Maintaining a valid and current estate plan is vitally necessary in order to ensure the efficient and orderly dispersion of assets after a person dies. However, even a small mistake can create huge problems during the settlement process, and in many cases, these errors are impossible for anyone to correct. There are several key errors that can make an estate plan defective, most of which can be easily avoided by reviewing your or your client's plan periodically and keeping it up to date. A list of these common snafus includes:
Failing to Update Your Beneficiaries
Marriage, divorce, birth and death can all affect who will receive your assets. Make sure that those to whom you intend to leave your assets are clearly listed as such on the proper forms. Whenever any one of these changes, remember to make the correct updates on all financial, retirement and insurance accounts and policies as well as in your wills, trusts and other legal documents.
Omitting Legal Documents
Your will may be in perfect order, but it won’t exempt your assets from the probate process in most cases if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, such as life insurance, retirement plans and annuities and any financial account that has a transfer on death (TOD) beneficiary listed. But all other assets are generally subject to this state-appointed process of settling your estate. Revocable living trusts are the primary instrument that is used to exempt all other assets from probate, a process that can drag on for a long time in the event that the will is contested and incur substantial court and legal fees. And having only trusts without a will can be just as big a mistake, as the will is the primary document used to name the guardianship of children and other dependents if something should happen to you and/or your spouse or partner.
There are few things that those who will settle your estate will enjoy less than having to spend a great deal of time and effort finding, organizing and tracking down all of your assets and belongings without you there to direct them where to look. The ultimate key to any successful estate plan is a concise letter of instruction that tells your executor where everything is located, the names and contact information of everyone they will have to deal with, such as your banker, broker, insurance agent, financial planner, attorney, landlord or tenants, etc. You should also list all of the financial websites you use with their login information so that your accounts can be conveniently accessed.
Telling your heirs that you will do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure route to hurt feelings, fractured relationships and legal wrangling in some cases. If your situation is somewhat complex and may require additional explanation, you may be wise to write a simple letter of explanation that outlines your intentions or tells them why you changed your mind about something. This could go a long way towards providing closure or peace of mind, even though it carries no legal authority.
Failing to Create a Plan
Although this error is easily the most obvious one in the list, it is also one of the most common. History contains many stories of very, very wealthy people who lost virtually all of their estates to court fees and legal costs because they failed to plan ahead in this area. Having a plan is especially important for those who may have to pay estate taxes.
The Bottom Line
These are just some of the common estate planning errors that frequently occur in the estate settlement industry. For more information on what you need to do ensure that your or your client's assets are dispersed according to your wishes, contact a qualified estate planning attorney or a financial advisor.