Sometimes people attempt to make an estate plan without consulting legal and financial professionals.
Mostly this is because they may have a general understanding of estate planning and believe they can do it themselves without paying for professional services. This may be valid to a point, but it often fails because of the detailed knowledge it requires to draft the documents that cover the nuances of their lives.
Everyone is different and a boilerplate form isn’t sufficient. Here is a list of 10 potential mistakes in estate planning that you can help avoid with professional counseling.
Mistake #1: Having an outdated estate plan. Your life and financial circumstances may change and your estate plan should change with them. For instance:
- Your parents may have died so they can no longer be beneficiaries;
- Your children may have gotten married and had kids of their own;
- You may have divorced and remarried;
- Your assets have grown (or decreased) significantly and
- You no longer own a house or you purchased property.
Your estate plan should take these and other changed circumstances into account. It’s a good idea to review your plan at least once a year.
Mistake #2: Failing to revise your will. The will you had drafted many years ago may no longer apply for the reasons listed above and others. Some people believe that if they scratch out a part of an old will, add information and initial the document, it will be valid. This is never the case.
Mistake #3: Relying only on joint tenancy to avoid probate. Many assets are transferred outside of wills. For example, joint tenancy assets pass to the surviving joint tenant. Let’s say you bought your first home in joint tenancy with your brother who shared the house with you. You then had a falling out. Your brother relocated to another state and you got married. You changed your will to leave everything to your spouse, but you neglected to change the joint tenancy. The house will generally pass on to your brother, rather than your spouse.
In addition, say you and your spouse own a home as joint tenants to avoid probate. This move really only avoids probate on the first death. When the surviving spouse dies, the home will typically end up in probate. And what happens if you both die in an accident?
Mistake #4: Not coordinating a will and a trust. Creating a trust and transferring assets to it may help you avoid probate and save taxes. However, if you have a will and a trust, be sure the documents are aligned so your wishes will ultimately be carried out. If a will and a trust are not consistent, it can lead to delays and unnecessary costs.
Mistake #5: Incorrectly titling assets. You want your intentions to be carried out for all assets, including your primary residence, vacation home, bank accounts, brokerage accounts, retirement accounts and even vehicles. Be sure to make beneficiary designations and properly title accounts. Designate a beneficiary (or beneficiaries) on IRAs, 401(k)s, company plans and other accounts. Take time annually to review them as they will control the distribution of those assets.
Why is this important? Assets could wind up in the hands of people you never intended. For example, there have been many cases where a couple divorces but one spouse forgets to update a beneficiary designation on a 401(k) plan. The ex-wife then receives the account balance – regardless of what the decedent’s will says.
Mistake #6: Not naming successor or contingent beneficiaries. Let’s say you name one beneficiary on an account and that individual dies. If you don’t update the beneficiary designation, there will be no successor to receive the account assets. In this case, the assets may go to someone you didn’t want to receive them — or they may wind up in your estate. It’s important to name more than one beneficiary on accounts and to keep your designations up to date.
Mistake #7: Failing to name a person to make health care decisions. You’ve probably heard about the nightmare that can occur when family members don’t agree what to do with a loved one on life support.
All 50 states permit you to express your wishes as to medical treatment and to appoint someone to communicate for you in the event you become incapacitated. Depending on the state, these legal documents are known as living wills, medical directives, health care proxies or advance health care directives. On one of these legal documents, designate someone you trust to follow your wishes.
Mistake #8: Relying on outdated or stale financial powers of attorney. You may have selected someone to make financial decisions for you with a power of attorney. However, after you signed the document, your circumstances or your relationship with the person may have changed. Consult with an attorney about how to proceed.
Mistake #9: Failing to consider Medicaid planning. Many people wait too long to plan for a nursing home or extended care and then want to apply for Medicaid. These issues should be reviewed long before a person nears the time when long-term care may be necessary.
Mistake #10: Thinking that estate taxes don’t apply. With the current generous federal estate tax rules (a $12.06 million exemption for 2022, up from $11.70 million for 2021), many people believe their estates won’t be liable. But keep in mind that many states have their own death taxes. If you live in one of these places, your estate can be exempt from the federal estate tax but still exposed to a significant estate tax hit imposed by your state. Don’t just focus on the federal rules. Consult with a financial professionals to minimize state taxes and ensure you establish domicile in the state that you want.
These issues can be complex. Speak with the professionals at Sol Schwartz & Associates to help ensure you have a proper and solid estate strategy so that your heirs are taken care of as you would wish. Or leave your questions here and we’ll get back to you. If you’re looking for a CPA in San Antonio or the surrounding area, we’re here for you.