Mistakes People Make in Their Estate Plans

So, you’ve decided to look your mortality in the eye and sign a will. Congratulations, you’ve done the hard part. Now get some expert help, and do it the right way.

Executing a will means you aren’t going to accept the state’s menu of prefab “wills” contained in its intestacy law. Those state provisions are reasonable, but they don’t address things like guardians for your children, delaying distribution to beneficiaries until they’re adults, or specifying who gets the family business. Most online wills are about the same as far as assuming one size fits all. But you’re going to a lawyer to get it done right, you’re not doing it yourself, thus, avoiding one big mistake.

Are you going to a lawyer who handled your house settlement or represented you in court for a speeding ticket? If you ask him about what he’s going to say in the tax clause, and you get the deer in the headlights look, look for the door. No, you’re going to a trusts and estates lawyer, one who concentrates his or her practice in estate planning and estate and trust administration. Good move, you’ve avoided mistake number two.

Are you going to have a power of attorney and a medical directive drafted as well? These documents name who is going to act for you before death in case you cannot act or just cannot be present for a transaction. Wills name a Personal Representative to handle your property after death, but you know you may need an agent to act for you at the bank or at the hospital, so you prepare for those events. You’ve avoided mistake number three.

Are you going to create a trust to own your property and assets? If you’re doing it to avoid probate and for no other reason, that’s probably a small mistake. Whether your property passes by instructions in a will or in a trust, it gets taxed the same way. The difference is that a will typically distributes everything as soon as the taxing authorities issue a closing letter, possibly a year after death. A trust continues into the future with many detailed instructions as to who gets what and when they get it. Trusts cost more to draft, and the continued need to file trust tax returns well into the future might make them the more expensive choice. But if beneficiaries are immature and need a trustee to mete out the wealth slowly, they’re what you need.

Do you have an IRA or other IRS “qualified” plan? You named beneficiaries when you created it. Do they match the beneficiaries in your will? Should you make your estate the beneficiary, or maybe the trust under your will the beneficiary? This money, if not in a Roth IRA, will get taxed as it’s distributed, and slower distribution is much better than fast distribution. You need an experienced pro to draft your documents to make sure your beneficiaries can withdraw the assets slowly over their entire lifetime rather than all in just a few years. By getting a specialist to draft your estate planning documents, you’ve avoided another unfortunate estate planning mistake.

When you created the IRA, you may have named your parents or your first spouse as primary beneficiary. Any time you experience a life-changing event (marriage, parenthood, loss of a parent) it has a dramatic effect on your life, but when your world stops spinning out of control, ask your qualified plan administrator to send you the latest beneficiary form along with a blank. If you need to make a change, go back to that estate planning lawyer to ask what to write in the primary and secondary beneficiary blanks. They’re small blanks and formatted tightly. You’re allowed to write “see attached” and write out what you really want without a word limit. Refusing to be herded by the form spacing is another mistake you’ve skated past.

Are you going to make sure your children are provided for but not to the point of having $100,000 handed over to them all at once? Great! You’ve probably saved their lives by keeping access to muscle cars out of their hands. Either a trustee or a custodian under the Uniform Transfers to Minors Act can make sure the children are cared for and educated but not strapped to a rocket with a seat. That’s another big mistake you’ve avoided.