One should be aware of certain pitfalls when considering the establishment or the revision of their estate plan. Failure to properly address various aspects of estate planning may result in unintended consequences. The following are 7 common errors that people make.
(1) FAILURE TO HAVE AN ESTATE PLAN: Your assets may be distributed to those other than who you want, or in a manner against your wishes, unless your directions are set forth in pertinent documents. Your assets could be distributed according to the State’s intestate statute (passing away without a will) without the proper planning and instrumentation. For instance, you may desire that your spouse receives all your assets upon your death. Intestate statutes may direct that your assets be split with half to your surviving spouse and the remaining half divided equally among your children.
(2) FAILURE TO PLAN IN THE EVENT OF DISABILITY: There may be a time when you are not able to make cognizant decisions. This may stem from various medical concerns such as dementia, psychological problems, and injury causing loss of cognitive abilities. Without the execution of a financial Power of Attorney and a Health Care Directive, a court of law may appoint someone, other than who you want, to handle your financial and medical affairs. This may lead to not so desired results.
(3) FAILURE TO GET CONSENT FROM APPOINTEES: You may appoint various individuals or entities as your executor to your Will, guardian for your children, attorney-in-fact to your Power of Attorney, health care surrogate to your Health Care Directive, or trustee to your Trust. However, if you did not inform them of such and do not procure their consent at that time, they may later refuse to accept such responsibility. In such instance, someone other than your appointee may be directing your finances, making your medical decisions, and controlling your children.
(4) FAILURE TO ESTABLISH A TRUST: Many people set-up a trust mainly, in the event of their death, to provide for their children until they reach a certain age. Many people believe that their children may be too young, are a spendthrift, or should be productive on their own prior to receipt of significant distribution. Without a trust, your children may receive all their inheritance immediately upon your death. (Do you want your 18 year old to have unlimited access to your assets if you are deceased?)
(5) FAILURE TO CHANGE BENEFICIARIES: Beneficiary designations are required on various instruments such as insurance policies and IRA’s. One’s initial beneficiary designations may not effectuate your implemented estate plan. For instance, original beneficiary designations may be first to your spouse, and if your spouse does not survive you, then to your children. You may have subsequently established a trust to assist your children throughout their life. Your plan may be to leave the trust unfunded until you pass away. At that time, your plan is to direct funds from your life insurance policy and IRA distributions to the trust. However, in many instances, people forget to change their beneficiary designations (whether primary or contingent) on the applicable instruments to funnel the proceeds to the trust. This would render the trust useless due to the lack of assets to proceed as directed.
(6) UNINTENDED DISINHERITANCE: You and your spouse may have what I call reciprocal “I love you wills” where both of you leave everything to the other, and if your spouse is predeceased, then to your children. If your spouse predeceases you, you remarry, and you both execute I love you wills, and you subsequently die, your probateable assets will be distributed to your spouse (who may change their will after you decease and disinherit your children) without your children receiving anything.
(7) FAILURE TO UPDATE YOUR ESTATE PLAN: There are triggering events that may impact your present estate plan. These may include death, birth, changes in business, significant increase/decrease in wealth, and divorce. Each of these may necessitate modification of your estate plan.
It is incumbent that you that you avoid these and other common mistakes. You should continue to be aware of your present situation and apply it to your estate planning needs.
Richard A. Greenberg
Richard A. Greenberg, PLLC
2321 Lime Kiln Lane
Louisville, KY 40222
(502) 429-8496 (Direct Dial)