5 Estate Planning Don'ts
As I meet with people in seminars and consultations or when reviewing planning that has been done by others in the past, I come across a variety of ways to approach estate planning. There are mountains of information available and much of it can be confusing. This can often lead to inaction or bad actions. In my blog today I thought I would share a few don’ts when it comes to planning your affairs:1. Don’t Rely on the Government Plan. 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 generally they leave a percentage of the deceased’s assets to family members. (Non-family members, like an unmarried partner, will not receive any assets.) It is common for the surviving spouse and children to each receive a share. If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount as opposed to when they are more able to handle it.2. Don’t Let the Court Name the Guardian for Your Minor Children. A guardian for minor children is generally named in a Will. If the parents have not done this, and both die before the children reach legal age, the court will have to name someone to raise them without knowing whom the parents would have chosen.3. Don’t Rely on Joint Ownership. Many older people add an adult child to the title of their assets (especially their home), often to avoid probate. But this can create all kinds of problems. When you add a co-owner, you lose control. Jointly-owned assets are now exposed to the co-owner’s creditors, divorce proceedings and possible misuse of the assets, and the co-owner must agree to all business transactions. There could be gift and/or income tax issues. And if you have more than one child but only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances.4. Don’t Fail to Plan for Incapacity. If someone cannot conduct business due to mental or physical incapacity, only a court appointee can sign for this 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(s) 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 are 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. (Remember Terri Schiavo? Terri’s story and information about the Terri Schiavo Foundation can be found at http://www.terrisfight.org/) The exorbitant costs of long term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning. Consider long term care insurance to protect your assets.5. Don’t Forget to Keep Your Plan Up to Date. Every estate plan is based on the personal, family and financial situations, and 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. It’s a good idea to review your plan every year or so and make sure it still does what you want it to do.