Common Estate Planning Mistakes

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Common Estate Planning Mistakes

An estate plan is important—it sets up someone’s legacy for years to come, protects assets, and helps avoid paying unnecessary taxes. When someone makes a critical mistake in an estate plan, it can undermine all the work that was done to accomplish specific estate planning goals. The list below includes some of the most common estate planning mistakes the team at Loughlin Law, P.A. sees. Our experienced estate planning attorneys may be able to help you avoid these errors, or combat them after they have occurred. To learn more, contact us by calling (561) 677-8384.

Incomplete Plans

A major goal of every estate plan is addressing all of the testator’s property. In some plans, major property or sentimental property is addressed, but other property is forgotten or ignored. A good estate plan needs to address all property, regardless of perceived significance. Otherwise, there could be unintended consequences, including that the property is distributed to someone the testator did not intend or even that the property would have to go to the State of Florida under what is known as “escheat.”

One method to ensure that all property is addressed is to have a “catch all” provision in a Last Will and Testament or trust. This provision essentially sets out how all other property not named elsewhere is treated. This provision can help to ensure that all property is taken into account in the final distribution of assets.

Old Plans

An estate plan is an ever-changing strategy that should be adjusted when important life events occur, or when the facts related to assets change. Marriage, divorce, or the birth or adoption of a new child or grandchild can change an individual’s preferences regarding beneficiaries. When real property or other expensive assets are sold or acquired, a testator may want to make adjustments in their plan then, as well. Keeping plans updated will help ensure that estate planning goals are met.

In some cases, a will might name specific investments that need to be transferred. However, if the testator does not own those assets any longer when they pass, the executor may be required to buy them to pass down to the beneficiary. In some situations, that required purchase can be a huge drain on estate assets.

Not Naming Contingent Beneficiaries or Successor Trustees

When someone creates an estate plan, they often have a very specific person they wish to name as a trustee or beneficiary. However, by the time the testator passes away or the trust becomes effective, that person may no longer be living, or they may no longer be willing to serve as a trustee.

In light of these potential exigencies, it is important to name a successor trustee, as well as a contingent beneficiary.

  • Successor trustee: A successor trustee will step in if the first-named trustee is unavailable (often due to incapacity or death), or no longer wishes to fulfill the role of a trustee.
  • Contingent beneficiary: A contingent beneficiary is someone who receives whatever benefit the testator conveyed to the beneficiary, if the primary beneficiary is no longer living. The most common example of a contingent beneficiary is a grandchild instead of a child.

Having a contingent trustee or beneficiary clears up any confusion regarding who should administer a trust or who should receive assets. If these individuals are not named, the court might appoint a trustee, or the assets may go to anyone named in a “catch-all’ provision in a will or trust. If there is no such provision, distributing the assets can become even more complicated.

Failing To Update Beneficiaries on Ancillary Estate Planning Tools

Life insurance policies, annuities, and retirement plans can all be critical parts of an estate plan. However, they are sometimes overlooked. The third party holding the asset, such as an insurance company or financial institution, must transfer the property in question to the beneficiary listed in the policy or account documents in most circumstances. This is true regardless of what other estate planning documents might say.

As a result, it is critical to keep those beneficiaries updated as well. Failing to update beneficiaries in the documentation for policies and accounts held by third parties can mean that significant assets go to ex-spouses, individuals who are no longer living, or others who may no longer have a good relationship with you at the time of your death.

FAQs Regarding Estate Planning Errors

At Loughlin Law, P.A., we often receive some of the same questions over and over regarding general rules for estate plans. The following frequently asked questions and answers may be helpful for those who are creating an estate plan for the first time, or those who may need to update their plan.

What Are the Three Main Priorities You Want To Ensure With Your Estate Plan?

Every estate plan has different goals. However, as a rule, most estate plans aim to answer the same three questions:

  1. Are children or other loved ones properly cared for?
  2. How will assets or finances be managed if you become incapacitated?
  3. How will all assets be distributed after you pass?

What Are the Two General Situations That an Estate Plan Lays Out?

Some individuals and families make the mistake of assuming that estate planning is only about after-death plans. However, incapacitation planning can be just as important as passing assets after death. In general, therefore, a sound estate plan addresses both after-death planning and planning for incapacitation. Individuals and families can plan for lack of capacity by using trusts, medical directives, and naming powers of attorney.

What Is the “5 and 5” Rule In Estate Planning?

The five and five rule sets out that a beneficiary can take $5,000 or 5% of a trust’s fair market value each year, whichever is greater. This rule is used for estates when the grantor wants to limit how much money a beneficiary can take on an annual basis for any reason, but particularly if they feel the beneficiary may be irresponsible with the money they are given. Washington and Lee Law Review provides some interesting insight on this rule if you would like to do some further reading.

Learn More From a Florida Estate Planning Attorney

Estate planning can be very simple or extremely complicated. However, when you work through the process with a knowledgeable attorney, you may be less likely to make some of the most common estate planning mistakes. Loughlin Law, P.A., may be able to help you create an estate plan that makes sense for you and your family. Learn more by calling (561) 677-8384.

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