The most common and most significant estate planning error is failing to plan at all. About half of U.S. adults don’t even have a will, arguably the most basic estate planning document. Unfortunately, many of those who have taken basic steps to provide for their heirs have overlooked critical issues—issues that may come back to haunt them in their lifetimes, or their heirs later.
Whether you have an estate plan in place or are just beginning to educate yourself about your options, be aware of (and avoid) these frequent estate planning mistakes:
- Not planning for disability: Many people think of estate planning simply as a means of providing for the loved ones who survive them. While this selfless prioritization may be admirable, it can also be dangerous. A thorough estate plan will always include provisions for managing incapacity or disability, from healthcare directives to plans for management of your finances and care of your children.
- Not keeping documents up to date: Wills, trusts, and other estate planning documents aren’t necessarily one-time endeavors. As circumstances in your life change, those documents may need to be updated, and failing to keep them current can create significant complications for your loved ones. Some examples of events that might require updating of your estate plan include marriage, divorce, the birth or death of an heir, or an heir reaching the age of majority.
- Leaving assets or life insurance proceeds directly to a child: A minor child can’t legally manage his or her own assets, which means that someone else will assume control of those assets until your child reaches the age of majority. Protect your children by choosing who will be responsible for managing their assets and how that process will be structured when you create your estate plan.
- Misusing joint ownership of property: Joint ownership of property with rights of survivorship can be a simple, seamless means of passing certain types of property upon your death. But, joint ownership has pitfalls, as well, including putting your asset at risk during your lifetime and increasing the tax burden on the surviving owner after your death. Ensure that you understand all of the ramifications of joint ownership before choosing that route.
- Ignoring tax consequences: The possible tax consequences of passing real property to a non-spouse through joint ownership is just one of the many tax issues that must be considered in creating a solid estate plan. Tax obligations depend not just on the amount passed, but the type of asset passed and how it changes hands. To avoid tax-related estate planning mistakes, work closely with an experienced estate lawyer and tax advisor to construct your plan.
- Choosing the wrong trustee or administrator: The person closest to you isn’t necessarily the person best qualified to manage your estate or the trust you create for the benefit of your loved ones. One of the most common estate planning mistakes is prioritizing a loved one’s emotional response to your choice over the objective factors that will determine who will do the best job for your heirs. You don’t do your heirs or the administrator / trustee any favors when you put the wrong person in charge.
- Assuming your family will cooperate: If your family is close and you have good relationships with all of your heirs, it’s easy to assume that they’ll do the right thing and work together after your death. That assumption leads many people to believe their heirs can work out the details on their own. However, in the wake of the loss of a loved one, tensions often run high. In addition, reasonable people can and do differ about what is “right” or “fair.” Save your loved ones this added stress by making a very clear plan that doesn’t require them to resolve issues among themselves.
- Automatically treating all heirs the same: It’s important to remember that “equal” doesn’t necessarily mean “the same.” Imagine, for example, that you have a married child in his thirties with a good job and three children, a college-aged child who has no dependents and has not yet held a job, and a child in his late twenties who has a serious addiction. While you may wish to provide equally for all three, the best way to do so may differ dramatically. While the oldest may be in a position to manage his inheritance, the youngest may simply not be ready to handle a large influx of cash, and the one struggling with addiction may actually be endangered by a significant direct inheritance. Provide for your heirs in the manner that most benefits them, even if that means different approaches.
A consultation with an experienced attorney can be your first and best step toward avoiding these and other serious estate planning mistakes. Give yourself the advantage of a knowledgeable advocate as you create this all-important plan.