Over the years, we have seen many mistakes people have made with their estate planning and when mistakes are made, they could have lasting effects for generations. Unfortunately, we often do not learn of these mistakes until it is too late, and the person has already passed. Here are the 3 most common mistakes we see when people make an estate plan:
1. People think they never have to review their estate plan once they execute it.
It is easy to fall into the trap of thinking that once you have executed your estate plan, you can just tuck the documents away and not need to worry about them again, but that could not be further from the truth! When you first create your estate plan, it’s a snapshot of your life at that time. However, over time life happens and things change, family structure, your assets, and even tax laws can impact how you originally set up your estate plan. Because of this, it is important to regularly review your estate plan and ensure it still works according to your goals.
We recommend reviewing and updating your plan when big life changes happen.
For example, if you have children that were minors when you first executed your plan but are now adults, you will want to update your plan to reflect your current circumstances. It would be important to consider whether you are leaving your children a trust, how financially responsible they are, and whether they are or are about to be married.
2. People will set up a plan but never ensure their assets work with their plan.
Executing your estate planning documents is not the end of the estate planning process. For anyone with a trust as part of their estate plan, it is important to fund that trust. Meaning to actually put assets into that trust. Otherwise, the assets may still have to go through probate, and the ability to bypass probate via a trust is lost.
Even for those that do not have a trust as part of their estate plan, it is important to update any payable-on-death beneficiaries to reflect your current desires for who receives those assets. For example, if someone redid their estate plan after getting divorced but never updated the beneficiary on their life insurance policy, that money could end up in the hands of their ex-spouse, which is usually not what the person would have wanted.
3. People are not aware of the different protections they can incorporate into their estate plan.
Creating an estate plan does not have to just be about stating how you want your assets distributed upon your death. Creating an estate plan can also be about how to protect the assets you leave for the beneficiaries’ lifetimes. With appropriate trust planning provisions, your beneficiaries could have the assets they inherit protected from future lawsuits, creditors, bankruptcy, and divorce.
For example, let’s assume you leave $100,000 to your child outright via a will. A year or two after receiving the inheritance, your child’s spouse files for divorce and claims $50,000 in the divorce settlement. Now, let’s assume instead of leaving the $100,000 to your child outright, you instead left it in an asset protection trust for your child. A year later if your child’s spouse files for divorce, they will not be able to make a claim to the assets in the trust, and that money is protected.
How can I be sure my estate planning is done right?
At Carolina Family Estate Planning, we help families build better lives by planning for a secure future. Our team takes an all-inclusive approach to our clients' long-term care and estate planning. We focus on building relationships with our clients, offering sound legal advice and expertise to help you make the best decisions for your family.