Our Top 5 Estate Planning Mistakes to Avoid

While we know that while we are always excited to chat about estate planning, it is not the most energizing subject for most! But if you are going down the road of creating a will or maybe thinking about putting together a trust, there are a few pitfalls that, if avoided, will save you a lot of time and money. We compiled the top 5 that we see people running into, and how with a little proactive planning you will be right on track for a solid estate plan.

1. Procrastinating with your Planning

No one wants to think about experiencing difficulties during life or their own death, but let's instead think of these times where it is impossible to be selfish. When you experience difficulties during life, whether due to an unexpected accident or a slower cognitive decline, you want others to be empowered to help you with clear understandings.  Otherwise, these times become a terrible burden on others who are not equipped to readily help you when needed or desired.  As well, when you pass away, it’s obviously important to remember you can't keep anything. How and who do you want to pass your assets onto? Who do you want to make your death a little easier on? Do you have children, a spouse, other family members, pets and charities that you want your life's work to take care of? It’s so easy to put off estate planning, especially when life gets busy. But, waiting too long can leave your loved ones in a really tough spot if the unexpected happens. Without a plan in place, you could need an adult guardianship proceeding so that someone, appointed by a Judge, has legal authority to make financial and medical decisions for you.  As well, without a plan in place, your assets might not be distributed the way you’d like, and your loved ones could face unnecessary legal headaches, or worse not be left with the assets you thought you were leaving them. So pick up your pen and maybe your phone if you need to get in touch with us - Don't leave your estate plan until it's too late.

2. Not Keeping your Plan Up to Date After Major Life Events

Life is full of changes, big and small - marriage, divorce, births, deaths, new assets, new homes, a new business, closing a business, health and medical changes … and so on! All of these things can have a significant impact on you and your estate plan! Yet, one of the biggest mistakes people make is not updating their legal documents and plan to reflect these changes. Did you purchase out-of-state real estate, did you purchase it in the name of your already established revocable trust?  If you want to incorporate an adult child into your business, have you worked this through with estate planning for your business?  Have you realized one of your agents in your power of attorney cannot act on your behalf with financial matters?  Has your spouse moved into an assisted-living or skilled nursing home facility?  Is your disabled minor child turning age eighteen soon?  Has a beneficiary designation not been updated? Has your adult child gone through a divorce affecting how you want to plan?  Have your adult children expressed concerns over your estate planning and you want to make sure everyone is up-to-date and on the same page?  Has your executor nominated in your will passed away?  Have you adopted a child? Did you remarry but want your children to receive your inheritance? There are any number of reasons you need to update your plans.  If your legal arrangements, including your will, trust, power of attorney, health care proxy/living will, beneficiary designations, business buy-sell agreements and so on, do not align with your current situation, you could end up with unfortunate scenarios unfolding.  These could include anything from an adult guardianship proceeding needed for yourself due to a gap in legal authority, to fighting between loved ones, to assets that are not properly managed or protected, to business interests that lose value, and to your assets not distributed in the way that you'd think. So, make sure you check in with us, especially after major life events!

3. Not Taking Tax into Account

Taxes can take a HUGE bite out of your assets or estate if not properly planned for. So often people will take the quickest and easiest of all actions only later to realize negative tax consequences.  For a few examples here, transferring property outright to loved ones can mean capital gains tax that have to be paid that could have been avoided with better planning.  Another example, is transferring a home retaining a life estate interest as this will also cause capital gains taxes upon a sale of the home during the grantor’s life.  Another example, is not establishing date-of-death values on assets where there is a “stepped-up” in basis with property due to the death of a person.  This will, again, cause unnecessary capital gains tax issues which can be avoided with proper planning.  Another example is not incorporating lifetime trusts with favorable tax treatments, both during the grantor’s life and upon the grantor’s passing (this has to due with grantor-tax trust tax status during life as well as the step-up in basis for assets at death), as this is a critical way to utilize various tax benefits.  One more example are estates over the Federal and New York State estate tax exemptions whereby estate taxes are a concern.  Here, planning incorporates various options, including “lifetime gifting”, setting up trusts that incorporate marital deduction planning, credit shelter planning and charitable planning.  Without the right strategies, you risk dealing with unexpected tax bills when you or your loved ones least expect (or want) them.  An effective estate plan takes income taxes, capital gains taxes, and estate taxes into account.  Helping to minimize the impact of taxes by using specific tools and strategies, means taking the extra care in planning.  This means more of your assets and estate go to the people and loved ones you care about!

4. Not Creating a Health Care Proxy and Living Will

Many people focus on the financial aspects of estate planning, but your health care decisions are just as important, in different ways, including in a time of an emergency or through a period of cognitive decline or when it is close to the time of your passing. A Health Care Proxy designates someone you trust, called an “agent” to make medical decisions on your behalf when you cannot communicate with medical health professionals.  Only one health care agent can at a time and the legal document provides for the first agent to act with his/her address and phone number and as many alternates lined up as you desire.  The key is getting the document properly executed and then providing a copy to people who need to know who will act when needed and how to get ahold of them!  These people include your agents, your primary care physician and other medical health professionals.  Other information can be contained within the Health Care Proxy.  Within the same wheelhouse, a Living Will outlines your wishes for end-of-life care.  When the Health Care Proxy is combined with the Living Will, you are providing evidence that you authorize your agent to make decisions about end-of-life care.  There can also be HIPAA Authorizations and Appointment of Agent to Control Disposition of Remains documents as part of the planning.  Without these critical documents, your loved ones might struggle to make decisions during an already stressful time, and conflicts can arise that can make this time terribly unpleasant, rather than peaceful. Having these documents in place ensures that you have the right people in place to act on your behalf and that your best interests and wishes are honored.  Your loved ones are empowered and you’ve created clarity during crucial times.  And, as always, remember these health care matters ultimately can affect your finances and estate given the decisions that are made.

5. Choosing the Wrong Executor

Your executor is responsible for carrying out the terms of your will, so it’s vital to choose someone who is not only trustworthy but also capable of handling the responsibility of this role. To back up, remember that a will is only effective for assets passing through your “probate” estate.  Yet, no matter what other planning you have in place, a will is essential because you never know what you may own at death or even assets that could come in after death or other situations.  Sometimes, even smaller amounts that may need to be handled through the probate estate, become too “expensive” to deal with because a will is not in place.  No matter what, an up-to-date will that is attorney-drafted and executed can be incredibly cost-saving when it comes to handling any estate needs at your passing. Which leads into the whole point, that it’s extremely important that you nominate the right executor.  A person who is nominated as an executor in a will has the right to seek appointment through Surrogate’s Court.  If you choose a person who will not take necessary actions or does not act in the best interest of the estate, a tremendous amount of damage can occur, both with assets and relationships between loved ones.  You want to be very selective here and be brutally honest about who should have this authority.  It’s not always an obvious choice.  Being an executor to a will can be incredibly time-consuming and requires attention to detail, financial savvy, and an ability to work and communicate well with other.  Often family dynamics can require a certain communication style and finesse that not everyone has. Remember that choosing the wrong person in this role can lead to delays, conflicts, and even legal disputes in worst case scenarios. Take the time to carefully consider who in your life is best suited for this important role - It might not always be who people would expect.

Let’s Talk About Your Estate Plan

Estate planning doesn’t have to be overwhelming, and you don’t have to do it alone. Whether you’re just starting out or need to update an existing plan, we’re here to help. Avoiding these common mistakes is a great first step toward protecting your family’s future.If you have any questions or need guidance, don’t hesitate to reach out. We’re happy to sit down with you, discuss your options, and create a plan that gives you the peace of mind you deserve.