Ten Common Estate Planning Mistakes

1. Believing Wills Avoid Probate

Believing that having a Will allows you to avoid probate.  Wills are, in fact, designed to go through the probate process, and have no legal effect until they do so.  To avoid probate, you must use a Revocable Trust, or title all of your assets to pass automatically to someone upon your death.

2. Thinking Family will not Fight Over Estate

Believing that after your death, your children will divide your personal property in a spirit of cooperation.  Often, the division of tangible personal property becomes an emotional and adversarial process.  To minimize the chance of conflict among your beneficiaries, it is wise to create a list identifying all of the personal property having monetary or sentimental value among the desired recipients.  To give the list legal effect, it should be referenced in a Will or Trust. 

3. Believing Gifts in Excess of $13,000 are Taxed

Believing that you pay tax on lifetime gifts in excess of $13,000 per year.  Gifts in excess of the annual gift tax exclusion are in fact "taxable", but tax is not actually payable on lifetime gifts until you have exceeded the lifetime gift exclusion of One Million Dollars.  You are required to file a Form 709 Gift Tax Return for gifts in excess of the annual exclusion, and the effect of the taxable portion of the gift is to reduce the estate tax exemption equivalent available at the time of your death.

4. Attempting to Avoid Probate with Joint Title

Attempting to avoid probate by jointly titling assets in your children’s names or even worse, only one child’s name.  Even though jointly titling your assets may allow you to avoid probate, it also exposes the assets to various types of risk.  These include misappropriation of the assets by the joint title holder, loss of part of the assets to creditors of the joint title holder, exposure of the asset to a divorcing spouse of the joint title holder, and loss of control of your assets.  Also, jointly titling an account or asset with just one beneficiary, when your Will or Trust specifically gives the residue of your estate to more than one beneficiary, can lead to confusion and/or frustration of your intention.  Another problem relates to unforeseen eventualities.  For example, if a child predeceases you, you may want that child’s share to go to a Trust for the benefit of your grandchildren.  There is no way to design such a backup plan solely through designation or titling of accounts. 

5. Poor Incapacity Planning

Attempting to plan for incapacity using the same method as Mistake #4.  Many people use jointly titled accounts so that if they become incapacitated the joint account owner will be able to pay their bills.  This exposes the account to the same risks mentioned above.  A better way to plan for the same thing is by using a financial durable Power of Attorney.

6. Choosing Appointees for the Wrong Reason

Believing that the children you name as personal representatives/successor trustees/attorney in fact/health care agent will consider it a great honor and those who are not appointed will feel left out.  The duties associated with administering your assets and medical care bring substantial responsibility, time, and effort.  You should choose your appointees based on their skills and availability, and not by virtue of their birth order or a perception that someone will feel left out.

7. Moving Between States without Updating Trust

Establishing a Joint Revocable Living Trust plan in a marital property law state and moving into a common law property state without updating the Trust plan.  It may be necessary in such a case to redo an estate plan utilizing two separate Trusts, in order to achieve the same estate tax planning advantages. 

8. Not Changing Powers of Attorney When Moving to New State

Failing to obtain state specific Powers of Attorney and Health Care Directives when changing state of residence.  Many states have specific requirements for the content or formalities for the execution of these documents.  In order to be sure that your documents will be effective in your state of residence, it is important to check with a local attorney when moving to a new state. 

9. Failing to Fully Fund Living Trust

Establishing a Revocable Living Trust plan, and failing to fully fund it.  A Trust can only control assets to which it holds title.  Many people set up a Trust, and then fail to follow through with the transfer of their assets into the Trust.  To the extent that assets remain in an individual’s name, it may be necessary to initiate a probate proceeding after death to dispose of those assets, even if the individual took the trouble to prepare and sign the Trust.

10. Failing to Fully Fund Living Trust

Believing that a Durable Power of Attorney continues to be effective after death.  “Durability” in this context refers to the ongoing validity of a Power of Attorney after the principal becomes incapacitated.  All Powers of Attorney are immediately revoked upon the death of the principal./p>

© 2009, Dwight P. Cummins


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