Common Pitfalls to Avoid with Estate Planning
June 29th, 2021
Proper estate planning can provide a person and their family with peace of mind and security, albeit it can be overwhelming due to the many decisions involved and complex federal and state laws surrounding this topic. Additionally, overlooking critical details in estate planning can be costly for all stakeholders involved. This article covers 7 common estate planning pitfalls to avoid.
- Failing to Have a Plan
This is self-explanatory. One of the biggest pitfalls in estate planning is simply not having a plan! Woody Allen’s infamous quote, “Eighty percent of success is showing up!” comes to mind with estate planning. Many people simply do not show up – they procrastinate and fail to take action to get their estate in order. According to a survey conducted by Caring.com, only 4 in 10 American adults have a will or a living trust. Further, the survey revealed that the top two reasons why people do not have an estate plan is, first, they “hadn’t gotten around to it” (47 percent), and second, they believe that they “don’t have enough assets to leave to anyone” (29 percent). Failing to prioritize estate planning can result in negative consequences for a person’s family and loved ones.
- Beneficiary Oversights
A pitfall in estate planning is naming one person as the single designated beneficiary. There is nothing inherently wrong with naming one person as the single beneficiary, however, it may be prudent to have more than one beneficiary named in an estate plan in the event that the designated beneficiary passes away. To avoid this, one should consider naming another beneficiary(ies) called a “contingent beneficiary” as the successor to the designated beneficiary.
- Having Limited Estate Planning Documents
Though a last will and testament and a living trust are the most commonly known estate planning documents, such documents are pieces to the puzzle of a comprehensive estate plan. Additional estate planning documents to consider among others include, a durable power of attorney, a designation of health care surrogate, and a living will.
- Overlooking Tax Implications and Asset Protection
For individuals with sizable estates, federal and state estate tax laws can significantly impact the amount of assets passed to beneficiaries upon the death of a decedent. Additionally, assets included in a decedent’s estate may be unintentionally exposed to creditors. Consulting with an experienced estate tax professional and using certain planning techniques can reduce a person’s taxable estate upon death and prevent assets from being exposed to creditors.
- Failing to Consider Long-Term Care Needs
Approximately 70% of people aged 65 or older will require long-term care. Most people do not save for this possibility, however, the average annual costs for a room in a nursing home costs up to $100,000, and in-home health care costs can average $50,000. With costs of long-term care on the rise, this can potentially cripple one’s life savings causing them to deplete their personal assets to pay for long-term care.
- Failing to Periodically Update Your Plan
As major life changes occur, an estate plan and related documents should reflect those changes. Life changes that could affect an estate plan include marriage, divorce, and the birth, death or adoption of a family member.
- Failure to Fund Your Trust
Oftentimes, a person who establishes a trust known as the “grantor” is under the mistaken belief that upon creation of the trust it will be automatically funded with assets designated in the trust agreement. Unfortunately, the grantor is unpleasantly surprised to learn that such assets need to be retitled to become a trust asset. The ramifications for failing to properly fund a trust can be catastrophic to a beneficiary especially upon the death of a grantor causing the intended trust assets to be potentially subject to probate proceedings.
At Waugh PLLC, our experienced attorneys are available to discuss your estate planning needs and goals to determine the best estate plan for you and your family.
If you would like to schedule a consultation to discuss your estate planning needs, feel free to reach out to us at email@example.com.