4 Common Estate Planning MistakesSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on February 20th, 2020
By Alyson R. Marcucio, Esq. February 21, 2020
Family disputes – Long-term care costs – Unintended beneficiaries – all consequences of estate planning mistakes that many would like to avoid.
Below are four common mistakes that I routinely encounter as an attorney practicing in the areas of estate planning, elder law, and probate. When left unaddressed, these mishaps and errors of omission often lead to assets going to unintended people, conflict, confusion or even an estate running out of money.
Mistake #1: Not Having a Will
Many people think that, if they name beneficiaries on their retirement accounts and life insurance and – sometimes – their investments and bank accounts, and hold all of their other assets jointly with another person, that they do not need a will.
However, that is not necessarily the case. If a windfall comes into your estate after your death, for example, such as a lawsuit settlement, lottery winnings or inheritance; or you receive a windfall shortly before your death and don’t have time to put that money into one of your jointly owned accounts, that is an asset that would typically pass under your will. If you do not have a will, then the laws of intestacy will govern what happens to those assets.
For example, if you don't have a will and get a windfall, the intestacy law spells out who is to receive the asset. You can’t assume that 100% will go to your spouse, if you are married, or that it will pass to your children, or to your siblings if you are unmarried and have no children. Inheritance by unintended beneficiaries is a risk you take when you do not have a will. At least, having a will allows you to designate who is to inherit from you, rather than leaving it to chance, in the event your estate does come into a windfall.
Mistake #2: Not Updating Your Estate Plan with Life Changes
Another common estate planning mistake is failing to update your estate plan with life changes, such as marriage, divorce, birth of children or grandchildren. Your estate plan not only includes your will, powers of attorney, advanced directives, sometimes trusts, but also your beneficiary designations. It is important to review your estate plan periodically to be sure that there have been no changes to your beneficiaries and/or the manner in which you want them to inherit from you (i.e. outright or in a trust).
Also, it is important to be sure that your fiduciaries – those individuals whom you want to serve in various roles of trust, including your executors, your trustees, guardians for minor children – don’t need to be changed. As life changes, often our decisions change, whether it is who will inherit from you or who you trust with a particular decision-making role on your behalf. Ensuring that your wishes are clear is essential as you go through the various stages of your life.
Mistake #3: Assuming There Will Be No Family Conflict
Family conflict often comes to the forefront when a family member loses capacity or dies – the boxing gloves come out. Often, family conflict that has been buried for years rears its ugly head when money is involved. A common estate planning mistake is not taking into consideration the potential for family conflict and assuming that everyone will always agree.
Whether it is a decision about how a parent should be cared for – at home or in a facility, for example – or a family member that has been disinherited, it is not always possible to foresee or address every potential conflict. However, it is imperative to have a well-drafted estate plan with trusted individuals to speak for you when you are unable to speak for yourself.
Perhaps having a family meeting would be advantageous. Instead of assuming that a particular child, for example, would be best to serve as your agent under your power of attorney, the family meeting would give everyone an opportunity to discuss the various roles to identify potential problems or concerns. Laying as much as you can on the table while you are living and have capacity is an opportunity to get everyone on the same page, to the fullest extent possible.
Mistake #4: Not Considering the Need for Long-Term Care
Many people do a wonderful job of making sure that they have a will and incapacity documents like a power of attorney and advanced directives. They designate people to act for them during their life in the event of incapacity. They have their will and maybe some trusts in place to designate who is to receive their assets upon death.
However, we have a common occurrence these days called longevity – people are living a lot longer, which is a wonderful problem to have. As a result, however, many people do not have enough money to sustain them until their death.
Statistics show a majority of seniors will require some long-term care – whether in the home or in a nursing home. So, even if you name beneficiaries to receive your assets, it could be all for naught if you require long-term care because you may need your money to pay for your care.
Advanced planning allows you to explore options that will be available to you if you are hoping to protect your assets from long-term care costs. In some instances, your options are minimal when it comes to protecting your assets from long-term care costs. Other times, after hearing your options, you decide to take your chances. Regardless, becoming educated about these options is always a good idea. You may be able to take advantage of a long-term care insurance policy or transfer some of your assets to family members or trusts during your life.
The key to long-term care planning is not waiting until you need the care, but planning while you are still healthy.
Alyson R. Marcucio is an attorney at Chipman Mazzucco Emerson LLC and practices in the firm's estate planning and probate group, with considerable emphasis on elder law.