you.
If you feel that discussing your estate plan with your family will reduce any disagreements after your passing, then this would be an excellent opportunity to do so. If you believe that someone will disagree with your estate plan after your death, you may want to include language in your plan that states they will be excluded if they try to contest.
To avoid this mistake, set up a time with your family and friends to discuss your plan. You should also notify specific people named in your Trust or Will, especially if they are named as the Personal Representative or Trustee.
5. Not Having Or Updating Medical Or Financial Powers Of Attorney
Every estate plan should plan for incapacity during your lifetime. The documents used for incapacity planning are Medical and Financial Powers of Attorney. They are also known as advanced directives.
Unfortunately, many people don’t have these documents, and if they do have them, they may not be up to date with their current wishes. If you don’t have the necessary documents in place, your loved ones may have to petition to probate court to become your guardian and/or conservator.
Like your beneficiary designations, you should review these documents regularly and make sure they are up to date.
6. Not Updating Your Estate Plan
Life is constantly changing, and you should regularly review and update your estate plan. Below are some major life events that you should update your estate plan for:
- Additions to your family
- Deaths in the family
- Acquiring new property or other assets
- Changes in your net worth
Generally, if the goal of your estate plan has changed or if there is an update in the law, you should meet with your estate planning attorney to amend your plan.
6. Not Having An Estate Plan
If you don’t have an estate plan in place, there are various options to consider. Based on your life circumstances, one estate plan may be better for you than another. Below are two significant estate planning documents:
Last Will and Testament: A Will is one of the most common estate planning documents. A Will lists your final wishes regarding the distribution of your property, appoints a Personal Representative, appoints a guardian for minor children, and more. It is important to note that a Will does not avoid probate court. It’s your ticket to probate court. If you would like to avoid probate, you should consider a Revocable Living Trust.
Revocable Living Trust: A Revocable Living Trust, also known as a Living Trust, avoids probate court if it is funded correctly. There are many benefits to a Living Trust, such as privacy for your family, tax planning, and more. Although a Trust will own your assets, you still have complete control over them during your life since you are the Trustee.
If you don’t have an estate plan in place before you pass away, your estate will have to go through probate, and your property will be distributed according to Michigan’s Intestacy laws. If you have property or other assets in multiple states, your family may even need to open multiple probates. This can be a less than ideal situation because it is public, and your property may go to someone you did not intend to receive it.
To better understand what estate planning tools are best for your family, or if you would like to update your estate plan, you should consult with an experienced estate planning attorney.
To book a free estate planning consultation, please contact our office at (248) 613-0007.