Estate planning refers to the division and/or distribution of an individual’s assets upon death. This process is important as it ensures a person’s wealth is appropriately distributed among the loved ones or organizations they intended. However, a flawed estate plan can bring unnecessary stress for those who survive and can often be avoided with thoughtful and thorough estate planning.
The Importance of Estate Planning
Without a proper estate plan, the distribution of assets falls under Missouri’s Intestate Succession laws, which may not align with the deceased party’s wishes. Moreover, without a plan, potential burdens are imposed on the family, including extensive paperwork, legal fees, and possibly probate court. These outcomes emphasize the risks associated with failing to plan.
Common Mistakes in Estate Planning
Failing to Plan
How many people just never get around to making out that Will or Trust? Though very common, postponing or neglecting estate planning can gravely threaten the financial well-being of surviving family members or other loved ones. A well-thought-out plan is necessary to maintain the individual’s control over who inherits their assets and who maintains control after their own death. Failure to plan properly can lead to family disputes, unfavorable legal decisions, or results that may not be what the deceased person intended.
Solution: Prioritize estate planning. Start by simply setting up a first appointment with an estate planning attorney. If necessary, start by setting up a basic plan and then reviewing and updating it after major life events or at least every five years. Doing so regularly ensures the estate plan accurately reflects the individual’s current circumstances and wishes.
Not Discussing With Family and Friends
While avoiding discussing estate planning with family and friends may seem easier, maintaining silence often leads to misunderstandings or negative results. We have found that many people may have unrealistic ideas that could be easily fixed by simply talking to loved ones, i.e., clients who want to leave the house to a child who doesn’t really want it, or naming certain people to be in charge, even though those people do not want the obligation, and would prefer not to serve. Misunderstandings and disagreements often arise only after the person dies, when beneficiaries discover the details of an estate plan that was never discussed or they did not know existed.
Solution: If you are comfortable doing so, openly share the essentials of the estate plan with family members and close friends who will be involved someday. Clear communication can prevent conflicts, manage expectations, and provide understanding and acceptance of the decisions made.
Failing to Name Alternate Beneficiaries
Designating only one beneficiary, with no alternates, may seem the most straightforward choice, but it presents a risk if that individual predeceases the estate owner. This could lead to legal complications and unexpected or unwanted results.
Solution: Always name an alternate beneficiary (also called a Secondary Beneficiary or Contingent Beneficiary) for all assets, or in your Will or Trust, name one or more rounds of alternate Beneficiary(ies). This ensures a clear line of succession if the primary beneficiary cannot inherit.
Forgetting About Power of Attorney or Health Care Directive
Forgetting to appoint a Power of Attorney for health care or finances can result in many problems. If an individual becomes incapacitated and unable to make choices, having trusted appointees is crucial.
Power of Attorney for Finances is one of the most overlooked and underrated legal documents. If a person becomes incapacitated, who would have the authority to make all of your non-health care decisions, such as:
- Filing, paying, or negotiating state or federal taxes
- Dealing with government agencies
- Acquisition, sale, or transfer of personal property
- Making decisions about living arrangements
- Making decisions about the standard of living
- Many other non-health care related decisions
Health Care Directives also play an important role. If you were at the end of your life and not expected to survive, what kind of treatments would you want or not want in such a scenario? Would you want to receive treatments knowing such treatments would not cure you? These are the many questions a health care directive can address, among many other topics.
Solution: Make sure you have a (1) Power of Attorney for Health Care, (2) Power of Attorney for Finances, and (3 Health Care Directive. These documents ensure that the individual’s desires and best interests are upheld, even when they cannot express their own wishes.
Other Overlooked Aspects
Remember to make provisions for digital assets (like social media accounts and digital files), charities you want to support, future provisions for your children or grandchildren (even those who might not be born yet), and consider tax implications. There are many aspects of an estate plan to address in order to avoid unintended consequences and potential misunderstandings or problems.
Solution: Take a comprehensive approach to creating an estate plan. Include digital assets, plan for charitable contributions, consider the long-term needs of existing or future children and grandchildren, and understand the tax implications. Consult an estate planning attorney or accountant to ensure a thorough and effective plan.
Regular Plan Updates
An estate plan should never be a “set-it-and-forget-it” group of documents. Life circumstances such as divorce, inheritance, financial losses or gains, changed circumstances or priorities, or new additions to the family can significantly influence the decisions in the estate plan. Regular review and updates can ensure the plan reflects one’s current situation and wishes.
Properly Funding Your Trust
When utilizing a Trust, the creation of the Trust is only part of the process. “Funding” the Trust (i.e., retitling assets so that they are owned by the Trust or Payable on Death to the Trust) is the next necessary step after establishing the Trust. A Trust that is validly created but does not own anything will not accomplish anything.
- Step one: Create a Trust.
- Step two: Fund the Trust with your assets (don’t forget this step!)
Securing the Estate Plan
Once the estate plan is in place, it’s important to keep the documents safe yet accessible. Trusted family members or the appointed attorney should know where to find these documents when needed. A comprehensive, thoughtful, and perfectly drafted estate plan that no one can find will not be useful to anyone.
Getting Professional Help and Advice
IN THE LONG RUN, NOT HIRING AN ATTORNEY IS MORE EXPENSIVE THAN HIRING ONE!
Estate planning is a complex process. To ensure all aspects of the estate are considered, it is beneficial to seek the help of an estate planning attorney. They can provide valuable guidance, understand and explain nuances, bring awareness to issues you have not considered, explain the implications of certain estate planning decisions, and help avoid common mistakes.
Having Peace of Mind Through Proper Estate Planning
A well-crafted and regularly updated estate plan ensures that one’s assets are divided and distributed according to one’s wishes, shielding your surviving loved ones from potential financial distress.
You can confidently go through estate planning by avoiding common errors and seeking professional advice. Planning your estate isn’t just for the rich; it’s a smart step everyone should take to know your loved ones will be secure and taken care of in your absence.
