- Not Having an Estate Plan
If you pass away without a Revocable Living Trust or Will, your estate may end up in probate court where a judge will choose your executor and state statutes will determine the distribution of your assets. Of course, neither the judge nor the state have an interest in minimizing estate administration costs or protecting your family’s privacy. Probate court is time consuming and expensive. Also, it is open to the public, which means creditors, predators and others will have access to all information about your estate. The benefits of a Revocable Living Trust or Will far outweigh their initial costs.
- Not Planning for Incapacity
People are living longer, which means more people are getting Dementia and Alzheimer’s. Unexpected incapacity impacts your personal and financial affairs. Decisions such as who will handle your finances and make other decisions on your behalf are extremely important. A Revocable Living Trust can include incapacity provisions where you choose a person you trust to manage your financial affairs. Without these provisions, there is a high probability that a conservator will be appointed through a probate court (often called “Living Probate”). This process can be costly, time-consuming and, may not be attuned to your wishes.
- Giving inheritance outright to your children
This might sound good at first, but it ignores potential problems. For example, what if your child is too immature to handle the responsibility of a large sum of money? What if your child has financial problems that put the inheritance at risk to creditors? What if your child marries a “gold digger”, is addicted to drugs or alcohol, gets divorced or remarried? You may need to protect your children’s inheritance.
- Putting your child’s name on the deed or bank account
Although you may avoid probate by adding a child onto an account, vehicle or deed, it may also cause problems. For example, you expose your assets to the creditors of your child. If your child gets sued, you could lose your asset. Also, your child may pass away before you. With this type of planning you run the risk of disinheriting grandchildren. There are better planning strategies to avoid probate.
- Ignoring the planning issues with a second marriage and blended family
It’s a delicate balance to hold: preserving assets for children from a first marriage and—at the same time—ensuring your new spouse will have the assets needed to maintain his or her lifestyle. Balancing the two often requires coming to terms with realistic expectations for all. Ignoring these issues often leads to Will contests and Trust litigation. You’ll want to speak with an estate planning attorney sensitive to the needs of a blended family.
- Not funding your Trust
An unfunded Trust means the Trust does not hold title to assets at death. A Trust may be partially or completely unfunded. Assets may be funded in several ways, including deed transfers, legal assignments and re-titling of accounts to the name of the Trust. For instance, a residence can be transferred to a Trust by executing and recording a transfer deed with the county recorder. An interest in an LLC may be assigned to the Trust. Bank accounts can be transferred to the Trust by re-titling the account name. The failure to execute Trust transfer deeds, legal assignments, or change in account names, results in a partially or wholly unfunded Trust. An unfunded Trust will likely end up in probate court, which defeats one of the purposes of the Trust.
- Not updating your Will or Trust
There are many life changes that can take place, such as relocation to a new state, births, deaths, divorces, remarriage, and new property acquisitions. The law itself is constantly changing. Even if you’ve specified a trustee or executor, your relationship with that person may change as well. Your documents should be reviewed when these changes occur or, at the very least, every two to three years. Updating your estate plan helps to avoid unintended consequences.
- Not meeting with an experienced estate planning attorney
Not meeting with an experienced estate planning attorney is a common mistake, especially if you have complicated estate issues or family dynamics. An experienced attorney can provide you with estate planning strategies and options based on your particular needs and demands. Beware of “simple” fill-in-the blank forms found online or Trust mills prepared by non-lawyers. They often lead to costly and time-consuming litigation, probate and family fighting. Legal documents should be comprehensive and specific to meet you and your family’s needs.
- Not having other important estate planning documents
The Revocable Living Trust is a powerful estate planning tool, but additional documents are needed. For example, a Living Will addresses your desires regarding life support, tube feeding, artificial hydration, and pain medication when you become terminally ill and would not survive without life support, or fall into a permanent vegetative state. A HIPAA Authorization allows only specific persons access to your medical records. A Financial Power of Attorney grants someone legal authority to act on your behalf for financial issues. Other estate planning documents include Healthcare Powers of Attorney, Assignments of Business Interests or Promissory Notes, Beneficiary Deeds, Temporary Guardian of Minor Children, and Memorial Instructions.
Even for those who realize that an estate plan can benefit them, this realization sometimes comes too late. One of the laws regarding estate planning is that the testator or settlor must have “testamentary capacity” to make a valid Will or Trust. We never know when we will pass away or become incapacitated. Do not wait. You or your loved ones may need your estate planning documents sooner than you think. For your peace of mind, it would be wise to meet with an estate planning attorney to help you at least draw up a basic estate plan.