From time to time, it’s good to review why having a
complete, up-to-date estate plan is so important. In addition to confirming our
own actions, it can provide us with valuable information to pass along to friends
and family who, for whatever reasons, have yet to act. So, here are five common
estate planning mistakes to avoid.
1. Not having a plan.
Every state has laws for distributing the property of someone who dies without
an estate plan—but not very many people would be pleased with the results.
State laws vary, but generally they leave a percentage of the deceased’s assets
to family members. (Non-family members, like an unmarried partner, will not
receive any assets.) It is common for the surviving spouse and children to each
receive a share, which often means the surviving spouse will not have enough
money to live on. If the children are minors, the court will control their
inheritances until they reach legal age (usually 18), at which time they will receive
the full amount. (Most parents prefer their children inherit later, when they
are more mature.)
guardian for minor children. A guardian for minor children can only be
named through a will. If the parents have not done this, and both die before
the children reach legal age, the court will have to name someone to raise them
without knowing whom the parents would have chosen.
to the title of their assets (especially their home), often to avoid probate.
But this can create all kinds of problems. When you add a co-owner, you lose
control. Jointly-owned assets are now exposed to the co-owner’s creditors,
divorce proceedings and possible misuse of the assets, and the co-owner must
agree to all business transactions. There could be gift and/or income tax
issues. And if you have more than one child but only name one to be co-owner
with you, fluctuating values could cause your children to receive
unbalanced/unintended inheritances.
due to mental or physical incapacity, only a court appointee can sign for this
person—even if a valid will exists. (A will only goes into effect after death.)
The court usually stays involved until the person recovers or dies and the
court, not the family, will control how their assets are used to provide for
their care. The process is public and can become expensive, embarrassing, time
consuming and difficult to end.
process can be risky because that person can do anything they want with your
assets with no real restrictions. For this reason, a living trust is often
preferred for incapacity planning. With a trust, the person(s) you choose to
act for you can do so without court interference, yet they are held to a higher
standard as a trustee; if they misuse their power, they can be held
accountable.
Someone also needs to be given
the power to make health care decisions for you (including life and death
decisions) if you are unable to make them for yourself. Without a designated
health care agent, you could be kept alive by artificial means for an
indefinite period of time. (Remember Terri Schiavo? Terri’s story and information
about the Terri Schiavo Foundation can be found at http://www.terrisfight.org/, ) The
exorbitant costs of long term care, most of which are not covered by health
insurance or Medicare, must also be part of incapacity planning. Consider long
term care insurance to protect your assets.
the personal, family and financial situations, and tax laws, in effect at the
time it was created. All of these will change over time, and your plan needs to
change with them. It’s a good idea to review your plan every couple of years or
so and make sure it still does what you want it to do. Your attorney will let
you know when a tax law change might affect your plan, but you need to let your
attorney know about other changes that could affect it. Contact our San Francisco estate planning attorney with questions.
