Perhaps you have heard the expression: “If you fail to plan then you plan to fail.” This statement was never truer than for estate planning. By some accounts, 70% of adult Americans have no will or trust in place for their loved ones. Furthermore, others who initially did prepare an estate plan have failed to update it in light of changing circumstances in their lives.
With this backdrop, I wanted to summarize what I have seen over the years as the most common estate planning mistakes that people make.
1. FAILURE TO PRESERVE YOUR INHERITANCE FOR YOUR GRANDCHILDREN SHOULD YOUR SON/DAUGHTER DIE AND THEIR SURVIVING SPOUSE REMARRY.
You need to take steps in drafting your estate plan to assure that your assets are distributed to your grandchildren should your son/daughter die and not left to your daughter-in-law/son-in-law who could eventually remarry and end up using your inheritance with the new wife/husband and his/her step kids – all of home have no familial relationship to you.
2. FAILURE TO AVOID A GUARDIANSHIP PROCEEDING FOR YOUR CHILDREN.
If you have children, have you considered who would raise them if for some reason you or their other parent couldn’t. While this is not an easy subject to contemplate, having a guardian arrangement spelled out as part of your estate plan will ensure they will be properly cared for by someone you trust and have chosen. A legal guardian is a person who is given the legal authority and responsibility to take care of your children’s needs, such as providing food, education, medical care, dental care and shelter. If you have minor children it is imperative to have a plan in place to protect them in the event you cannot.
3. FALL OUT FROM REFINANCINGS AND THE FAILURE TO PUT YOUR REAL PROPERTY BACK IN AN EXISTING TRUST.
Did you know that most home refinancings require that your home be transferred out of a living trust back to your own name(s), at least until after the new lender has recorded its new mortgage or deed of trust on the property? The problem is that is most cases, no one ever thinks to transfer your real property back into the trust. This failure can result in an unforeseen probate of your home at the death of the second spouse.
4. FAILURE TO ENSURE THAT YOUR ASSETS ARE DISTRIBUTED THE WAY YOUR WANT AND NOT PURSUANT TO THE GOVERNMENT’S DEFAULT PLAN FOR YOU.
Everyone has an estate plan. It is either the one we have created or the default so-called Plan B of the state in which we live. In our experience, it is very unlikely that a state’s default plan is what clients would really want. State laws vary, but generally they have it set for the assets go outright to the closest family members. Whom a state considers to be “closest” can be complicated in nonnuclear families. Nonfamily members, like an unmarried partner, will not receive any of the assets. This failure to act could cause family member fights over their inheritance.
5. HAVING ONLY A WILL OFTEN LEADS TO THE NEED FOR PROBATE.
Having only a will is a just ticket to participate in the dreaded probate process costing your family time and money. Additionally, for those who don’t have a will, their assets will probably have to go through the intestate (“no will”) proceeding. Either of these scenarios will require that your assets go through probate before they can be fully distributed to the heirs. Probate proceedings vary from state to state, but many view the time, cost, and loss of privacy and control that come with probate as unnecessary evils which can – and should be – avoided.
6. AN OLDER PERSON HOLDING TITLE TO THEIR REAL ESTATE IN JOINT TENANCY WITH A CHILD OR GRANDCHILD.
Many older people add an adult child (or grandchild) to the title of their assets (especially their home) as a joint owner in order to avoid probate. However, this type of property can create all kinds of problems, including:
* When a joint owner is added, the original owner loses control:
* Jointly owned assets are exposed to the joint owner’s possible misuse of them;
* Part of these assets could be lost to the joint owner’s creditors;
* The assets could become part of a joint owner’s divorce proceedings.
7. FAILURE TO PROTECT FAMILY MEMBERS WITH DRUG ALCOHOL, GAMBLING ISSUES.
Many parents with a trust fear that an inheritance left to a child may be lost because of poor money handling skills or a drug, alcohol or gambling addiction of their children. With a living trust, you can instruct the successor trustee to retain person’s inheritance in trust and instruct the trustee to make payments, as needed, directly to third parties for rent, insurance, car payments, etc. to keep it out of their hands.
8. FAILURE TO HAVE POWERS OF ATTORNEY FOR UNMARRIED ADULT CHILDREN.
Let’s say you have a college student or a young adult over 18 who is unmarried. They are no longer minors that you have the legal authority to make decisions for. The law now classifies them as adults with the legal right to privacy. If they have not prepared a Power of Attorney (“POA”), certain problems could now arise with matters such as:
1. Driver’s license or vehicle registration renewals
2. Registration/admission for college
3. Tax return filing
4. Banking transactions
5. Ongoing legal matters (e.g., pending lawsuit from that fender-bender a few months back or speaking with child’s landlord)
6. Jury duty summons
7. Passport renewal
Many estate planners urge clients to prod their adult children to draft POA on or around their 18th birthdays. So don’t forget a POA and make it one of the most important things on your to-do list.
A will or trust is not a static instrument. To serve its purposes, it must keep current with life changes, including an individual’s financial circumstances, and with some external factors, such as tax laws. With the help of a professional, you should periodically review your will, staying alert to new or different circumstances that might call for updates. Let us help you have the peace of mind you deserve!
Contact our office for a free analysis of your situation and receive a FREE estate planning session (valued at $750.00) consultation or a trust review if you already have a trust to make sure it is current. Contact Mark Klein at firstname.lastname@example.org or (949) 453-7979 call to schedule an appointment.