“Most people don’t plan to fail, they fail to plan.” – John J. Beckley
The idea of death is an unpleasant one and the thought of planning for your future can be overwhelming, so perhaps this is why so many people fail to plan. Don’t be one of them by avoiding these common mistakes:
1. Failing To Plan
There is a common misperception that estate-planning is only necessary for the “rich”. You know, “the 1%”? Whether you own a home or have children, experts say most people should create an estate plan to guarantee their assets go where they want.
If a person in Alabama dies without a valid last will and testament, their assets will be distributed to their heirs by the State under “intestate succession” laws; however, only those assets that would have passed through their will are affected. Typically this includes only those assets that you own in whole and in your own name. Many valuable assets don’t go through your will, and will pass to the surviving co-owner or to the beneficiary you designated, whether or not you have a will. These include, but are not limited to:
- Life insurance proceeds
- Funds in a 401(k), IRA or other retirement account
- Property transferred to a living trust
- Property you share in joint tenancy
2. Thinking All You Need Is A Last Will And Testament
A last will and testament may indicate who receives what assets upon your death, but whether or not you have a will, your estate will be administered and processed through the legal system, through the probate process, upon your death. This can be time consuming and expensive for your surviving family members.
On the other hand, if you have a living trust, it eliminates the probate process for the assets titled in the name of the trust. A few advantages of a living trust include:
- It does not have to go through the probate process
- It provides you with control over how your assets are to be distributed
- It prevents the Courts from controlling your assets if you become incapacitated
- It remains confidential and does not become a matter of public record
With a living trust, you’re able to name someone, known as the trustee, to manage the trust property for your designated beneficiaries. While you’re alive, the trustee has a responsibility to manage your property as you have directed. Upon your death, the trustee should dispose of your estate according to your wishes or manage it for the benefit of your designated beneficiaries.
3. Thinking All You Need Is A Living Trust
Many people assume that establishing a living trust and signing the trust documents means they’re done. Wrong. Remember, the trust does not exist unless it holds assets, so it must be funded. Setting up the trust also requires you to transfer ownership of all the property you wish to place in the trust. This may include revising title documents in the name of the trust.
Even if you establish a living trust, you should make a last will and testament as well. Upon your death, your will collects and transfers any additional assets (assets you may have recently acquired or forgotten to transfer) to your trust so that they will be dispersed according to your wishes and avoid the probate process. Your will also allows you to name a guardian for any minor children. Your living trust does not.
4. The Old “Out of Sight, Out Of Mind”
All too often people set up their estate plan, but then never look at it again. Remember, if you have minor children, it’s likely that your estate-planning documents specify who will be their guardian should something happen to you. Keep in mind that life changes. Your needs, and the needs of your children, may change too.
Tax laws can also change and people need to look at their estate documents to make sure their trust still works within the current framework. You should plan to review your trust documents every few years or whenever you have significant life changes such as marriage, divorce or the birth of a child.
As noted in #1, not all assets follow your last will and testament or trust. Insurance policies and retirement accounts are just a few that will be governed by the beneficiary forms you fill out at the inception of the account or policy. Again, if you’ve experienced a significant life change, it’s beneficial for you to look at your designated beneficiaries and revise them as needed.
5. Appointing The Wrong Person As Your Trustee
It’s only natural that you’d want to choose someone close to you, maybe a parent, sibling or other family member, to be your trustee; however, they may not be the best person for the job. “Take into account the person’s age and health and the likelihood of that person being around to administer your estate,” advises Dave Heilich, a CPA and wealth planner at Brown Smith Wallace in St. Louis. “Obviously, an executor or trustee has to outlive you, so you wouldn’t want to name your brother or sister if they’re your age or older.”
If you decide to appoint a family member, you may want to consider designating a corporate executor or trustee as a successor. Whoever you choose, make sure it’s someone who you can trust, is honest, and has the time and energy to take on the task of serving as your trustee. Be sure to let them know where you keep your estate-planning documents and other important papers.
The primary goal of estate-planning is to protect, preserve and manage your estate upon your death or during incapacity. Throughout life, you work hard to build assets and provide a level of financial security for your loved ones, and you should work just as hard to protect those assets in the future. If you have questions about estate-planning or require assistance in drafting your estate-planning documents, Rahmati Firm stands ready to assist you. Please call (256) 533-2002 or click here.
*No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.