Most estate planning mistakes tend to fall into one of several categories. Every estate plan has unique features, but the same problems and mistakes recur. Each of the classic mistakes is avoidable. With an awareness of some of the potential pitfalls, you can save your family a significant amount of time and stress.
Mistake #1: Documents Prepared under the Laws of Another State
Ideally, your will, trust, advanced directive, power of attorney, and other estate planning documents should be drafted by an attorney familiar with the state laws for the state where you live and where you have real estate. For example, if you prepared a will in California, the laws to determine validity of an amendment (or codicil) are significantly different, as are the laws regarding proving that the will was validly executed. California honors handwritten, unwitnessed wills while Oregon does not. Further, in Oregon, it’s fairly important for the witnesses to sign an Affidavit of Attesting Witnesses; California courts do not require this for estates probated in California courts.
Also, Oregon has an Estate Transfer Tax which is quite strict and anyone with a taxable estate should make sure that they have thought about whether decreasing their estate’s exposure to the Oregon Estate Transfer Tax is a priority.
Mistake #2: Relying on Old Documents
If your documents were prepared years ago and the laws have significantly changed, this will likely cause problems. For example, if your documents were drafted to avoid estate taxation under federal law and the documents were drafted when only $1,000,000 could pass free of the Federal estate tax, you may need to have your documents updated to adjust for the recent changes in the tax laws. Further, in the last five to ten years, legal documents have become more readable.
Older documents may appoint a now ex-son-in-law or ex-daughter-in-law as an executor for your estate plan. The older documents may appoint someone to serve as guardian for your children and you may have had a falling out with this potential guardian. These documents may benefit a nonprofit that no longer exists or a nonprofit that is not easily identifiable.
Mistake #3: Not Understanding the Estate Plan
Many clients may feel overwhelmed by the estate planning process or may just want to sign their documents so that they can check this item off of their to-do list. Clients don’t need to know all the legal angles and why certain language is used, but you do need to understand the fundamentals. You need to know who your decision makers will be and who will be the recipients of your estate plan.
Mistake #4: Outdated or Unclear Beneficiary Designations
There are numerous cases and rulings involving this one, and it seems every estate planner has at least one horror story. If you have already prepared a beneficiary designation for your retirement plan, life insurance policy, or designated a pay-on-death beneficiary on your bank accounts, your will or other estate planning documents will likely not come into play.
Failure to update beneficiary designations means an asset might go to your parents or siblings, because that’s what you put on the form years ago when you first opened the account. Sometimes the asset goes to an ex-spouse, the estate of a deceased person, or other unintended beneficiaries. Other times someone is inadvertently excluded, because they were born or married into the family after you completed the form.
Further, make sure that your beneficiary designations are clear. For example, someone may state on his life insurance beneficiary designation that he wants $70,000 to go to his mother, the remainder to go to his wife, and his sons are contingent beneficiaries. If his wife predeceases him, it’s ambiguous as to whether the remainder should go to his mother or to his sons.
Make sure that you review your beneficiary designations every couple of years and after every major life change in your family.
Stay Tuned for Even More Mistakes …
While these are four of the most common estate planning mistakes, there are many others! Stay tuned to our blog for more estate planning pitfalls.
Want to shore up your estate plan? Schedule an appointment with Skinner Law.