5 Common Estate Planning Mistakes (and how to avoid them)
There are a number of mistakes to avoid (or at least be thinking about) when you're planning for the future. Often, these mistakes come about because of complexities in the law or a person's unawareness of how certain laws work. For that reason, it's always wise to consult an estate planning attorney. Unfortunately, we've seen many unpleasant situations develop that could have been easily avoided.
Here are five examples of some fairly common mistakes people make (and the potential consequences that could arise):
1. Not planning for guardianship of your minor children if you become incapacitated or deceased.
If parents of minor children pass away (or become incapacitated) and they have no legal documents outlining how those children are to be cared for, the court system will ultimately make the final determination as to who the guardian will be. Keep in mind that with the high emotional stress surrounding this kind of situation, it's not uncommon for family members (from all sides) to disagree on who should raise the children. When that happens, things get messy. Particularly for the children.
Also, simply asking someone to care for your children if you can't (or even writing something down identifying who you'd like that to be) isn't necessarily a guaranty that will happen. While it can be used as evidence in front of a judge, there are a number of legal challenges that could be raised as to its validity. The safest option is to ensure that this is addressed in estate planning documents, such as a will or a trust.
2. Not completing an Advance Directive (also known as a Living Will).
An Advance Directive sets out your wishes regarding end-of-life treatment and medical care (such as whether you would like to be kept alive on a ventilator, feeding tube, etc.). Setting out these wishes is incredibly important for everyone over the age of 18, primarily because (1) you won't leave the decision making burden of whether to "pull the plug" to a loved-one who may not be emotionally prepared to make such a decision; and (2) it can ensure that your family members won't incur long-term medical care expenses or subsequent legal costs to determine your intentions, desires or expectations.
You can read more about Advance Directives by clicking here.
3. Not naming someone as your power of attorney in the event you become incapacitated.
There are basically two types of powers of attorney: (1) a general durable power of attorney and (2) a durable healthcare power of attorney. These documents allow you to name an individual (or more than one) who can step into your shoes and make decisions on your behalf while you're incapacitated. Consider this scenario: assume you are in a serious car accident and end up in a coma for several months. Who would be able to access your checking account to pay bills on your behalf? Unless you've authorized another person to access your bank account (which is unlikely unless it's a spouse), only a person with a general durable power of attorney could write checks to cover expenses while you can't (such as paying a house payment, cell phone bill, credit card statement, etc.).
Additionally, assume that while you are in a coma, your treating physician recommends a certain medical procedure to assist your recovery. Who would be authorized to decide whether it should be done? Who would you want to make that decision? Unless you set it out in writing, the person that ends up making the choice may not be the person you want.
Making these designations now can save you (and those you care about) a lot of unnecessary stress and difficulty. And, it can ensure that those you trust most will be acting on your behalf.
4. Not taking advantage of beneficiary designations.
There are a number of simple steps a person can take to ensure property passes without it having to go through probate. These other options are generally very low cost and relatively effective (particularly if a person has a small estate) and include beneficiary deeds (for real property), pay-on-death beneficiary designations (for bank accounts, investments and life insurance) and transfer-on-death designations (for automobiles, RVs, boats, etc.). Of all of the estate planning options available, these are likely the easiest and least expensive to accomplish.
That being said, if you don't have any other estate documents in place and you don't do at least this much, the consequences can be costly. For example, in Missouri, it generally costs less than $20.00 to add a transfer-on-death designation to your automobile title (if you haven't done so already). However, if you neglect to take this step (and haven't done any other estate planning), that vehicle will likely need to be probated upon death. Depending on the value of the car, this process could cost between several hundred and several thousand dollars.
5. Not having a will or trust.
If a person becomes deceased and has no will, trust or other document in place, that person’s estate must go through probate (a legal process open to the public). In most situations, probating an estate in Missouri takes a minimum of six months – and that’s the best-case scenario. Realistically, it could take in excess of a year. Additionally, to hire an attorney to assist with probate (which is highly recommended because of the technical nature of the process), attorneys charge a percentage of the value of the estate (which is a process set out by statute). Generally, this alone can cost the estate far more than the price of a will or trust.
Keep in mind, having a will does not keep someone’s estate from going through probate. Rather, it merely tells the probate judge how that person’s estate is to be distributed (instead of the court following default statutory rules for individuals that have no will). The same time frame and costs apply to admitting a will to probate.
In most cases, the better option is using a trust (as opposed to a will). Using a trust avoids probate entirely (so long as it is properly set up and funded) and can convey property immediately upon death (no six-month waiting period and no need to hire an attorney).
In our experience, people generally assume that trusts are only necessary for complex or high-value estates; however, that’s simply not true. If your goals include avoiding probate and keeping your ultimate costs low, a trust should certainly be considered.
6. Not doing anything at all.
Quite possibly the biggest mistake you can make is not taking care of things now. Life changes quickly. Don't get caught unprepared or before it's too late.
Take some protective steps now. You (and the ones closest to you) will be glad you did.
If you have any questions about this process, we'd be happy to visit with you.
Contact us today to learn more.
*This article is intended for information only and is not intended to be construed as legal advice. The choice of a lawyer is an important decision and should not be based solely upon advertisements.