Following are 13 common estate planning mistakes to avoid. Use this list to catch errors that could result in not properly transferring assets, nullifying parts of your plan, or worse, invalidating your estate planning documents altogether.
Not Informing Family Members of Your Healthcare Preferences
Estate planning encompasses more than what happens when you die. If you ever become incapacitated and are unable to communicate important healthcare decisions, your doctors and your family need to know what treatments you’re okay with. To prepare for this, draft a living will (also called an advance healthcare directive) that doctors can reference. You can broadly authorize any and all treatments to save and extend your life, or you can specify certain treatments that you do not approve.
Not Appointing a Power of Attorney
Similarly, if you become incapacitated you’ll need someone to handle your affairs on your behalf. Providing someone with a durable power of attorney authorizes them to access your financial accounts, pay your bills, and make important decisions while you’re unable to care for yourself. You can also grant a healthcare power of attorney if you’d like to provide someone with access to your medical records, and the ability to make important medical decisions for you.
Not Informing Your Family Members of Your Funeral and Burial Plans
It’s not uncommon for a family to open a will after the funeral. In these cases, your loved ones won’t know about your intended funeral and burial plans until it’s too late. Speak with your family about your plans, and if possible, write them in an official letter of instruction and deliver the letter to your executor.
Not Having a Will
The greatest mistake of all is to not have a will. Simply put, everyone over the age of 18 needs a will. Dying without one is called dying “intestate,” and your assets will be distributed to your heirs according to your state’s intestacy laws. Your heirs would have no say over who gets what—that would be determined by a probate judge. Even if all of your assets are held in a living trust, it’s smart to at least have a pour-over will to catch any assets you may have missed.
Not Including Identifying Information for Your Beneficiaries
It’s not enough to list someone’s first and last name in your estate planning documents. For each person you mention, include their full name (including middle name) and their date of birth. It’s smart to include addresses, so your attorney and your executor know how to contact them when your will is opened.
Not Naming a Secondary Guardian, Backup Executor, or Contingent Beneficiaries
What will happen if individuals named in your will pass away before you? What if they decline your request to handle the responsibilities assigned in your will? Even if these events seem unlikely, it’s always best to plan for the unexpected. You should name a secondary guardian to care for your children, a backup executor (aka personal representative) to handle your estate’s affairs, and contingent beneficiaries to receive your assets if one or more of your primary beneficiaries die.
Failing to Include a TOD or POD Beneficiary on Your Bank and Brokerage Accounts
Too many assets pass unnecessarily through probate. The probate process comes with increased legal fees and prolongs the time it takes to transfer assets to your beneficiaries, so it’s best to be avoided. Work with your financial institutions to include a transfer-on-death (TOD) or a payable-on-death (POD) beneficiary on your bank and brokerage accounts. While you’re doing that, make sure your retirement accounts, life insurance policies, and other non-probate assets have the correct beneficiaries listed on the account.
Forgetting to Account for Digital Assets
Digital assets are increasingly becoming a major part of modern estates. Even if you don’t have virtual currencies, copyrighted content, or revenue-generating websites, you will likely have sentimentally-valuable items such as family photos and videos. To access your computer, smartphone, external hard drives, and data in the cloud, your surviving family members will need to know your account credentials. The best way to resolve this is to appoint a digital executor (which can be the same person as your estate’s executor) and provide them with a list of your digital assets, along with username and password information. Many people choose to save this information using password management apps, but you can put it all on paper if you choose—just be sure to store the document in a safe place in order to protect your identity, and regularly update the information.
Improperly Signing and Dating Your Will
This is a simple mistake that can have drastic consequences. Print a copy of your will (don’t write it by hand), include the date along with a statement that this is your last will and testament, and sign it in the presence of a notary public. Some states do not require notarization, but it’s a simple step to ensure your will isn’t invalidated by a probate judge if someone contests the signature.
Using Interested Witnesses
An interested witness is someone who is a beneficiary to your estate. The state of Arizona is one of the few states that allow using interested witnesses, but it’s best to avoid the practice if possible. In other states, having interested witnesses sign your will could result in losing their inheritance, or it could invalidate the will altogether. You will need 2 – 3 witnesses to sign the will, and you may need to have their signatures notarized.
Not Having a Strategy to Minimize Estate Taxes
Individual estates worth more than $5.49 million and joint estates worth more than $11 million will be subject to estate taxes, which can be as high as 40%. If you have a large estate, this can seriously erode the value that you can transfer to your heirs. Wealthy estates need a plan to move assets out of your estate and lower the final inheritence subject to the tax. Remember, tax evasion is illegal, but tax avoidance is prudent.
Improperly Organizing a Revocable Living Trust
If you have a revocable living trust where you are the trustee and the beneficiary, you’ll need to appoint a successor trustee who can manage the trust when you die. You’ll also need to assign contingent beneficiaries to receive your assets.
Not Transferring Assets to Your Trusts
If you establish a trust, don’t forget to transfer the appropriate assets to the newly formed trust. Transferring ownership can be a confusing process, so ask your attorney if they have a special secretary or team to guide you through the process. Mentioning the assets in your trust agreement isn’t enough—if you forget to transfer assets, they will be subject to probate.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.
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