As an estate planning and tax attorney, much of my time is spent educating families regarding the proper estate planning strategies including ways to avoid making costly mistakes. The following is a list of three common mistakes (or ways you can haunt your heirs from beyond the grave):
Allow Your Entire Estate to Pass Via Beneficiary Designations
A common misconception that I hear from many clients is that “I don’t need any estate planning because all my financial accounts have beneficiaries listed.” This is by far, the biggest estate planning mistake that I see committed, and continues to be committed by many families. First, you can’t leave your personal property or your real estate by way of a beneficiary designation. Also, if you do desire to leave your entire estate through beneficiary designations, every one of the following circumstances better apply:
- Want All Assets to Pass Outright to the Surviving Spouse
- You Have No Estate Tax Issues and No Chance of Having Any Estate Tax Issues
- It Is Your First Marriage and All Children Are From That Marriage
- Both You and Your Spouse Agree as the Ultimate Distribution of the Estate
- You Are Not Worried About Remarriage of the Surviving Spouse and All Assets Ending Up With The New Spouse and His or Her Family
The main problem with using beneficiary designations to transfer your entire estate is that it circumvents the wishes in the will or trust, it fouls up estate and gift tax planning, it may result in unintentionally disinheriting beneficiaries, and can result in no liquid assets to pay for final funeral expenses or ongoing expenses after death.
Thinking a Simple Will is All You Need
Many families fall into the misconception that a simple Will is all they need because “I don’t own much and I have a simple situation.” The main problem with this type of thinking is that when you pass away with a simple will, hopefully you named an executor, and that executor will be in charge of settling your estate and your final affairs when you die. This includes paying all of your valid debts and expenses. This can include bills, funeral and memorial service bills, final tax obligations, and the cost of administration (the court and Uncle Sam get their share too)! If your executor fails to do this, he or she can be held personally liable. In addition, if there are not enough assets to pay your final expenses, your executor may find themselves having to use assets from beneficiary designated accounts that were already paid out to pay these final claims (good luck getting these assets back from the other beneficiaries because you didn’t follow the rules correctly)!
Taking the Time to Set Up a Trust Based Estate Plan and Failing to Fund the Trust Correctly
There are many times when a family comes into my office following the death of a loved one and they bring in their loved one’s big, fancy, and probably extremely expensive, leather bound estate planning binder. I begin my work and start reviewing the documents and the assets, and before long, I have to inform the family that we need to open a probate administration. When the family says, no, my loved one had a trust, I must inform them that unfortunately the trust was not funded completely. If you take the time to set up a trust, you must spend at least an equal amount of time in funding the trust correctly. The trust will not even be worth the paper it is written on if you do not take the time to fund the trust correctly.
When you are engaging in estate planning and legacy planning, always keep in mind these three common mistakes that can haunt your heirs from beyond the grave, and make sure you do not make these mistakes!
If you have questions or want to sit down and discuss estate planning and legacy planning, please contact our office at (615) 472-2482 or e-mail us at [email protected] and we’d be happy to answer any questions that you have.
We look forwarding to hearing from you!