While it might seem simple enough to put
together an estate plan online or have your tax attorney prepare your will, it
can be very difficult to create an estate plan that works without the proper
training and experience. What might seem like minor details to the
inexperienced eye can often have major effects on your plan’s final outcome.
We regularly meet with clients who ask us to
review an estate plan that they created online or with an attorney who isn’t
experienced with estate planning. More
often than not, clients who meet with us to review a DIY plan find out that
instead of saving money on their estate plan, they’ve actually cost themselves
much more by buying a plan that contains mistakes. And if these mistakes
aren’t caught by you while you’re alive and well, your loved ones will be the
ones paying the price to resolve them after you’re gone.
Here are the three biggest mistakes I see when
reviewing DIY and low-cost estate plans:
Leaving
Assets Outright to Loved Ones
One of the simplest mistakes you can make in
estate planning is distributing your assets directly to your beneficiaries upon
your death. This is a bad idea for several reasons:
●
The assets have no protection from
your beneficiaries’ creditors once they leave your estate.
●
The money can be squandered and
used however the beneficiary wants.
●
If the beneficiary is a minor, a
court will decide who manages the assets and how they’ll be used.
Instead of gifting your assets directly to
your beneficiaries, distribute your assets into a trust for the beneficiaries'
benefit. When creating a trust, you can choose who will manage your assets for
your beneficiaries while also sheltering those assets from your beneficiaries’
creditors or their own poor money-management skills.
Setting up a trust to hold your assets is
especially important if you have minor children. Minors cannot own money on
their own, which means they can’t receive any assets from you directly on your
death. Instead, a court will need to appoint a trustee or conservator to manage
the assets you leave for your children. There’s a high chance that the person
the court appoints will not be the person you would have chosen yourself. And
if the court appoints a professional trustee, your assets will be reduced by
expensive trust administration fees.
A court-appointed trustee will distribute the
assets to your children outright when they reach the age of 18, but this only
puts the assets at risk. Few young adults have the maturity or knowledge to
manage a large sum of money responsibly so that it can grow and support them
over time. Even if your adult child is responsible or has guidance from someone
you trust, those assets are still susceptible to any lawsuits, divorces, and
unforeseen financial troubles your child may experience in the future.
Instead of leaving assets outright to a minor
or young adult, leaving your assets in a trust, established for the child’s
benefit, allows you to choose the person who will manage the assets you leave
for them, helps the assets grow through careful financial management, and
protects the assets from your child’s lack of experience and future risk.
Not
Creating a Lifetime Asset Protection Trust
Creating a trust to hold your assets can
provide years of asset protection for your loved ones, but that protection only
exists so long as the assets are held in the name of the trust. The second big
mistake I see are trusts that direct the assets to be taken out of the trust’s
protection and given to your child or beneficiary at a specific age. You might
not see the problem with this scenario at first, but even if your child or
beneficiary is mature enough to manage a sum of money, doing this still leaves
those assets susceptible to future legal and financial risks.
Instead, consider creating a Lifetime Asset
Protection Trust to hold their beneficiaries’ assets indefinitely. This gives
the assets lifelong protection while still providing financial support to your
beneficiaries.
Unfortunately, most lawyers do not understand
how to use trusts to establish this kind of protection for the inheritance you
are leaving behind, and some may even try to dissuade you from using a trust at
all unless you have a very large estate. Even if you are leaving behind a small
number of assets, protecting those assets and helping them grow can make a huge
difference in the future well-being of your loved ones.
Forgetting
to Update Beneficiary Designations
This final mistake is so simple, yet so easily
forgotten when creating a DIY plan or using an inexperienced estate planner.
While your will and trust are important parts of your estate plan, it’s vital
to update your insurance policies and retirement accounts to pay out to your
trust instead of directly to your beneficiaries.
Leaving the names of your beneficiaries on
your insurance and retirement accounts instead of the name of your trust
ensures the largest assets you own won’t be a part of the plan you just
created. Instead, the assets will be distributed directly to the beneficiaries
listed on the account, to do with however they want, even if you had other
plans for protecting the funds under your trust. We’ve even seen cases where the beneficiaries named on a life insurance
or retirement account are so outdated that the person named on the account
isn’t even a part of the client’s life anymore!
Estate
Planning That Works
In order to make sure your estate plan truly
work the way you intend it to, it’s essential that all of your assets are
reviewed and accounted for to make sure that any accounts you have reflect the
name of your trust or other estate plan method. That’s why we always create an
inventory of your assets and follow up with you to make sure your assets are
updated into the name of your trust. We can even update your assets for you, so
you can rest assured that every piece of your plan works together.
If you're thinking about using a DIY estate
planning service or had an estate plan created by an attorney in a different
practice area, it's crucial to check
your plan for these three simple but major mistakes. Otherwise, your estate
plan might end up causing more problems than it solves, leaving your family in
court and conflict.
When you meet with us, we’ll review your current estate plan, and you'll
have the opportunity to discuss your concerns, learn how your current plan will
(or won’t) work for you, and if you don’t feel confident in your current estate
plan, we’ll create a new comprehensive plan for you that will provide the
protection and support your family needs for years to come.
Don’t let a simple estate planning mistake
derail your plans for your family. Contact
us today - your loved ones will thank you for it!
This
article is a service of Ganvir Law, Personal Family Lawyer®. We do not just
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and death, for yourself and the people you love. That's why we offer a Family
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