Estate planning is something that you do now, to protect your loved ones and your life’s work in the future. By spending a few extra hours to do it right, you can save your family years of expenses and difficulty down the road.
Mistake 1: Not Keeping Family Out of Probate Through a Trust
When I speak with new clients for the first time, they don’t always realize this crucial fact—a will doesn’t keep your family out of probate court. Only a trust (or having a small enough estate) can do that.
But what’s wrong with probate court? For one, it’s public. Anyone can look up the assets under probate and who stands to benefit. It’s an opportunity for scammers to target vulnerable heirs. Also, it’s lengthy. These days, it’s not uncommon for a case to last more than a year and a half after a death. And finally, it’s expensive. Fees are set at a percentage of up to five percent of the estate before debts and mortgages are deducted. For many who are still paying off their home or other debt, this means more fees. And of course, the lawyers can ask the court for “extraordinary” fees if they have to do more work than they would consider to be usual. How stressful for your loved ones!
Mistake 2: Making Adult Children Co-Owners of your Assets
Many clients, especially seniors with responsible adult children, have heard about probate and know they want to avoid it. But making an appointment to see us can be daunting. So instead, they add their adult children to their property titles and bank accounts, thinking this will protect them. It’s true that if done correctly, this can help avoid formal probate proceedings in some cases. But unfortunately, doing so also has unintended consequences.
Think about it—if an adult child owns an asset, they can use it for any legal purpose. Most people never assume their adult child would go against their wishes, but I’ve seen too many matters where they rationalize keeping the property or using the accounts for personal expenses. And even if your child would never dream of taking from you, they could have creditors and legal issues of their own, exposing your life savings to their mistakes.
Finally, putting your children on title to your house while you’re living robs them of the tax advantages they would get if they were to inherit it instead.
Better alternatives to this include designating your children as payable-on-death beneficiaries, or better yet, owning these properties and accounts in a living trust. That way, your property is protected from your kids’ liabilities and mistakes and preserved for the future.
Mistake 3: Not Putting the Right People as Trustees
Parents sometimes feel obligated to list their oldest child as the first alternative trustee, the one who will take over when the parents are no longer able to manage their own finances. Other times, parents feel so guilty about choosing one child over the other, that they make them co-trustees who must do everything together. While these arrangements can work for some families, for others they are disastrous.
It’s right there in the word “trustee”—the most important qualification is that you trust them. That could be a family member or a friend, but it doesn’t have to be. Some decide that it’s “none of the above” for them, and use a licensed professional fiduciary instead.
If your children don’t get along, the consequence of naming them together to agree on everything could be that nothing gets done. I’ve seen cases where the trustees couldn’t even agree on which bank to use for the trust account!
Best practice really depends on the individuals and their role in your life. It’s best to discuss this with a trusted advisor who can understand your family dynamics and counsel you for your particular situation.
Mistake 4: Not Updating Your Estate Plan Regularly
Life changes such as marriage, divorce, or the birth of children can render your plan outdated.
While an experienced estate planning practitioner will craft your trust with potential contingencies in mind, it’s always a good idea to have your plan reviewed whenever your circumstances change, or every three years if nothing else has triggered the review. You may have new relationships, new properties, or simply new priorities. And sometimes changes in the law make it so that what was once best practice is now out dated. If you don’t review your plan, you might find that it doesn’t serve your purposes anymore. So be sure to update regularly.
Mistake 5: Failing to Plan for Incapacity
Some attorneys and many DIY plans only provide very basic instructions in case of incapacity, focusing more on who gets what after a death. But this is a mistake. More than half of people will lose capacity at some point before their death, and the consequences of failure to plan can leave family members scrambling. When you become incapacitated, it’s too late for new powers of attorney and health care directives, so you’d better hope the ones you have are thoughtful reflections of your wishes in these matters. Additionally, if they don’t give powers that your loved ones need in this type of situation, they’ll be stuck going to court.
Mistake 6: Overlooking Digital Assets
When planning your estate, it’s important to consider your digital imprint as well. Whether you’re a crypto enthusiast or simply have a phone and social media, it’s important to think through how your trustee will access your accounts when you’re no longer able. Tools like LastPass and My Life and Wishes can be invaluable ways to store and save this information in away that is accessible to those you choose. Apple, Google, Facebook, and many other companies also give you the option to create a contact who can take over your account in your absence. Without setting this up, your heirs might have to wait while your trustees are in court trying to force a company to grant access. So be sure to tell your attorney what accounts you hold and get advice on how to manage them.
When creating an estate plan, it’s important to choose the right people, title assets the safest way, keep your plan up to date, and plan for all assets and contingencies. When you do this, you have a solid plan you know your family will be thankful for.
If you’re not sure whether your plan covers all the bases, you can contact us for a 52-point review of your existing plan and recommendations of what might need to be updated. We are here to help. Schedule a consultation to see if a plan review is right for you at https://flpf.cliogrow.com/book today!