In theory, creating an estate plan is a pretty straightforward process. However, in practice, there are many estate planning mistakes that prevent your plan from having its intended effect. Thus, while there are many options for DIY estate planning, these tools are better used to familiarize yourself with the process as opposed to creating actual estate planning documents.
When the time comes to put together your estate plan, working with a dedicated estate planning lawyer is the best way to avoid the most common estate planning mistakes. Contact the estate planning attorneys at Batson Nolan PLC today.
Below is a list of common estate planning mistakes, as well as tips on how to avoid them.
Waiting Too Long to Create an Estate Plan
Many people assume that estate planning is a process you only need to engage in as you approach retirement. However, estate planning is important for everyone, not just retirees. Many benefits of an estate plan require a plan to be in place well before it is needed. So if you wait too long to get started on an estate plan, you may find that your options are limited.
Falling to Include a Plan for Long-Term Care
According to the U.S. Department of Health & Human Services, someone turning 65 years old today has nearly a 70% chance of needing long-term care at some point in their life. Approximately 20% of those who need long-term care need it for at least five years. Given the high cost of nursing home care, it is essential that you plan for this possible need. Estate planning lawyers have a variety of tools at their disposal to help families plan for their long-term care needs.
Not Considering Estate Tax Liability
Even if you live in a state that does not impose a state income tax, federal income tax still applies. As of 2022, the lifetime estate tax exemption is $12.06 million, meaning estates valued at more than this amount are subject to federal estate tax. Additionally, the lifetime estate tax exemption is shared with the gift-tax exemption and the generation-skipping transfer tax exemption. Thus, depending on your situation, you may have used up some of your estate tax exemption during your life. However, there are ways to decrease your estate tax liability that should be considered when creating your estate plan.
Failing to Consider Probate-Avoidance Strategies
Probate is the process whereby a court validates a person’s will, appoints someone to oversee the administration of their estate, and eventually distributes the deceased’s assets according to the terms of their will. However, the probate process is both time-consuming and costly. In most cases, an estate planning attorney can use tools like trusts and payable-on-death accounts to decrease or eliminate the amount of probate assets. This can save your family time, stress, and money after your passing.
Relying on Joint Ownership to Avoid Probate
One of the easiest ways to convert probate assets to non-probate assets is to arrange for joint ownership. However, joint ownership opens the door to potential problems. For example, if you add someone to your bank account, not only will they have unfettered access, but the assets in the account are also subject to your joint account holder’s creditors. The same is true for jointly-held real estate, vehicles, and other assets. Your attorney will work to find safer methods to accomplish your goal.
Failing to Name a Guardian for Young Children
If the goal of estate planning is to ensure your family is cared for after you are gone, one of the most important aspects of your estate plan should be arranging for the care of any minor children. When you create a will, you can designate a guardian who will become the legal caretaker for your children. You may also consider including instructions for how the guardian will care for your children as well as providing them with the financial resources they will need to do so.
Forgetting to Fund a Trust
Trusts are powerful tools that you can use to accomplish a wide range of estate planning goals. However, a trust provides no benefits until you transfer assets into the trust. Forgetting to fund a trust essentially renders the trust useless.
Failing to Update Your Estate Plan
Estate planning is not a one-time event. As your life circumstances change, so too should your estate plan. For example, if a child marries, if you get divorced, or if a named beneficiary passes away, you should update your estate plan to reflect these changes. Failure to update an estate plan may result in the plan not having its intended effect.
Failing to Update Beneficiary Designations
The general rule of thumb is that you should name beneficiaries who are younger than you—or at least those who you expect to outlive you. If one of your beneficiaries predeceases you, the assets in the account will end up going through probate unless you have a secondary or contingent beneficiary. To avoid this, be sure to review beneficiary designations annually.
Including Retirement Assets in Your Will
One of the benefits of a retirement account is that you can name a beneficiary who automatically receives the assets upon your death. In this way, your retirement assets bypass the probate process. However, because these assets are not technically included in your estate, you should not make arrangements for them in your will, for example, by purporting to use them to pay off estate debt. Doing so can result in there being insufficient assets in your estate to cover all distributions.
Consult with an Experienced Estate Planning Lawyer to Avoid Estate Planning Mistakes
If you do not yet have an estate plan, or it’s been years since you last updated your plan, reach out to the dedicated estate planning lawyers at Batson Nolan PLC. We have a long history of assisting clients through the estate planning process. We can help you and your family create an effective estate plan which will provide you with peace of mind for years to come. To learn more and to schedule a free consultation with an experienced estate planning attorney, contact Batson Nolan PLC at 931-647-1501. You can also connect with us through our online contact form.