What’s the Best Way to Mess Up Estate Plan?
Forbes’ recent article entitled “5 Ways People Mess Up Their Estate Plan” describes the most common mistakes people make that wreak havoc with their estate plans.
Giving money to an individual during life, but not changing their will. Cash bequests in a will are common. However, the will often isn’t changed even if the bequest is gifted early during life. When the will gets probated, the individual named still gets the gift (or an additional gift). No one—including the probate court knows the gift was satisfied during life. As a result, a person may get double.
Not enough assets to fund their trust. If you created a trust years ago, and your overall assets have decreased in value, you should be certain there are sufficient assets going into your trust to pay all the gifts. Some people create elaborate estate plans to give cash gifts to friends and family and create trusts for others. However, if you don’t have enough money in your trust to pay for all of these gifts, some people will get short changed, or get nothing at all.
Assuming all assets pass under the will. Some people think they have enough money to satisfy all the gifts in their will because they total up all their assets and arrive at a large enough amount. However, not all the assets will come into the will. Probate assets pass from the deceased person’s name to their estate and get distributed according to the will. However, non-probate assets pass outside the will to someone else, often by beneficiary designation or joint ownership. Understand the difference so you know how much money will actually be in the estate to be distributed in accordance with the will. Don’t forget to deduct debts, expenses and taxes.
Adding a joint owner. If you want someone to have an asset when you die, like real estate, you can add them as a joint owner. However, if your will is dependent on that asset coming into your estate to pay other people (or to pay debts, expenses or taxes), there could be an issue after you die. Adding joint owners often leads to will contests and prolonged court battles. Talk to an experienced estate planning attorney.
Changing beneficiary designations. THIS IS A BIG ONE. Changing your beneficiary on a life insurance policy could present another issue. The policy may have been payable to your trust to pay bequests, shelter monies from estate taxes, or pay estate taxes. If it is paid to someone else, your planning could be down the drain. Likewise, if you have a retirement account that was supposed to be payable to an individual and you change the beneficiary to your trust, there could be adverse income tax consequences.
Talk to your estate planning attorney and review your estate plan, your assets and your beneficiary designations. Don’t make these common mistakes!
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning and asset protection.
If you liked this article, “What’s the Best Way to Mess Up Estate Plan?” read these other articles: Will My Social Security Benefits Be Taxed? and When Should a Trust Be Reviewed? and Does a Trust Protect You From a Lawsuit? and Will I Be Ready for Long-Term Care?
Reference: Forbes (Oct. 26, 2021) “5 Ways People Mess Up Their Estate Plan”