Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life, in the event the person becomes incapacitated and after death.
Estate Planning Mistakes:
Converting financial accounts to joint ownership
it substitutes for a financial power of attorney. Instead of having a document drafted that gives the adult child the power to manage the accounts when the parent is unable to, the joint title takes care of that. Each owner has authority over the accounts and can make decisions. Secondly, the jointly-held account often creates problems. In most states, half the jointly-held account is subject to the claims of creditors of either co-owner. Your assets could end up in someone else’s hands if your adult child divorces, loses a lawsuit, or runs up big debts.
Naming one child as beneficiary
Too often a parent decides to keep things simple by naming only one adult child as beneficiary of life insurance or a financial account, including an IRA. The parent’s intent, which often was expressed to the children, is that the child who is named as beneficiary will split the account or insurance evenly with the other children. If one child takes title to the property, it is subject to the claims of any of his or her creditors.
Failure to name or update.
This means that an asset that normally would avoid probate must go through the probate process. It will be considered part of the estate and be distributed according to the terms of either the will or state law. For financial accounts, the company that holds the account might have its own default rules for determining who is the beneficiary when one isn’t named. Too many people select beneficiaries when they open an account or buy a policy and never review the decision after marriages, divorces, deaths, etc.
Naming multiple co-beneficiaries.
This is frequently done with IRAs, financial accounts, and even real estate using a Transfer on Death deed or a similar designation. The arrangement can work well. With an IRA, the beneficiaries can agree to split it into separate IRAs. Too often, however, the strategy leads to problems. The beneficiaries can’t agree on how to manage the property or how to split it. It can be a major problem with real estate, because they all have to agree on everything. If they agree to sell, then they must agree on a broker, the offering price, and how to respond to each offer. They also might have to contribute equally to property taxes and other expenses until the property is sold.
Estate Planning Mistakes to Avoid.
Nobody likes to plan for events like aging, incapacitation or death. But failing to do so can cause families burden and grief, thousands of dollars, and hundreds of hours. Preparing for life’s unexpected events is crucial but can often be a difficult process to navigate. Here are Estate Planning mistakes to avoid.
1. Not having a will (or one that can be found)
The leading mistake is simply not having a will in the first place. Estate planning is critically important to protect an individual, their family, and their hard-earned assets, during their lifetime, during any period of incapacity and upon their deaths. Everyone needs estate planning documents, regardless of the amount of assets that they have. Waiting for a ‘more appropriate time’ to put together your will is a mistake. Everybody should have a will. It should be written when you are young and updated throughout your life as your circumstances change.
2. Neglecting to choose and update appropriate beneficiaries
When you have an asset that has a beneficiary designation, that will supersede anything written in a will. The most grievous example [of a beneficiary issue] is when a married couple divorces, then remarries without changing the beneficiary to the new spouse. In this all-too-common and completely avoidable scenario, the ex-spouse is legally entitled to the assets, and a lengthy legal battle ensues on behalf of the new spouse and/or the children to claim the assets.”
There are financial implications to think through as well, without a proper beneficiary designation, income tax on retirement accounts may have to be paid sooner, which may lead to a larger than necessary income tax liability, and the designation of a beneficiary on a life insurance policy can impact whether the proceeds are subject to claims of creditors.
3. Overlooking the importance of powers of attorney for kids over 18 years old
While you may think that your kids are your kids, if they are adults in the eyes of the law and something happens to them, you may be left without power – literally, if an 18-year-old becomes ill or has an accident, a doctor will not speak to a parent if a power of attorney for health care is not in place. Similarly, unless a power of attorney for property is in place, a parent may not be able to take care of bills, make investment decisions and pay taxes without the child’s signature. This could be very difficult when a child is in college, especially if they are out of the country.” It is imperative that when your child turns 18 that you get those powers of attorney put into place.
For legal assistance with estate planning, contact us today.