In over 20 years of practice, I have seen a number of regular mistakes in families seeking help with their estate planning or a family member’s estate administration.
Top 4 Estate Planning Mistakes:
Mistake 1: The biggest mistake is failure to have an estate plan at all. Some people prefer not to think about the topic, perhaps out of fear of death or misinformation about whether they need a plan. Some may have thought through what they want, but have not finalized it in a written plan. By either account, if a person should die without a written will, North Carolina imposes a statutory “will” for them based on their marital status and number of children they have. This process is call dying intestate. This statutory “will” determines who receives the estate, how much, when they receive, and who may be responsible or eligible for administering the estate. But a written plan does not just involve death-related decisions. A written plan has value during your lifetime, especially during incapacity, to allow a person of your choosing to make medical and financial decisions for you without A) the court-controlled process of guardianship, or B) discord among family members as to who can/should handle those decisions.
Mistake 2: Failure to understand or to coordinate the titling of your assets or beneficiary designations with a will is problematic for families in estate administration. It is critical to understand that there are certain assets that pass outside of a will, like retirement assets, life insurance and, if properly titled, bank accounts. As such, it is necessary to review these assets to ensure that beneficiaries (primary and alternate) are named for these assets. A properly prepared estate will involve the review of these assets to make sure beneficiaries are listed and the value and terms of distribution are in line with your purposes for your total plan. This review and analysis are especially valuable when discussing how property distributions to children from prior relationships are handled in step-parent or second marriage scenarios.
Mistake 3: Related to the second mistake is the most unfortunate mistake. It is the failure to fund a trust. Revocable Living Trusts are an alternate to having a will alone and serve a great purpose of avoiding probate. However, having the trust prepared and not funding it gives a false sense of security and is a waste of any additional costs in having the trust prepared. An empty trust has no purpose. It is imperative to understand that assets have to actively be transferred into the estate based on the nature of the property. For instance, real estate is normally transferred by deeds. It is important that a client be guided in understanding what assets should be transferred into the trust and why. Relatedly, clients must not be misled to believe that taping a dollar bill to a page marked “Exhibit A” has made their trust official or meaningful. The $1 has escaped probate, but many of their other assets not transferred into trust may have a different fate.
Mistake 4: Having an outdated estate plan can be a mistake with devastating consequences. Life changes. Laws change. People move from state to state. People move in and out of relationships with one another. What if you are no longer close to the people to whom you gave decision-making power?
What if you are no longer close to your beneficiary? Take a married couple with reciprocal wills. If death would happen during a separation and an old plan was not changed, the estranged spouse can (and has on many occasions) inherit the assets of their spouse.
It is recommended that you review your plan at least every three years to see if 1) laws have changed or 2) life has changed, making my previous plan obsolete or objectionable. Has there been a marriage, divorce, addition to the family, significant change in assets, change in state of residence, or new ideas on asset distribution? If all is good, put it away and review at the next three-year mark or upon any major life change.