Poor estate documents can result in people unintentionally cutting loved ones out of inheritances, paying monstrous tax bills, and unnecessarily burdening loved ones with expensive, confusing legal battles.
With the help of an experienced attorney, estate planning mistakes are completely avoidable.
Kiplinger’s “10 Surprisingly Common Estate Planning Mistakes” gives us some no-no’s. Some you can probably guess, but others you’ve probably never heard of.
Common Texas Estate Planning Mistakes
Failing to name a contingent beneficiary on retirement accounts and insurance policies or not reviewing named beneficiaries regularly is a big mistake. The default if no contingent is named, is likely your estate, which may be subject to probate, creditors, and delays.
“Selling” Property for a Buck
This was popular years ago in areas that saw very rapid land appreciation. Years ago, the thought was that you could sell property for a very low price and not have to pay taxes on the gain and remove it from your estate. Of course, you can sell property for whatever you want, but the IRS will deem it a gift, if it’s less than market value. As a result, your heirs will lose the “step up” in value.
Detailing Specific Investments in Your Will
Specific bequests are handled first, and the person who died, might not even own that investment anymore. His estate might have to buy it at a much higher price, which could hurt all of the other beneficiaries.
Not Thoroughly Considering a Well-Intended Gift
Placing a well-intentioned but unrealistic restriction on the sale of a home, may mean that heirs might have to go through a lengthy court process to be granted permission to sell a home. During the process, the home’s value could decline dramatically, and there could be legal fees.
Leaving Assets Directly to a Minor, Without Addressing Guardianship
Who takes care of the money for a kid? Even if a guardian is appointed, typically once the minor turns 18, they have the right to the money or assets left to them. 18 may not be the best age for your child or grandchild to inherit wealth. To plan around this, you can put their inheritance into a trust, designate a beneficiary to manage the funds, and distribute the money for certain purposes or at specific ages.
Ignoring the Death of a Beneficiary
If one of two beneficiaries dies, where does the money go? Does it go to the surviving beneficiary or to the family of the one who died? Ask your estate planning attorney about whether your state is per capita (Latin for “by heads,” meaning per person) or per stirpes (Latin for “by branch,” meaning that each branch of the family receives a share). That will make a difference in your planning.
Errors and Imbalances of Ownership
If too many of the assets are in one spouse’s name, it could bring about some taxes. If you shift the house or investment accounts to the other spouse, the estate becomes more equalized, and it reduces the possibility of owing taxes after the first death.
No Residuary Clause
This clause addresses everything you didn’t specifically name or forgot to put in your will (or things you don’t yet own but will before your death). It also includes things you might not know you own—which happens more often than you’d think!
Failing to Plan for the Unexpected
There are many things that you’ve probably never even considered. You can address this by placing assets in a trust where you can control how, to whom, and when money gets distributed, unlike an outright inheritance from a will.
Thinking You’ll Live Forever
You’re going to die someday, regardless of whether you want to face that reality. Don’t leave your family in ruin because you don’t want to deal with an uncomfortable thought.
Other Estate Planning Mistakes to Avoid
Beyond Kiplinger’s list, here are some additional estate planning mistakes to avoid.
Using “Do-It-Yourself” Estate Planning Documents
Although tempting to use, online estate planning templates and services can cause more harm than good. Estate planning attorneys are trained in how to properly word your documents, anticipate future conflicts, and create a plan that can be accurately executed under the law. Online templates don’t understand your family dynamics, your financial status, your goals, or your dream legacy.
Not Planning for Incapacity During Your Lifetime
Many people think an estate plan is something that kicks in after they die. But what would happen if you became incapacitated from a car accident, a disease, or simply old age? Who would care for you? Who would pay your bills? A comprehensive estate plan should include a Power of Attorney and Healthcare Advance Directives so that you can designate someone to care for your finances and well-being.
Forgetting to Plan for Digital Assets
Social media accounts, investment accounts, online pictures and videos, cryptocurrencies, blog content, and essentially anything stored online is a digital asset. These are just as important to plan for as tangible assets. The law governing digital assets is new and evolving. However, without proper authorization and instructions, many companies will not grant access to anyone but the owner. This means that some digital assets could be inaccessible and lost forever.
Adding Your Children to the Title to Your House
Putting your child as the co-owner on the title to your home may seem like an easy and cheap way for your child to get the house when you die. But there are a few issues when you do this. First, adding your child to the title makes him or her a co-owner. If your kid is going through a divorce, has a tax lien filed against them, or is involved in a lawsuit, then your child’s creditors can go after the home. Second, retitling the home as joint tenants with your kid is a taxable gift in the eyes of the IRS. So if the value of the interest transferred to your child is more than the current annual exclusion amount ($16,000 for 2022), then you have to file a gift tax return for the year you made the transfer.
Not Updating Your Estate Plan Frequently
One of the most common estate planning mistakes is failing to update your estate plan. The general rule is to revisit your plan every three to five years or when a significant event happens. For example, if you get a divorce, retire, have more children, have grandchildren, sell or transfer an asset, or inherit money, you should contact an experienced estate planning attorney to update your documents.
Contact a Texas Estate Planning Lawyer
Don’t make a tough situation worse for your family, by failing to plan properly and making common estate planning mistakes. Speak with a qualified estate planning attorney.
Reference: Kiplinger (June 1, 2018) “10 Surprisingly Common Estate Planning Mistakes”