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10 Most Common Estate Planning Mistakes

Although there are probably endless amounts of estate planning mistakes, I've decided just to list the 10 most common that I've come across in my estate planning practice.

1. Failing to Understand How Your Assets will Pass Upon Your Death:

Most people think that once they've created a will or trust that all of their assets will pass according to those terms. However, some assets pass outside of your will or trust, so care should be taken to review each asset in your estate to make sure that upon your death it gets transferred as you desire.

2. Relying on Co-Ownership of Property to Avoid Probate:

Sometimes parents place a child on title to their home without consideration for the tax implications (i.e., gift or income tax consequences) and other legal implications. What if the child has creditors? Placing the child's name on the property does nothing to protect that child (or yourself) from the child's potential creditors.

3. Failing to Understand the Implications of Adding Someone to Your Bank Account:

If you add someone to your bank account, you are subjecting your account to their creditors.

4. Failing to Protect a Special Needs Beneficiary:

Without the proper structure, any inheritance of more than $2,000 by a special needs child would make your child ineligible for public assistance. With a proper structure, you could protect your child's inheritance from creditors and keep them eligible for public assistance.

5. Trying to "Go It Alone":

Unfortunately, I've helped more than one client undo poorly drafted estate plans after they tried to do it themselves.

For example: A patent attorney (husband and father) had obtained forms online. He filled them out and thought he had done a pretty good job. Unfortunately, his trust lacked any provisions for himself or his wife. In other words, the trust he had created had already assumed that he and his wife had passed away. This was completely contrary to what he and his wife believed that they had created. Thank goodness we caught his error before anything happened to him.

For example: A young married couple in their 20's with children tried to draft their own trust. They were in the process of purchasing their first home when escrow told them that they should have a trust, so they went to www.legalzoom.com and created a trust. After escrow closed, they were a little concerned with what they may have created. Upon review, they had created two separate trusts as if they both were single. Subsequently, both trusts were ignored and a new trust created.

Now, my clients have peace of mind that they, their children and their assets are protected in the event of their death or incapacity.

6. Relying on Beneficiary Designation:

There is always a chance that your designated beneficiary (i.e., under life insurance policies, retirement plans, etc.) may die before you or shortly thereafter. If that is the case, your assets may pass to your beneficiary's estate, not yours.

7. Failing to Minimize Estate Taxes:

In 2013, the estate tax exemption will drop from $5 million to $1 million (assuming that Congress makes no changes). Thus, if a married couple would like to transfer up to $2 million to their heirs free of estate tax, then they will need a properly drafted trust.

8. Failing to Properly Fund Your Living Trust:

Once your trust is created, you have an ongoing obligation to make sure that the trust is properly funded. If your trust is not properly funded, then your executor may have to probate some assets just to get them transferred to the trust.

For example: I represented the spouse of her deceased husband whose parents created a family limited partnership with each child receiving $1 million in limited partnership assets. Unfortunately, one of the children died prior to the parents. The limited partnership interest was listed in the child's name and not in his trust. The surviving spouse had to probate her deceased husband's interest in the family limited partnership to transfer it into their joint living trust for a cost of around $25,000. The cost could have been avoided if her husband's family limited partnership interest was titled in the name of their joint trust.

9. Assuming that all Estate Plans are Equal:

In my practice, I see many poorly drafted estate plans drafted by inexperienced attorneys, accountants, or trust mills where one trust fits all. The advisors simply do not inform you that your trust can be customized beyond the simple outright provisions to your children (i.e., 1/3 at 25 years, ½ at 30 years and remainder at 35 years).

10. Failing to Have an Estate Plan:

Remember that having "an estate plan" in place is always better than having "no plan."

For Tips on How to Avoid: See my Guide entitled "7 Steps Every Smart Parent Should Take"

To learn more, please Contact Me