From time to time, it is good to review your estate plan. Doing so can help you understand why having a complete, up-to-date estate plan is so important. In addition to confirming your own actions, it can help you identify mistakes so you can fix them. This will allow you to verify that your estate plan works like you want it to. However, not reviewing your estate plan can create problems that can impact your loved ones and even generations after you. In an effort of avoiding these consequences, here are five common mistakes that you need to avoid with your estate planning strategy.
Five Common Estate Planning Mistakes to Avoid
1. Not having a plan
Colorado has what I call “default” laws that govern how your property will be given to others if you do not have an estate plan. If you do not have an estate plan, these laws will take effect. These laws spread our your property evenly among your family members. Non-family members (including an unmarried partner) receive nothing. While in theory a good idea, the chances that these laws match your vision is almost impossible. This will ultimately probably leave your family members upset and not in the best position in life after receiving their inheritance.
In some situations, your surviving spouse and your children will share the inheritance. This means that your spouse probably will not have enough money on their own. For your children, assuming they are minors, the court will supervise their assets for them until they are 21. Once they turn 21, your children will get their entire inheritances. Again, it is probable that this does not match your wishes.
2. Not naming a guardian for minor children
A will is the only estate planning document where you can name a guardian for any minor children. If you and your spouse have not done named a guardian and you both pass away before your child turns 18, Colorado law states that a court will appoint someone to raise your children. The judge will have to do this without any input from you.
3. Relying on joint ownership
Often, an older parent decides to give joint-ownership rights to a child to avoid probate or prepare to incapacity. However, this is often not a wise decision. When you add a co-owner, you lose control. If you child has any debts, gets divorces, or makes poor spending decisions, your assets are now vulnerable. You may have also created issues about income tax or gift tax.
4. Not planning for incapacity
A person is medically or financially incapacitated if they cannot make medical or financial decisions for themselves. Medical and General Durable (i.e. Financial) Powers of Attorney gives to a trusted individual the authority to step in for the incapacitated person and make those decisions. If you do not have Powers of Attorney, only a court can give that authority to someone, even if you have a will. The court then supervises any decisions made until the incapacitated person regains capacity or passes away. This process is public and often consumes a good amount of time and money. Creating Powers of Attorney avoid this situation.
A Power of Attorney gives you some control over your appointed helper because you determine what authority they do or do not have. However, a trust is still often a better tool for incapacity because your helper can be held accountable better for their decisions. Powers of Attorney and trusts allow you to express your wishes about what decisions you want made for yourself if you are ever incapacitated.
One additional aspect to think about here is long-term care. Getting long-term care insurance can be a good idea to help provide for expenses associated with long-term care at a facility.
5. Not keeping 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. However, family dynamics, laws, and property ownership changes over time. All of these things affect your estate plan, and so your estate planning strategy also needs to change. At minimum, though, you should review your plan every two years to verify that everything still works like you want them to.
Prevent Mistakes
I view my main purpose as an estate planning attorney is to help prevent mistakes with your estate plan. The mistakes mentioned above are easily preventable. That is why I provide comprehensive, client-focused, and relationship-based estate planning services to my clients to help prevent the long-term consequences that can follow these mistakes. I invite you to contact The Rains Law Firm or schedule a meeting to begin or review your estate plan.