THE TOP 5 ESTATE PLANNING MISTAKES
By Michael D. Caccavo, Esq.
Nobody likes dealing with the issues of death or incapacity, especially their own. However, with a little forethought and planning it is possible to make things much easier for ourselves and our loved ones at such difficult times. Proper planning is a gift only you can give your loved ones. But many people don’t plan at all and many more don’t plan adequately. These are some of the major mistakes people make in their life and estate planning.
NO ESTATE PLAN. The biggest mistake people make is to not plan at all. Over 70% of Americans have no estate plan. Without a plan in place, the State has one for you. It is administered through the Probate Court, by people appointed by the Court, and according to a distribution plan set up by the Legislature. It is often not the distribution you would want, nor the administrator you would select. Take some time to carefully think through your desires and concerns, how you want your property distributed and who you want to be in charge.
NO INCAPACITY PLAN. Disability and incapacity are major problems. Many people have nothing in place in the event they become disabled and unable to manage their own affairs. By creating documents like Durable Powers of Attorney and Advance Health Care Directives it is possible to insure that your affairs will be handled by someone you select and that decisions, including medical and end of life decisions, will be made according to your wishes. These arrangements also allow your representatives to correct deficiencies in your planning and to take steps to preserve your assets. Failure to plan for this situation means that a Court supervised Guardian is the only alternative.
NO COORDINATION OF BENEFICIARIES. Many people forget that estate planning involves more than making a Will or Trust, creating joint accounts or naming beneficiaries There are many assets that a Will may not control, such as Life Insurance, retirement accounts, annuities, and jointly held assets. While the Will does not control them, you should be sure to consider how those assets will be distributed and to factor such distribution into your total estate plan. Otherwise a great Will or Trust distribution plan could end up distributing nothing because all the assets have other, named beneficiaries. It is also important to consider how different assets grow or are depleted over time, as that can drastically effect your planned distribution.
NO INHERITANCE PLAN. Proper inheritance planning is more than just naming the children equally. It is arranging things so that your property passes to your loved ones in the most beneficial way possible. Many younger parents think of naming Guardians for their children. Some even think of establishing trusts for them to provide for college or to postpone inheritance. There are other important issues to be considered in planning as well. Is there an adult child with a disability who needs a Special Needs Trust to preserve their benefits? How will a family vacation home be managed if left jointly to several children living in different parts of the country? Do you want to provide creditor or divorce protection for your beneficiaries? All of these and other issues can and should be considered in any plan.
FAILURE TO UPDATE THE PLAN. Once you have made the effort to create a plan, don’t forget about it. Circumstances change. People move, die and more are born. Relationships change. Be sure your plan keeps up with the changes in your family and your life. You should review your estate plan every two or three years, as well as when any major changes take place in your family, such as births, deaths or divorces. A review does not necessarily mean you need to see a lawyer. Just a review on your own to see if any part of your plan is out of date or needs changing to reflect changed circumstances is often sufficient. If changes are necessary then it is appropriate to consult your attorney.
OTHER PLANNING ISSUES. There are other issues that need to be considered in your planning, depending on your individual circumstances. Business owners need to consider Business Succession Planning. People with larger estates need to do Estate Tax Planning. Those with large investments in annuities or with highly appreciated assets need to consider Income and Capital Gains Tax planning. People with property in more than one state need Probate Avoidance planning. Individuals with more modest assets may need to do Medicaid Planning to preserve as much as possible for their loved ones. Those who want to leave gifts to charities, especially large gifts, should consider Charitable Gift Planning.
Proper planning is more than just filling out a form or adding a name to your account or your deed. It requires you to think about who you want to make decisions for you when you can’t, who you want to receive your property, how you want them to receive your property and what is the best way for them to receive the property. It also requires someone who can identify and deal with the complications that gift taxes, estate taxes, income taxes, capital gains taxes, Medicaid regulations and other legal issues add to your planning.
Proper planning can assure your property is managed the way you wish if you are unable to do it yourself. It can be certain that someone of your choice whom you trust will make medical decisions for you according to your desires. It will allow you to pass your property to those you wish either during your life or on your death. It will also allow you to maximize the benefits of your gifts to your loved ones and to minimize the impact of taxes on your estate.