7 Deadly Estate Planning Mistakes You Should Avoid

Not understanding the plan. Make sure you understand the basics of how the plan works, what you need to do to implement or maintain the plan, and how it works for you and your beneficiaries. Take notes about the key decisions and why you made them, so you can refer to them in the future.

Outdated beneficiary designations. Failure to update beneficiary designations means an asset might go to your parents or siblings, because that’s what you put on the form years ago when you first opened the account. Review your beneficiary designations every couple of years and after every major life change in your family.

Not updating asset ownership. You might own some assets in your own name and others in joint title with your spouse, an adult child, or someone else. Like the beneficiary designations, these need to be reviewed. Does the arrangement still meet your needs? Has something changed in your situation, the law, or something else that makes different ownership better? Many people should review their plans to see if their current plans are obsolete or add unnecessary costs and complexity.

Failure to fund revocable trusts. Many estates include a revocable trust, also known as a living trust. Assets owned by the trusts avoid probate and help with disability planning and some other issues.

Often the trust is created after the attorney prepares the trust agreement and all the interested parties sign it. After that, the trust has to be funded. That means legal title to assets has to be transferred to the trust.

Household and personal effects are transferred to the trust with simple language in the trust or a schedule of assets attached to the trust agreement. For real estate, the deed has to be changed to reflect that the trust now is the owner. Automobile registrations have to be changed. For financial accounts, you have to change the name of record with the custodian. That might mean applying to open a new account and transferring the old account assets to the new account.

Many of these steps are neglected and the result is they wasted money paying for the trust documents. Their assets won’t avoid probate, and they won’t reap the other expected benefits of the trusts. Be sure you are clear with your planner about any actions you need to take to ensure the plan is fully implemented and maintained.

Not coordinating trusts and retirement plans. Many people routinely designate their living trusts or other trusts as beneficiaries of their retirement plans. There can be good reasons to name a trust as an IRA or other retirement plan beneficiary but there also are potential problems. Because of IRS regulations, naming the wrong type of trust as an IRA beneficiary can accelerate taxes.

To retain the tax deferral of a retirement account, a trust that is beneficiary of the account needs to have certain language that qualifies it as a see-through trust. Be sure any trusts you named as beneficiaries qualify and meet your goals. Otherwise, name individuals as beneficiaries instead of a trust.

Not updating powers of attorney. Every estate plan should include powers of attorney. You need at least two, one for financial matters and one for medical care (often called an advance medical directive). You’re more likely to become disabled and need these documents before you need a will and the rest of your estate plan.

Unfortunately, many people don’t have either of these documents and others haven’t kept them up to date or given the details much thought. Be sure you have these documents and that they have been reviewed recently.

Not updating the plan. You should be in touch with your estate planner any time there’s a major life change in your family, such as a birth, death, divorce, or marriage. Changes in your net worth, the composition of your estate, job status, residence, and many other factors also should trigger a review of your plan.

Does your estate plan include The Library Foundation? Would you like to? Contact Erin today to discuss how a gift to the Library could be included in your plan. Send us a message at Foundation@tscpl.org

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