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The Ten Worst Estate Planning Mistakes

Hoover Financial AdvisorsMay 28, 2015

Estate Planning

*David is a trusted colleague of Hoover Financial Advisors.  He is an attorney at Unruh Turner Burke & Frees, and currently heads the Firm’s Trust, Estate and Wealth Preservation Section, and Co-chairs the Elder Law Solutions section.  Please feel free to reach out to their company with any further questions specific to the article, or we would be happy to assist as well.  We hope you enjoy the informative article!

Contrary to popular belief, estate plans are not just for the rich and famous. And any one, married or widowed, with children or grandchildren should consider doing estate planning since avoiding even the most basic mistakes can mean major benefits for your heirs and can result in your wishes actually being carried out.

The reality is that even if you did planning as recently as 2012, the laws have changed so much that you could massively benefit from having an updated estate plan in place. And, if you have no real plan or you have a much older plan (such as a plan without the right trusts) then the harm to heirs can be substantial.

Not only can updated and customized planning help maximize the actual value of the estate you’ll pass on to your heirs and beneficiaries, you’ll also have the opportunity to make informed decisions concerning how your assets should be handled while you are still alive.

So read on to discover the most common and devastating estate planning mistakes, how to avoid them, and how to reap the benefits for both you and your family.  See these additional and useful articles from our archives and from Find Law on Estate Planning: Keep Track of Passwords, Access Keys, and PINs, Download our Estate Planning Checklist [PDF], and a Forbes Magazine article for more information on gifting.

Below are ten common estate planning mistakes to avoid:

Estate Planning Mistake 1: Not having an estate plan at all.

The most common estate planning mistake (but one that has devastating effects) is not having an estate plan at all. Most of us, whether we do estate planning or not, have thought about what we want.

We have a sense of what’s important to us and fair and good for our heirs. And while no one wants to face their own mortality, no one can escape death. But, if death is inevitable, and we can never know when it might happen, and if we (even secretly) have thought about our desires, then it’s actually painful to avoid planning. And, planning makes it more likely that our wishes will be known and followed.

It minimizes taxes and expenses, and it makes us feel like we have done our duty to our family and/or other heirs – such as charities or charitable causes.

Solving the problem: Find an experienced legal and estate planning professional, preferably someone located near you (as adding travel to the list of barriers doesn’t really help), who works with other families like yours, and/or individuals like you. Get that law firm’s estate planning questionnaire (click here for our EPQ) and work through it (it will get you going in the right direction and thinking about the right questions). Find one that offers a free or reasonable initial meeting (good planners tend to be a bit more expensive than a general practice attorney and might have a little wait for the appointment…remember they’re good so people seek them out).

Finally, make an appointment. That way, your brain knows you’re serious and you get momentum. Before you know it you’ll have an estate plan including wills, trusts, powers of attorney and the other essentials. And when you do you’ll actually feel better.

Estate Planning Mistake 2: Not updating your will trust or estate plan.

There are many changes that can take place within a family or business structure, such as births, deaths, divorces, new business structures or ventures, changes in estate, tax, and inheritance tax laws and new property acquisitions. Therefore, to ensure the assets you leave behind are given to those you intend, it is wise to perform a periodic update of your will, trust, beneficiary designations, and overall estate plan when these changes take place.

In fact, there have been so many changes in recent years, that even an estate plan completed in 2012 or before might be out of date, obsolete, or even disadvantageous.

Solving the problem: When you update your plan and/or documents, also make sure that you review whether you should use a will, a revocable trust, an irrevocable trust or some combination of those techniques.

What once worked, at an earlier stage in life, a different level of wealth, or under old laws, may no longer be optimal – or even desirable.

Most trust and estate and wealth preservation lawyers and law firms will provide updates to existing clients at a reduced cost rather than charging you the full price of the first plan. However, if you were less than satisfied with the work of your lawyer or if they have retired, then finding a new firm may offer real benefits.

Again, make sure that the firm works with other clients that have your goals, level of wealth, or similar issues. Get their questionnaire and complete it BEFORE you go to the initial appointment. Being disorganized can make the process more expensive. And knowing, in advance, some people who could serve as executors or trustees and trust protectors as well as having a general sense of percentages of your estates to each heir will probably help to reduce your overall costs.

Make that appointment.

It will stop the procrastination and almost everyone notes how much better they feel when they do, or update their planning. To get on our schedule call 610-933-8069.

Estate Planning Mistake 3: Not planning for, and protecting yourself from your own disability (otherwise known as “You want your assets to be there if you wake up from a coma.”).

Dying is not the only reason to have an estate plan in place. An unexpected or long term disability can often have important consequences to your personal and financial affairs.

Decisions about issues such as: who will handle your finances, raise your children, or make healthcare decisions on your behalf are all extremely important. Therefore it may be necessary to appoint a power of attorney and/or create a living trust to work on your behalf in the event you’re unable to do for yourself.

Most spouses think, incorrectly, that they can sell or refinance a home owned jointly, and/or deal with a spouses IRA or 401(k).

But that’s incorrect.

Advanced planning can mean the difference between an expensive court monitored guardianship (or a dispute over who gets to make decisions) and a simple, clear and inexpensive solution.

You get to choose.

Your customized solution: Not all powers of attorney and living wills are the same. But you should address disability planning with an experienced trust and estates or wealth preservation attorney.

In fact, many experienced lawyers in this field include these customized documents in their flat estate planning fees. Again, better attorneys are often more expensive and harder to get to see on short notice so plan ahead and make an appointment.

And, while cost and a full schedule do not prove legal and estate planning ability, they are factors to consider and to weigh along with ratings from services such as AVVO and the recommendations of trusted friends and family advisers.

If you need to know more you can also get our report: Enhanced Estate Planning. Please call 610-933-8069 for a hard copy.

Estate Planning Mistake 4: Not doing nursing home planning and considering lifetime gifts to reduce your estate and to protect assets for your heirs.

A common estate planning mistake is failing to do long term care planning, or to consider making lifetime gifts under your estate plan to reduce your estate taxes and ultimately to protect a spouse or heirs from having to spend down all of your assets for nursing home or long term in home care.

Multiple Solutions: According to the Internal Revenue Code, annual gifts up to $14,000 a year per spouse may be excluded from estate and gift tax.

So, gifts made to individuals, or to family business entities, are currently subject to a $28,000 exemption from estate tax and in some cases, inheritance taxes at the state level.

As a result, if you can afford to make such gifts without harming your economic security, not only will this result in larger distributions to your heirs but you can positively impact a specific person of your choosing.

Next, you can also help a child or family member to buy a home or to start a business by using part or all of your lifetime exemption (currently $5,430,000 dollars) to make larger and tax free gifts. In addition, certain specific and irrevocable trusts can be created to protect your assets from being spent down for your own long term care. However, the common revocable family trust cannot do this and the issues are numerous.

But, a knowledgeable wealth preservation or elder law attorney with experience in Medicaid trusts can guide you through the landmines safely and can protect assets for a non-incapacitated spouse and in the long term for children and other heirs.

Click here to continue reading the remaining Estate Planning Mistakes…