Estate planning is often something we leave until it’s far too late. For some, it’s about the pain associated with thinking about leaving this world. For others, it’s just one more thing on the never-ending to-do list. In their haste to get that one thing out of the way, costly mistakes are made. In estate-planning terms, this can mean a long and expensive probate process, significant tax consequences for your heirs and hurt feelings when your loved ones don’t get the assets that they were hoping to inherit.
As estate-planning attorneys, we see many mistakes and their aftermath. Here are just a few of the most costly mistakes made by people who thought they could DIY their estate planning.
- Letting the State Court Decide. While it is true that each state has its own laws surrounding intestate succession (distribution of assets of people who die without a will), that distribution may not happen the way you would want it to happen. For example, if you die without a valid will in place, your assets may be distributed equally to your son and daughter. It could be that your son has been taking care of you for years and your daughter wrote you off years ago. You may not want her to receive any of your assets, because you want to reward your son’s loyalty. If the state distributes your assets because you don’t have a valid will in place, your wishes may not be granted. Your estate will also have to go through a very costly and public probate process.
- Not Transferring Assets into Your Trust. Some people are under the mistaken impression that they can create a trust online and then they are done. Unfortunately, a trust is irrelevant if you do not transfer assets into the trust, what’s known as the “trust res.” Without transferring expensive assets like houses, art and other luxury items, your trust is useless and the assets must go through probate, thus diminishing the size of your legacy.
- Leaving Assets Directly to a Loved One with Special Needs. Leaving assets directly to a person with special needs may result in them becoming disqualified for important government benefits. This could jeopardize their housing and health care over the long-term. If you have a loved one with special needs, there are ways to provide for them without leaving them assets directly. Talk to an estate-planning attorney about special needs trusts.
- Choosing the Wrong Trustee. When you create a trust, you must assign a trustee to manage the trust res. If you choose someone who is interested in the assets of the trust, such as an adult child, it may lead to infighting among your other children. Alternatively, choosing someone with no business acumen or questionable ethics may lead to the trust res being depleted and your legacy wasted.
- Failing to Update Beneficiaries. Most banking and financial accounts, life insurance policies and investment accounts require you to name one or more beneficiaries to inherit the assets of the account, once you pass. These beneficiary designations should be reviewed and updated annually, or whenever a significant life event occurs. Failure to do so can result in your assets going to a hated ex-spouse, instead of someone you would have wanted the asset to go to.
Avoid the DIY mistakes and talk to an experienced estate-planning attorney in your area today.