While drafting estate plans for our clients I have personally written hundreds of Wills, Trust, and Power of Attorneys. While drafting these documents I've noticed that there seems to be a pattern of common mistakes, and consequently, they can put road blocks in the administration of your estate or make your planning ineffective.
Here are the top five estate planning mistakes to avoid:
1. Failing to Update Estate Planning Documents and Beneficiary Information: Many people believe that once they go and see an estate planning attorney they should be good to go for life. WRONG! Our lives are constantly changing, people come into our lives and people go out of our lives. This is why it is so important to regularly check in and review your will, trust or power of attorney to make sure that your wishes and intent in those documents are still relevant and still correct.
Another mistake in failing to update estate planning documents is failure to designate or update the correct beneficiary designation. This creates several problems. First, if you fail to list a designee, your account or life insurance policy can become a probate asset that will require that asset to go through probate rather than pass directly to an individual. The same thing is true for updating beneficiary. If you listed an ex-spouse on a life insurance policy or and IRA account, it will create problems getting the transfer of your assets to the correct people.
2. Buying “Do it Yourself” Estate Documents Off the Internet: In the very fast paced and open access internet market we are experiencing, many people try to cut cost and cut corners by buying estate documents off the internet at a discounted rate. The problem is that unless you are an estate planning attorney that knows what to look for, people start signing documents without any explanation for the consequences of what they are signing or understanding how their documents will affect them or their heirs down the road.
3. Overlooking practicality in appointing individuals to carry out your wishes: When a person makes a selection for who they want to serve as their personal representative, they often will select someone that they know and trust. However, it is important to make sure that person is also practical given your situation in life. For example, if you live in Indiana and you name your daughter who lives in California to be your healthcare power of attorney, its going to be rather difficult for your daughter to be effective at handling your affairs for you. A regular review of your estate planning documents can avoid this.
4. Assuming your heirs know what you want: I can't tell you how many times I have clients laugh when I ask them about a certain asset and tell me “everyone knows I want _______asset to go to my friend Sally”. The problem is, Sally does not get ____asset unless you specifically convey it to her. Generally speaking, Heirs have many questions when they are named in a will or a trust and they are looking for instructions on what they are receiving and how they will receive it. If you don’t spell it out in your documents in a clear and concise manner they wont know how to handle your affairs.
5. Attempting to give your assets away in equal shares while at the same time giving specific assets of the same value to different beneficiary: I cringe when a client brings in a Will or a Trust where they tell me that they want their assets evenly divided between their children and then show me that they gave a particular house to one child, a bank account to another, and investment account to another. The intent is innocent but the reality of conveying an estate in this way is dangerous. For example, lets say you fall on financial times and have to sell off your investment account to live off of or sell your house? If you never update your estate planning, you have essentially disinherited your two children without realizing it.
These are only 5 of the most common mistakes made in estate planning, there are countless other mistakes made. Be sure to speak with an estate planning attorney to make sure your wishes will be carried out after you are gone.