My List of the Top Ten Estate Planning Mistakes
Mistake #1 ‑ Failure to Create an Estate Plan
By far the most common mistake is the failure to create an "Estate Plan" at all, or to try to create an "estate plan" which is based on a Will, Joint Ownership, or giving property to one or more heirs in the hope that they will take care of you.
Although a Will‑based estate plan might be sufficient to pass assets to your heirs and other beneficiaries in States where the cost of probate is low and the procedure simple, this is not the case in California.
In California, if a deceased individual has an Estate with real estate worth more than $50,000 or total assets in excess of $150,000, a probate proceeding is required. Moreover, in California, a probate proceeding is very expensive, takes on average around a year and a half, and is completely public (with few exceptions).
Joint Ownership of property will almost always result in huge problems for your heirs and in some cases for you, including loss of a step‑up (our double step‑up) in basis and unintended disinheritance.
Giving your assets away means that you lose total control over your assets while you are still living. You could even be thrown out of your own home!
The only type of Estate Plan which avoid probate and these other problems, while ensuring that your estate is passed to the beneficiaries in the manner you want, is a plan based upon a Revocable Living Trust.
The Revocable Living Trust Estate Plans we create for our clients includes other "ancillary" documents, including
1) an Advance Health Care Directive and "springing" Durable Power of Attorney to protect you in the event you become incapacitated or go missing, and
2) a Pour‑Over Will, General Assignment of Personal Property and Deed to Transfer your personal residence to your Trust.
Mistake #2 ‑ Failure to Fund Your Revocable Living Trust or to Designate Beneficiaries
The next most common mistake individuals make with regard to their Estate Plans is the failure to Afund@ the Revocable Living Trust properly and completely.
"Funding" refers to the process of transferring or "titling" your assets into the Trust. In some cases, the Trust may not have been funded at all, and in other cases a major asset, such as a piece of real property, has not been funded into the Trust.
This is a serious error, since failure to "fund" a significant asset or assets into the estate can result in a full probate proceeding, with all of the attendant expense, delay and publicity.
In our office, we provide you with detailed instructions concerning the proper funding of your Trust, and we call and send emails to remind you of the need to fund your Trust. We also invite you to call if you encounter problems funding your Trust.
The Estate Planning Portfolio we provide to you also includes guidance concerning
1) what assets should be handled through beneficiary designations and
2) reminders about the need to ensure that your beneficiary designations for qualified retirement plans are proper and up to date.
Mistake # 3 ‑ Failure to Review the Titling of Assets and Accounts and Beneficiary Designations as Your Life Changes
Shortly after you receive your Estate Plan, and with proper guidance and assistance, you should
1) transfer or "re‑title" all assets other than insurance and qualified retirement plans into your Trust and
2) complete and mail or deposit appropriate beneficiary designations for life insurance and qualified retirement plans with your life insurance company or retirement plan administrator.
As time passes, however, you might purchase or refinance real property, change banks, open new accounts, and purchase or replace your insurance, without putting title to the property in the name of your name as ATrustee@ or making the appropriate beneficiary designation on your life insurance or retirement plans.
We work with you to try to avoid this mistake by
1) offering you telephone guidance and assistance during the first year after your Estate Plan is completed;
2) sending you emails on a regular basis; and
3) offering a low cost maintenance plan for following years to help our clients avoid these mistakes.
Mistake #4 ‑ Advance Health Care Directives Without HIPAA Release Authorizations
If you have an older Estate Plan, you might not have a AHIPAA Release@ which your designated Health Care Agent needs to make informed health care decisions on your behalf.
The Health Insurance Portability and Accountability Act (HIPAA) was enacted into law and signed by President Clinton in 1996. HIPAA includes privacy rules for health care information. In 2003 and 2004, the Department of Health and Human adopted regulations which prohibit health care providers and other "covered entities" and their independent contractors from disclosing information about individuals without their consent.
Since the regulations regarding the privacy of medical information were not promulgated until 2004, Estate Plans created before that time, and even some plans created thereafter, will not include a HIPAA Release which the person you designate as your health care agent for medical decisions.
Mistake #5 ‑ Improper or Insufficient Planning for Non‑Financial Personal Property
Most Estate Plans, including both Revocable Living Trust‑based plans and Will‑based plans, do not deal specifically with non‑financial personal property, such as household furniture, jewelry, artwork and collectibles. This failure can result in huge problems, including ill will between heirs, strong disagreements and lawsuits.
In order to prevent these problems, you need a Revocable Living Trust‑based Estate Plan which includes
1) a General Assignment of Personal Property to transfer all personal property into your Trust;
2) a provision in your Revocable Living Trust which permits you to bequeath personal property by Memorandum; and
3) Memoranda forms which you can use to designate the individuals to whom you want to bequeath particular items of personal property.
We also strongly advise our clients to meet with your children and other heirs to discuss who wants what items of personal property. Try asking them to give you their wishes by ranking their priorities on the assumption that they cannot get everything they want.
Mistake #6 ‑ Improper Planning for and Handling of Qualified Retirement Plan Assets
These days, almost everyone who creates an Estate Plan has significant amounts of assets in Aqualified retirements plans@ such as 401k's, 403's, and IRA's.
In many cases, however, these assets end up being mishandled for one or more reasons, including
1) the Revocable Living Trust does not include the language needed to prevent funds from the qualified plans from being used for things which would result in an immediate "distribution" from the Trust;
2) the lack of knowledge on the part of individuals regarding the adverse effects which occur when they name a Trust or other entity as beneficiary of the Retirement Plan;
3) the grantor or grantors have failed to follow their Estate Planning counsel's instructions regarding the naming of s beneficiaries of his, her or their qualified retirement plan.
The Estate Plans we prepare include
1) specific provisions which prevent the use of retirement plan funds for improper purposes;
2) "conduit" provisions which provide for the "pass‑through" of retirement plan benefits in the event that the Trust is improperly named as a beneficiary of a retirement plan.
1) provide our clients with advice concerning the proper completion of beneficiary forms for these plans and include this advice in a letter which is to be kept at the front of our Estate Plan Portfolio;
2) offer to prepare a Retirement Trust which avoids many of the problems which occur with respect to Retirement Plans after the Revocable Living Trust has been prepared.
Mistake #7 ‑ Failure to Review an Estate Plan When Moving to a New State
Although a Revocable Living Trusts prepared in one State is effective in every State, a Trust which was prepared in one State may not be appropriate for you in your new State.
For example, if you are just moving to California from New York, which is one of several States which still have estate, inheritance and/or gift taxes,* your plan may include provisions designed to reduce or eliminate these State taxes which are no longer necessary or appropriate now that you reside in California.
Moreover, your Will, Pour‑Over Will or other "ancillary" documents may have been prepared to comply with technical requirements of your prior State which are different than the technical requirements in your new State, thereby rendering your Will defective.
Accordingly, if you move from one State to another, you should have your plan reviewed by a qualified estate planning attorney in your new State of residence.
* The following States still have estate, inheritance or gift taxes, or some combination of these taxes: Maine, Vermont, New York, New Jersey, Massachusetts, Connecticut, Rhode Island, Pennsylvania, Delaware, Maryland, District of Columbia, North Carolina, Tennessee (scheduled to be repealed effective Jan. 1, 2016), Kentucky, Illinois, Iowa, Minnesota, Nebraska, Washington, Oregon, and Hawaii.
Mistake #8 ‑ Failing to Consider Trusts for Spouses or Children
The vast majority of Estate Plans in existence provide for outright bequests for spouses and children. Although making outright bequests is appropriate in many cases, it would be a mistake not to consider an Estate Plan which provides for the creation of separate trusts after your death or the death of your spouse.
A separate Trust for your spouse or children can 1) protect them from creditors, including divorced spouses, and 2) protect your children or other heirs in the even that your spouse remarries.
Mistake #9 ‑ Failure to Provide for Special Needs or Spendthrift Children
Many Estate Plans include no provisions whatsoever for Special Needs or Spendthrift Children.
If your heir(s) become disabled in some fashion and require governmental assistance, all the assets you bequeath to this heir might disqualify your heir from governmental benefits.
All of the Revocable Living Trusts we prepare include default Special Needs Trust provisions if it turns out that one or more of your beneficiaries are receiving governmental benefits at the time of your assets need to be distributed.
We also offer both standalone Special Needs Trusts and Spendthrift Trusts for children you know or expect to need this sort of protection.
Mistake #10 ‑ Failure to Properly Fund Out‑of‑State Real Estate into Your Trust
If you own real property which is located in a State other than the one where your Revocable Living Trust was prepared, there is a chance that your out‑of‑State real estate was not properly Afunded@ into your Trust.
This is because the requirements for the contents of a deed to transfer real property to your Revocable Living Trust is governed by the law of the State where the real property is located.
As a result, you would probably have to an ancillary Probate proceeding in the State where the property is located.
In our office, we inform our clients that they need to use an attorney who is admitted to practice in the State where the property is located to prepare a trust transfer deed.
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