Estate planning is not only for the rich and famous. If you have a house, you have an estate. If you have a car, you technically have an estate. Even if you don’t have a tremendous amount of wealth, you still need an estate plan. In this blog we’ll discuss the top 7 estate planning mistakes that we frequently see, and how to avoid them.
I’m sure you’ve heard the old saying “you don’t plan to fail, you fail to plan.” This is very true when it comes to estate planning. If you don’t have a basic estate plan, then the government is going to determine who gets your property, how they’re going to get it, and when they’ll get it. Now I don’t know about you, but I don’t want the government doing this with my property.
Before we get started with our 7 most common estate planning mistakes, I wanted to briefly mention companies like Legal Zoom and other software packages that some people use to create their estate planning documents. I’ve been practicing law for over 30 years and have seen quite a few estate planning mistakes arise from using these types of solutions. People think they’re saving money by not hiring an attorney, but it ends up costing them more in the long run to fix the mess.
Estate planning mistakes can cause your family to lose valuable assets when the assets are passed between the generations. Failing to plan will destroy much of your life savings and this can have a devastating impact on loved ones. The good news is that these estate planning mistakes can be avoided with proper planning. Now let’s get into our list!
#1 Make Sure You Have a Written Estate Plan
Everyone has an “estate plan” in their mind, but not everyone has a written estate plan. If you don’t have a written estate plan through a carefully drafted will, trust, or other documents, then the state where you live has a plan for you. This plan is called the Law of Intestacy. This means the government will dictate how your assets are passed to your heirs.
Let’s use the example of a second marriage. You’ve married for the second time and have chosen not to rewrite your will. You have three children from your previous marriage and no children from the second marriage. You might be thinking that a new will is not necessary because your second wife will receive your assets upon your death. But that’s not necessarily the case.
It depends how those assets are titled. As a general rule your second wife would receive a child’s share but in no case less than a third. She would get a third and the other two thirds of your estate would go to your children. This might not be how you want your assets to be transferred if you die unexpectedly. That’s why it’s so important to rewrite your estate plan if you remarry.
If it’s your intent to leave everything to your spouse, you need to have it in writing. You don’t want the government dictating how your assets will be distributed, so you better have a written estate plan. This is especially important if you have a child with special needs. If you don’t have a will and something happens to you, that special needs child will receive a significant amount of assets that could subsequently disqualify them from any government benefits they may be receiving. If you want to protect and preserve those assets for the child, you need to have a written document containing a trust for the benefit of the child.
#2 “I Love You Wills” Don’t Provide Asset Protection
Some people have very simple estate plans that we call “I love you wills.” This basically says everything goes to my spouse. And while that works in limited situations, it’s not always advantageous. In today’s world we’re not really concerned with estate taxes, but we are concerned with asset preservation and protection. This is primarily due to the expensive costs of long-term care. We’re trying to protect assets from the nursing home, and simple wills don’t always do that.
#3 Unbalanced Property Ownership Between Spouses
With many of our older clients, the husband owns substantially all the property in the estate. Not sure why that is, but we see it all the time. This unbalanced property ownership is one of the big estate planning mistakes that can lead to a significant loss of asset protection. In these cases we need to try to balance the assets between the husband and the wife. We can do that through various techniques — deeds and things of that nature.
When doing this, there’s no need to worry about the transfer issues with respect to Medicaid. Transfers between spouses are exempt from any kind of look back period. You can transfer everything all day long to the other spouse and you’re good to go.
#4 Changing Beneficiaries on Retirement Accounts
A will won’t necessarily determine the fate of all your property. Many assets are transferred based upon a contract. This would include things like a CD at the bank, a retirement plan, or an annuity. A retirement plan (401k or IRA) will have a beneficiary designation associated with it. Those beneficiary designations will determine who gets those assets if and when you die.
The problem arises with that second marriage scenario that we discussed above. If you get remarried but don’t change your beneficiary designation, your retirement account would go to your former spouse who was listed as the beneficiary. I’ve seen this happen many times within the last year and it’s one of those estate planning mistakes that can’t be undone.
#5 Updating Beneficiaries on Life Insurance Policies
Many people also overlook the beneficiary designations on their life insurance policies. Most people will have at least $50,000 plus of life insurance, which is a significant sum of money. If you have a life insurance policy, make sure your beneficiary designations are updated. If you unexpectedly pass without updating those designations, your assets could be passed to someone that you don’t want to receive them. Your will doesn’t always control the disposition of these types of assets — the contract does.
#6 You Can’t Take It with You!
There’s an old saying that goes “you can’t take it with you.” I’ve never seen an armored car following a hearse, and I’m sure you haven’t either. Now I completely sympathize with the people that just don’t want to talk about their death or estate planning. They get stressed thinking about it and therefore they’re just not going to do anything. But doing nothing is not a solution.
If I’ve got a toothache and refuse to go to the dentist, the problem is going to get worse. If you refuse to develop an estate plan, it’s going to create problems for your family when you pass. Instead of having your assets passed to your heirs as you wish, the Laws of Intestacy will determine who gets your property. You need to have an estate plan in writing and executed in the court within the laws of your state.
#7 Land Rich and Cash Poor
Many of our clients are what we call “land rich and cash poor.” This means that they own a significant amount of land, but don’t have much cash in the bank. We see this often with farmers who have invested their profits into more land over the years. This situation can be quite problematic when it comes to asset protection from nursing homes.
If you’re a farmer and own a bunch of land, that land is going to be worth more than Medicaid allows you to have. If you or your spouse need nursing home care, you’ll have pay cash for nursing home care or sell the land to pay for it. You don’t want to make those kind of estate planning mistakes. But we can help you preserve and protect that family land so that it can be passed to your family.
Contact Us So We Can Help!
Those are the most common estate planning mistakes we see at our office, but they can be avoided with proper planning. If you need assistance with estate planning documents or fixing some estate planning mistakes you’ve made in the past, you can complete this form or give us a call at (229) 226-8183. If you’d like to see this blog in video format, you can watch it below. Please be sure to SUBSCRIBE to our YouTube channel and click the bell notification button so that you’re notified each time we publish a new video.