The thought of creating, or revising, your estate plan can seem daunting, and can turn even the most proactive of individuals into perpetual procrastinators. However, thoughtful preparation during the estate planning process is essential to giving you, and your family, peace of mind, and leads to fewer roadblocks during periods of uncertainty, change, and grief. All too often, clients make the same mistakes and have the same misconceptions during the estate planning process:
#1 I Don’t Need an Estate Plan
Everybody needs an estate plan. Period. Regardless of your particular level of wealth, size of your family, or whether you have a preference on where your assets end up. The most common misconception I hear from clients is that estate planning is only for the wealthy. While those individuals or couples near or above the federal (and sometimes state) estate-tax exemption may need more advanced estate planning vehicles to maximize asset protection and tax planning, having a customized estate plan can also help avoid unintended distributions, and a costly and drawn-out probate process.
Many families and individuals incorrectly assume that by having all of their assets in joint tenancy, or by listing beneficiaries on their assets, that they have avoided the probate process and don’t have a need for an estate plan. While listing beneficiaries on their assets, or by owning assets in joint tenancy, can be smart planning, time and time again, there are all too often assets that appear after a person’s death that surprise their family and necessitate the probate process. Without the guidance of a Last Will & Testament, or the creation of an appropriately funded Revocable Trust, you have inadvertently created obstacles for your heirs and loved ones.
Probate is a legal proceeding with the county court where your will is presented to the court to determine how your assets will be distributed, who will be appointed as your Executor, and allows creditors to file claims against your estate. Avoiding probate lessens the burden on grieving loved ones, allows your beneficiaries to access their inheritances faster, sidesteps costly court fees, and provides more money available to your beneficiaries.
More importantly, the preparation of a Last Will & Testament provides guidance to the court when choosing a guardian for your child. Judges do not like having to choose a guardian for a child without the direction of a nominated family member or friend provided under a Last Will & Testament – after all, they did not know you, and do not know your family and friends. By providing a nomination for the guardian of your child under your Last Will, you give the Judge a foundation for his or her decision over who will ultimately be responsible for the care of your child. Particularly, without a nominated guardian in a Last Will & Testament, judges often place children in the care of appropriately-situated close family members. However, if you wish your child to be raised by a close family friend or non-immediate family member, a Last Will & Testament is of critical importance.
Additionally, if ensuring the care and support your animal is important to you (and for a growing number of individuals, pets are considered a part of the family), estate planning can identify the individual or organization you wish to take care of your animal in the event you become incapacitated or pass away unexpectedly. Most recently, a former client under guardianship in the court system, who was unable to take care of her cats any longer, saw her beloved animals taken to animal control for six months while her guardian and family members battled out not only who should take care of the cats, but how much money was required to support the animals on a monthly basis. If she had provided for this event in a carefully drafted estate plan, the contentious battle between the guardian and the client’s family members could have been avoided.
#2 Unwilling to Think about the Future
Too many individuals avoid thinking about their estate plan and their family’s future until it’s too late. Remember, no one is invincible. Preparing your estate plan before a serious illness or accident occurs ensures that your loved ones are taken care of when you are no longer able to provide for them. Most importantly, after a serious illness or accident, clients may be legally prevented from changing their estate plans. Statutory documents like a Power of Attorney for Property and Power of Attorney for Healthcare, allow you to name someone (an “agent”) to handle your financial affairs and make medical decisions for you. Powers of Attorney also allow you to decide how and when you would like your agent to make these decisions.
Clients are often unaware that if they become incapacitated without a Power of Attorney for Health Care in place, doctors are typically required to act to keep them alive. Moreover, critical decisions such as the medical treatments you’d like to receive or not receive, and who you wish to make these decisions for you, default to certain people under state law – people you may not want to be involved in the decision-making process, such as estranged family members who may not understand or respect your spiritual or religious beliefs when making those important decisions.
It is also worth noting that without a Power of Attorney for Health Care, family members authorized to act under state law may disagree about which actions to take on your behalf, and take their decision to the courts, in front of a judge who will make the ultimate decision and enter a court order.
#3 Not Consulting an Estate Planning Attorney
Attorneys choose specialties and fields of law for a reason – each focus of law requires intensive study and years of practice to truly understand the case law, statutes, and implications affecting an attorney’s chosen field or fields of law.
Clients build up relationships and rapport with their family lawyers or other attorneys who have helped them on other matters in the past, and either feel guilty seeking out another attorney to draft their estate plan, or don’t want to expend the effort to research estate planning attorneys. The lawyer who may have been your greatest advocate in the courtroom fighting for your business may not be the best attorney to draft your estate plan. Most lawyers understand when they are out of their depth, and take no issue referring you to an attorney who specializes in estate planning. While your family lawyer or general attorney may know your background or your family, or even provide a less expensive service, estate planning is a complex, ever changing area of law that foils even seasoned attorneys.
Estate planners make it their practice to understand the implications and consequences of your decisions, and will help guide you through the proper process to avoid big, costly mistakes.
#4 My Attorney Doesn’t Need to Know That
Your attorneys can only counsel you on the information you have given them. Clients often don’t wish to discuss family dynamics or history with their attorneys, which can ultimately lead to legal battles between family members. For example, do you and your spouse have children from different marriages? How do those children get along? Do you have any children or other family members likely to contest your estate plan? Letting your attorney into the complex background of your family allows him or her to carefully and thoughtfully draft your estate plan to provide safeguards against contentious family members. Based on your discussions with your attorney, he or she may advise you to distribute your assets differently than you had imagined, or to appoint different individuals as Executor or Trustee.
Additionally, your attorney may ask you about the professions and status of your beneficiaries. This is not intended to pry – a well-intentioned gift to your child or family member can bring along massive tax liabilities or future financial obligations (such as property taxes), and may be best directed to a trust or other estate planning vehicle, but still allow your beneficiary to enjoy the benefits of that asset.
Furthermore, clients often forget about assets they have or inheritances they have received, which can lead to estate tax, court proceedings, and a headache for your Executor, Trustee, and beneficiaries. When your estate planning attorney provides you with a questionnaire that asks for your assets, family dynamics and your ultimate wishes, know that your attorney has designed his or her questionnaire to prevent these issues.
#5 Not Managing Beneficiaries’ Expectations
Beneficiaries often have unrealistic and selfish expectations of their inheritances from their family members. Too often, they feel that they are entitled to or have “earned” their inheritance. At a minimum, individuals should always discuss their estate plans with their children or other beneficiaries and manage expectations from the beginning. This can be a difficult conversation to have, particularly if your beneficiaries expect more than they will eventually receive, or if they will be receiving nothing at all.
In particular, allowing your beneficiaries unencumbered access to their inheritances may be more hurtful than helpful, especially if they have a proven history of letting money slip through their fingers. For beneficiaries who inherit assets outright at death, particularly brokerage accounts or other cash-rich accounts that don’t assess tax penalties or other fees upon withdrawal, this often causes them to feel as if they have walked right into a lottery. Too often, beneficiaries spend down inheritances in a manner of years that was intended to provide for them for the remainder of their lives. Leaving your estate to those beneficiaries in trust allows your Trustee to exercise control, based on your direction, in how those assets are invested, distributed, and allocated, helping to curtail beneficiaries’ ill-advised investment decisions or spending sprees.
#6 Thinking Their Decisions Have to Be Final
Your estate planning documents do not have to be final unless you want them to be – in fact, estate planning attorneys encourage clients to review or amend their estate plans every few years, whether there has been a change in the law, or a change in the client’s life. Whether you are recently married, divorced, purchased or sold a home, have recently had children, or recently lost a loved one, your estate plan will need to be updated accordingly.
While your attorney may not recommend any changes or revisions to your documents during a review, most estate planning attorneys will recommend that you have your estate plan reviewed approximately every 5 years.
#7 Your Estate Plan is Finished Once You’ve Signed Your Documents
I often see clients who talk about how relieved that they are “done” as they are signing their estate planning documents, and look disappointed when I tell them the process is only half over. While the estate planning documents may be in place, there may be many more steps to take in terms of retitling assets and changing beneficiaries, particularly if you have created a trust.
Your estate planning attorney should always offer instructions on the retitling process to appropriately follow your estate plan. Some attorneys will even aid you in the process, although some may offer this service at an additional cost. Failing to listen to their guidelines on this process can easily undo the work, and money, expended to develop your estate plan. The process of retitling your assets, or changing beneficiaries, is often as simple as filling out a form and sending it to the appropriate institution. Also, always keep all of your original documents in a safe place, such as a safe deposit or fire-proof box. Your attorney may even offer to send you electronic copies of your documents so you have both hard-copy and digital versions for your records and to easily reference.
Estate planning is and should be more than a “fill-in-the-blank” process – every estate plan should be custom tailored to each individual and their wishes, desires, and unique situation. The decision of who you should hire to prepare your estate plan is not one you should take lightly. Planning for your future now will provide security for you and your loved ones now and after death. The attorneys at Carlson Dash are here to be the counsel and guidance you need as you prepare for your future.
This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
If you need assistance with a related matter, contact us.