The Most Common Estate Planning Mistakes I See (Part I)
After you’ve been helping people plan their estates for a few years, like me, you begin to see common mistakes over and over. Some of the mistakes don’t end up causing any damage to the person’s ultimate plan. However, some mistakes can result in tens of thousands of dollars (or more) going to someone you don’t intend to have that money, a nightmare probate process, or worse. Below I list some of the most common estate planning mistakes I see, along with what usually happens when someone makes that mistake.
– Failure to do any planning whatsoever – This is very common. In fact, some studies show that over 70 percent of people die without a will. I have seen people pass away after extended terminal illnesses without wills or other documents. Many people just don’t want to face their own mortality, and that’s understandable. However, failing to do a will, power of attorney or advance healthcare directive will result in someone else (the state) deciding where your property goes. It means more oversight during the probate process, and if you become unable to manage your affairs while you’re living, it could mean a guardianship and/or conservatorship proceeding would have to be opened up for you, which can be both costly and emotionally draining.
– Failure to update your estate plan once it’s completed after life circumstances change – Although most people would love to be able to do their estate planning documents once in their lifetime and then forget them until they’re needed, unfortunately life doesn’t work like that. Divorces happen. Loved ones die. Relationships become estranged. Children are born. After one of these events, you should at a minimum review your documents. You may find that you left your entire estate to someone with whom you’re no longer speaking, or you failed to draft a trust for the benefit of children.
– Failure to update beneficiary forms – Beneficiary forms of assets like 401(k)’s and life insurance policies tell where the proceeds pass. In most cases, they will not pass through the estate. That means that updating those beneficiary forms is also a critical part of reviewing your estate plan. A failure to do so could result in an ex-spouse receiving life insurance proceeds, or an estranged child receiving a 401(k).
– Drafting a living trust but failing to fund it – Although for most of my clients, I don’t recommend living trusts, simply because I don’t feel they are necessary, many people either already have them or really want them. A critical part of executing a living trust is funding it – that means retitling assets in the name of the trust. I have seen living trusts drafted before that owned no assets. In those cases, the living trust becomes a very expensive will.
– Poorly drafted documents, sometimes from computer programs – Although there are programs out there that create great legal documents and can save attorneys’ fees, there are also really bad documents available, and often a client may not know the difference. I know someone who showed me a will he prepared using a $5 computer program he bought at an office supply store. The will was horrible and I don’t think it was legal. If you want to save money on attorney’s fees, consider preparing the documents yourself and finding an attorney who will review them for a fixed fee.
Next week, I’ll touch on a few other critical estate planning mistakes I often see. If you have any questions about any of these, feel free to shoot me an email at firstname.lastname@example.org, or call me at 678-453-6490.