Avoid These 7 Common Estate Planning Mistakes
There’s a lot in life that you can afford to get wrong the first time. If your homemade bread is as dense as a brick, you can try again another time. If your hand slips during your DIY haircut, you might avoid mirrors for a few weeks, but the consequences are pretty minor. Estate planning isn’t an area where you can afford to make mistakes. Some of the common mistakes that people make around estate planning can leave themselves and their loved ones vulnerable. Fortunately, those common estate planning mistakes are all avoidable.
- Waiting Too Long to Get Started
When young adults leave high school and head into the world, the adults around them might coach them about things they need to know, like professional norms and the power of compound interest. Estate planning should be part of these discussions too, yet many younger Americans don’t know much about the subject. Maybe they assume that estate planning is only something you need to do once you’ve acquired a lot of assets or are nearing retirement age.
This is a common misconception. In fact, estate planning is about a lot more than just passing assets to your heirs. Executing a durable power of attorney, health care proxy and HIPAA release is a quick task that’s appropriate for most adults, even those as young as 18. Say you’re in a car accident and are unconscious in the hospital. With these documents, you can give permission to a parent or trusted friend to make necessary decisions on your behalf and speak to the doctors about your condition.
- Creating Insufficient Protection for Minor or Disabled Children
Bringing home a new child is often the catalyst that makes parents start thinking about estate planning. Parents of minor children, or adult disabled children, have to think about who will be named guardian of those children if the parents die. Naming a chosen guardian is something you can do through your will.
Choosing the right guardian may weigh heavily on parents’ minds. In your own estate planning process, this may feel like the most important step for protecting your child’s future. But there are a lot of other details to consider, too. How will you provide for the child’s financial needs? Will you create a trust that will benefit the child? Who will be the trustee, and how do you want that person to manage and distribute the assets? These are just some of the questions to think through when estate planning as a parent.
- Ignoring MassHealth Planning
A big part of estate planning is thinking through all the worst case scenarios that could occur in your life, and making sure you’re financially prepared to handle them. You may need long-term care someday. That’s something that all Massachusetts residents should think about while estate planning, even when they’re relatively young and healthy.
MassHealth coverage pays for nursing-home stays and other long-term care services that few people can afford on their own. Qualifying for MassHealth requires residents to have limited assets, and the five-year lookback period means that applicants can’t simply give away their money when they’re ready to apply. Estate planning for Massachusetts residents should include discussions about ways to manage assets that won’t interfere with getting approved for MassHealth.
- Choosing the Wrong Beneficiaries
Creating a will lets you dictate how you want certain assets distributed to loved ones upon your death. When you’re thinking through those decisions, it’s important to take into consideration any beneficiary designations you’ve already made for accounts like IRAs. Assets in accounts that already have named beneficiaries won’t be distributed through your will with your other assets.
Say you write your will to state that you want your assets to be divided evenly between your two children. Everything that can be passed through the will is split between the two of them. If you named one child as the beneficiary for a retirement account, he may end up receiving significantly more than his sibling. Or, if you made the beneficiary an ex-spouse or someone who is now deceased, you’ll want to change those designations as part of estate planning.
- Failing to Plan for the Estate Tax
In Massachusetts, the relatively low estate tax threshold adds a complicating layer to estate planning. The federal threshold is $11.58 million per individual (for 2020), so someone who dies with an estate valued at less than $11.58 million is exempt from the estate tax. But states create their own estate tax laws, and the Massachusetts estate tax threshold is just $1 million per person. A resident who has an estate worth more than $1 million will not be able to leave all of their assets to their loved ones because a lot of the money will be swallowed by the estate tax. Part of your estate planning process may include strategizing that lets you bypass that tax and preserve what you’ve earned.
- Doing It All Alone
The Internet has certainly made it easier to fix your own minor plumbing issues or build your own fire pit in the backyard. Now, you can even download official-looking estate planning documents to fill out at home. If it seems too good to be true, that’s because it is.
Estate planning isn’t something you can DIY. Documents must be carefully and correctly prepared, and may need to be notarized, in order to be legally admissible. The courts may not recognize estate planning documents that weren’t prepared by legal professionals; plus, this process can be complicated and you can’t afford to make wrong guesses about what type of protections you need. Go ahead and use the Internet to make vacation plans, but work with an estate planning attorney to make estate plans.
- Keeping Outdated Plans
Estate plans aren’t rigid, one-size-fits-all documents. Even the documents that you created five years might no longer fit your needs today. For one thing, it may be necessary to update some of the designations you made during earlier rounds of estate planning. What if the person you named as your attorney-in-fact has since died or become estranged from you, for example?
Changes to your family structure, your job, your health or your financial picture may all necessitate making tweaks to your estate plans. If it’s been at least a few years since you last reviewed your estate planning documents, it’s time to look at them again.
Estate planning really shouldn’t be daunting. The attorneys at Ladimer Law demystify this process for our clients every day. You don’t have to worry that you’re missing something or making costly mistakes when an experienced estate planning attorney is guiding you through the entire process. If you’re ready to begin the estate planning process, but have additional concerns about social distancing during this time, our Wills in a Week program might be right for you. Contact Ladimer Law today to make sure you and your family are protected.