5 Estate Planning Mistakes to Avoid
You have consulted a lawyer prepared a will and maybe even a trust agreement. Now you’re in good shape, right? Not necessarily. According to a reputed estate planning law firm, here are five costly mistakes that people commonly make with their estate plan:
Failing to Title Your Property in the Name of the Trust
The main goal of a revocable trust is to avoid the cost of probate. Probate is a court process for managing and closing an estate that can be lengthy and expensive. If your property is held in the name of a trust, probate can usually be avoided. Many people contact a lawyer and have them prepare a trust agreement – but that is only half of the job. Then you must make sure to retitle your assets into the name of the trust. If you fail to retitle even one asset, it may become necessary to go through probate. This defeats the main reason for having a trust. Be sure to work with your lawyer even after signing the trust to ensure that you have properly retitled your assets. The Thomas-Walters, PLLC law firm is where you can go to get the right lawyers for your case.
Naming your “Estate” as the beneficiary on Insurance Policies
A similar problem occurs if you name your “estate” as the beneficiary under an insurance policy or retirement account. You may have set up a trust and transferred all of your accounts into the name of the trust. If, however, your life insurance policy names your “estate” as the beneficiary – the money will be paid to your “estate” and now it needs to go through probate. Once again, the goal of the trust is defeated. You can avoid this by naming your beneficiaries directly, or naming the trust as the beneficiary.
Failing to Check the Beneficiaries on your Insurance or Retirement Accounts
Imagine a situation where you open a retirement account and name your son as beneficiary. Several years later you have a daughter. A couple of years after that, you prepare a will giving everything 50% of your estate to each child. Click here to work with Marc Brown if you are facing bankruptcy. At death you have $100,000 in the bank and $100,000 in your retirement account. If you haven’t changed your beneficiary, the $100,000 retirement account would go directly to your son. The remaining $100,000 would go through probate and be split between your son and daughter. In the end, your son would get $150,000 and your daughter, just $50,000. Forgetting to check the beneficiaries on your accounts can upset even a well thought out estate plan.
Improper use of Joint Accounts
Many people use a joint account to help a relative with managing their finances. It can be convenient, but the lawyers for estate planning say that it can also cause problems with an estate plan. A “joint account” usually means that either person can withdraw all of the funds from the account. If one person dies, the other named account-holder owns the account. It does not pass through probate or pursuant to a will. If most of your assets are held in joint accounts, your entire estate may pass directly to the other account holder, leaving nothing to be distributed by your will. This can create an unintended gift to the joint account holder, at the expense of your other heirs.
Not Planning / Not Updating
The biggest estate planning mistake is not planning at all. A surprising number of people just keep putting it off, and never get around to creating a will or trust. Some think that estate planning is only for the wealthy. In fact, failing to make a plan can be even more costly (on a percentage basis) for small and medium sized estates. Even those who make a plan, often forget to update it. You may have made a simple will after you had children. 25 years later, a trust might make better sense. You also may have new assets that weren’t contemplated by the will.
The good news is that all of these mistakes can be fixed. It is primarily a question of reviewing your plan to make sure that it matches with your intentions.
Eric Parker is an attorney and partner at Stotis & Baird Chartered. He practices in the areas of elder law, estate planning, estate administration, probate, and litigation. Eric works with many out of town relatives of seniors who live in Evanston, Skokie, Wilmette, Glenview and the greater Chicago area.