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Five Common Estate Planning Mistakes and How to Avoid Them
Every state has laws for distributing the property of someone who dies without an estate plan. But not very many people would be pleased with the results. State laws vary, but they generally leave a percentage of the deceased’s assets to family members, often in ways that don’t reflect what you actually wanted. The good news is that every one of these mistakes is avoidable. Here are five of the most common ones we see.
Mistake #1
Not Having a Plan
Without an estate plan, state law decides who gets what. Non-family members, like an unmarried partner, won’t receive anything. The surviving spouse and children each receive a share, which often means the surviving spouse won’t have enough money to live on. If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which point they’ll receive the full amount all at once. Most parents would prefer their children inherit later, when they’re more mature.
How to Avoid This
Even a basic estate plan gives you control over who receives your assets, when they receive them, and how those assets are managed in the meantime. A well-drafted plan can protect a surviving spouse’s financial security, set up trusts for minor children so they inherit at an age you choose, and make sure the people you care about are taken care of, whether or not they’re related to you by blood or marriage.
Mistake #2
Not Naming a Guardian for Minor Children
A guardian for minor children can only be named through a will. If you haven’t done this, and both parents die before the children reach legal age, the court will have to name someone to raise them. That person may not be who you would have chosen. The court does its best, but it’s making that decision without knowing your values, your family dynamics, or your wishes.
How to Avoid This
If you have minor children, naming a guardian in your will is one of the most important things you can do. It’s also worth naming an alternate, in case your first choice isn’t able to serve. This is one of those decisions that feels hard to make, but the alternative, leaving it to a judge who doesn’t know your family, is much harder on your kids.
Mistake #3
Relying on Joint Ownership
Many older people add an adult child to the title of their assets, especially their home, to avoid probate. On the surface it seems simple. But it creates a cascade of problems. When you add a co-owner, you give up control. Those jointly owned assets are now exposed to the co-owner’s creditors, divorce proceedings, and possible misuse. The co-owner must agree to all business transactions. There could be gift and income tax issues. And if you have more than one child but only name one as co-owner, fluctuating values could result in your children receiving unbalanced or unintended inheritances.
How to Avoid This
A revocable living trust accomplishes the same goal, avoiding probate, without any of these downsides. You keep full control of your assets during your lifetime. Your property stays protected from other people’s creditors and legal problems. And you can distribute your assets exactly the way you want, to whomever you want, on whatever timeline makes sense for your family.
Mistake #4
Not Planning for Incapacity
If someone can’t conduct business due to mental or physical incapacity, only a court appointee can sign for that person, even if a valid will exists. (A will only goes into effect after death.) The court usually stays involved until the person recovers or dies, and the court, not the family, will control how their assets are used to provide for their care. The process is public and can become expensive, embarrassing, time consuming, and difficult to end.
Giving someone power of attorney as a way to avoid the court process can be risky, because that person can do anything they want with your assets with no real restrictions. For this reason, a living trust is often preferred for incapacity planning. With a trust, the person you choose to act for you can do so without court interference, yet they are held to a higher standard as a trustee. If they misuse their power, they can be held accountable.
Someone also needs to be given the power to make health care decisions for you, including life and death decisions, if you’re unable to make them for yourself. Without a designated health care agent, you could be kept alive by artificial means for an indefinite period of time.
How to Avoid This
A comprehensive incapacity plan includes a revocable living trust (so someone you trust can manage your finances without court involvement), a health care proxy (so someone you trust can make medical decisions on your behalf), and a living will (so your wishes about end-of-life care are clearly documented). It’s also worth considering long-term care insurance, since the costs of long-term care are not covered by most health insurance or Medicare, and they can deplete your assets quickly.
Mistake #5
Not Keeping Your Plan Up to Date
Every estate plan is based on the personal, family, and financial situations, and the tax laws, in effect at the time it was created. All of these will change over time, and your plan needs to change with them. A plan that made perfect sense five years ago might not reflect your life today.
How to Avoid This
It’s a good idea to review your plan every couple of years to make sure it still does what you want it to do. Your attorney will let you know when a tax law change might affect your plan, but you need to let your attorney know about other changes that could matter too: a new grandchild, a marriage or divorce in the family, a move to a different state, a change in your financial situation, or a shift in your wishes about who should receive what.
Think of your estate plan the way you think of your home. It needs periodic maintenance to stay in good shape.
The Common Thread in All Five Mistakes
Every one of these mistakes comes down to the same thing: not taking action, or taking the wrong action, because the process feels overwhelming. The truth is, a good trusts and estates attorney can walk you through each of these decisions in a way that feels manageable. You don’t have to figure it all out on your own.
What Comes Next
If you recognized your own situation in any of these mistakes, you’re not alone. Most families we work with come to us because they know something needs to change but haven’t been sure where to start.
Our firm helps families across Massachusetts create estate plans that actually reflect their lives: who they want to protect, what they want to preserve, and how they want things handled if they can’t handle them themselves. We’d welcome the chance to talk through your situation and help you figure out the right next step.
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