Top 10 Estate Planning Mistakes

Attorney Dorothy L. KorszenDorothy’s practice focuses on trusts and estates, real estate, and business and corporate law. 

You have finally signed your wills, trusts, powers of attorney, and took a sigh of relief that your estate plans are finally in order. But are you finished for good, or did you only take an important step in a longer process? Below is a list of Top 10 Estate Planning Mistakes that can occur even in the best laid estate plans.

1. Not coordinating beneficiary designations with your will or trust. You want to leave your estate equally to your four children. If your IRA names one of your children as the primary beneficiary, or if your bank account is titled jointly with another child, that child may inherit that asset and thwart your plans. If you plan to leave assets in trust for a beneficiary, but name that person as a beneficiary for an IRA, life insurance policy or other asset, then that person may be able to obtain those assets outright.

2. Unfunded trusts. You have created revocable living trusts so your descendants will not have to bother with probate. If you do not transfer your assets to your trusts, your beneficiaries will need to open a probate estate to transfer the assets to trust, then undertake trust administration. So when you go on vacation and buy a timeshare, make sure you title your piece of paradise to your trust.

3. Right documents, wrong beneficiaries. Time passes; your will, trust, or life insurance policy names beneficiaries who have predeceased you. You should review your beneficiary designation forms on a regular basis to make sure you still name the correct primary and contingent beneficiaries.

4. Requiring your homestead to be sold. Your homestead may be protected from creditor claims if it passes to certain persons considered heirs. If you require that your homestead be sold and the proceeds distributed to your loved ones, the proceeds may not be protected from creditor claims.

5. Titling property incorrectly. If you wish your other co-owner to own property at your passing, you should check that the title is held as joint tenants with rights of survivorship. Often, if you do not specify otherwise, you will own the property as tenants in common which may require your interest to pass through probate.

6. Not making charitable gifts from your IRA. Beneficiaries of IRAs (except for Roth IRA’s) pay income tax when they receive distributions because the contributions have not yet been subject to income tax. If you make charitable gifts from pre-tax IRAs, your gifts will make a greater difference because the charity will not be required to pay income tax. Check with your estate planning attorney and tax advisor about current tax laws regarding charitable gifting from IRA’s.

7. Save taxes, lose money. You continue to own assets which have a low basis for sentimental reasons (perhaps your deceased spouse worked for the company you hold stocks in)—all to avoid paying 15% capital gains taxes if you sell. Market conditions could change greatly reducing the value of your holdings. So you save taxes, but lose money.

8. Naming the wrong person as fiduciary. When naming a personal representative, trustee, or agent under a power of attorney you are giving great power and responsibility to that person. Your oldest child may or may not be the most qualified fiduciary. With second marriages, you may wish to consider a corporate or professional fiduciary.

9. Not taking special needs into account. If you leave property to a beneficiary receiving government benefits which impose asset limits, that person may become disqualified from receiving those benefits. Let your estate planning attorney know of any special needs so that the gift may be structured to allow that person to continue to receive needed benefits.

10. Not making enough lifetime gifts. While the best estate planning may include spending your last dollar, we often are not in charge of the timing. Nonetheless, as long as you are not likely to run out of funds before you run out of time, making lifetime gifts can provide you, the nonprofits you support, and your loved ones with satisfaction today.

These common mistakes can be minimized with an ongoing review process. Important lifetime events can be used as reminders to review your estate plans. An estate planning attorney can help you identify and address these potential mistakes and help create plans to address your wishes.