Oct 23

Estate Planning: Top 20 Errors to Avoid

by L. Paul Hood, Jr.

We all want peace of mind, right? I firmly believe that putting your affairs in order creates peace of mind that is unrivaled. In this article, I’ll identify the “top 20” most serious mistakes that people routinely make in estate planning. This list is not in the order of seriousness; all of these are serious errors.

1. Procrastination: This one is a killer and can result from either your own procrastination or that of your estate planner.

2. Believing that your estate is too small: Everyone has something of value that they want to leave as a legacy to someone else. Many people falsely believe that their estates are too small to fuss over. However, in my 25 years of estate planning, that just isn’t so.

3. Divorce: Failure to consider your own possible divorce down the road is an error that too many of us make. The fact is that about half of us are going to get divorced.

4. Failure to communicate your intentions to your loved ones clearly: It is best to inform all of your loved ones of your estate plan while you are alive. If you can’t do that, at least communicate your intentions either in your estate planning documents or in a separate letter. Otherwise, feelings could get hurt and cause people to do things that, had you explained it, would have prevented the action.

5. Not having a health care power of attorney and a living will: These documents are even more critical when a couple is unmarried and not otherwise related because the laws of privacy would exclude the other partner from the hospital room or access to the partner’s doctors.

6. Underusing trusts: Too many people falsely believe that healthy, responsible heirs don’t need a trust. However, every heir can use the benefits of having their inheritance in trust. It provides asset protection as well as protection against divorce of the heir.

7. Failure to have enough liquid assets at death: When you die, there are financial responsibilities that need attention. Debts and taxes need to be paid.

8. Failure to carefully consider property that passes outside of a will: Many of us have significant parts of our wealth in retirement plans, IRAs and life insurance, none of which usually pass under a will. Pay a lot of attention to the beneficiary designations and the payout options under the policy or plan.

9. Assuming that your loved ones will cooperate and work things out after you’re gone: Mark Twain said, “You never really know someone until you share an inheritance with them.” Truer words were never spoken.

10. Failure to keep an estate plan up-to-date: Even the best estate plans can get stale if not revisited periodically. You should pull your plan out and read it annually. You should have your estate planner review it every three to five years as well as upon the occurrence of significant events like birth of new children, marriage, divorce, significant changes in wealth or upon significant law changes.

11. Thinking that estate planning is something that you can do yourself: If I had a dollar for every do-it-yourself estate plan that I had to fix after the fact, I’d be a wealthy man. Hint: it’s much more expensive to repair a defective estate plan than it is to prepare one.

12. Too much joint tenancy property: The joint tenancy trumps the estate planning documents.

13. Naming the wrong person to handle your affairs: Too many people simply name an oldest child even though the youngest child is the most capable of the group. Even the best estate plan can crumble due to the selection of the wrong person to be trustee or executor.

14. Equal is not always equitable: The vast majority of people want to divide their estates between their children equally. But equal is not always equitable. If properly explained to your loved ones in advance, unequal division of an estate often makes more sense.

15. Failure to consider all possible estate planning angles: It makes sense to have an estate planning advisor who can “think outside the box” to tailor an estate plan for your unique situation. What works for someone else too often is foisted upon others, and the result is not good.

16. Failure to consider digital assets like Internet passwords for email and accounts like brokerage accounts: It’s a good idea to place your passwords for your various accounts in a safe place that a loved one can find after you are gone.

17. Failure to do adequate death tax planning: Many spouses want simple “I love you” wills where they leave their entire estates to each other. There are ways to give the spouse what you want them to have and get all of the tax benefits that you can.

18. Failure to cover all reasonably foreseeable future events: Many people simply assume that they will die before their children or their spouse. Will your estate plan work if your child or spouse doesn’t survive

19. Failure to maintain adequate records that people can find: Keep a trail that someone coming behind you can find – it will make administration of your estate much easier.

20. Failure to adequately prepare for incapacity: Having a will is not enough. What happens if you are incapacitated but still alive? You need a power of attorney or your loved ones will have to go to court to handle your affairs.

These are my “top 20” errors that people make in estate planning. Vow not to make them yourself. Putting your affairs in order will make your life more serene and enjoyable.

L. Paul Hood, Jr. is director of Gift Planning for the University of Montana Foundation. Hood is a “recovering” tax lawyer who joined the University of Montana Foundation after over 25 years in tax law and estate planning. The author of three non-fiction books and the father of two wonderful teenage boys, Hood enjoys music and sports, but his passion is baseball. He received undergraduate and law degrees from Louisiana State University, and an LLM in taxation from Georgetown University Law Center.

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