6 Common Estate Planning Mistakes

{4:43 minutes to read} Most people have the best of intentions with regard to how they want their estates to be distributed upon their demise and how their affairs should be handled if they become incapacitated. Unfortunately, without proper planning, the best of intentions may not be enough. The following are six of the most commonly made mistakes in estate planning: 

1. Failing to plan. The biggest mistake is failing to create a comprehensive plan in the first place. If an individual does not have an estate plan, his assets will be distributed upon his death according to the law in the state in which he resides. In New York, a surviving spouse is entitled to $50,000 plus half of the estate, with the children inheriting the balance. A single person's estate will pass to his children, parents or siblings. If a person dies with absolutely no living relatives, his estate passes to the state in which he was domiciled. These results often do not comport with what the individual would have wanted. In addition, without an estate plan, a parent with minor children has no way to name the guardian(s) of his children or who will act for him if he becomes incapacitated.

2. Doing it yourself ("DIY"). Some people are tempted to save money by using a do-it-yourself online will service or by simply writing something up themselves, but these poorly-drafted documents often end up costing the estate and heirs additional money in the end. It is impossible to know, without a legal education and years of experience, the correct legal solution to any particular situation or what planning opportunities may be available. If there is anything about a family situation that is not commonplace, using a DIY estate planning program means taking a large risk that can affect one's family for generations to come. The problems created by not getting competent legal advice probably will not be borne by the person creating the will, but may well be shouldered by such person's children and grandchildren.

3. Not planning for disability. A properly drafted estate plan not only specifies what will happen to one's assets upon death; it also plans for what happens if one becomes incapacitated. It is important to have documents, such as a power of attorney and health care proxy, that appoint a trusted agent to act on an incapacitated person's behalf with respect to both financial and medical matters.

4. Failing to fund a trust. Even if a person has implemented an estate plan, his work is not necessarily done. If one's estate plan includes a trust, the trust has to be funded in order for it to be effective. A trust is "funded" by retitling assets in the name of the trust. If assets such as a brokerage account or the deed to a house or are not retitled in the name of the trust, the trust is nothing more than an empty shell and will be useless.

5. Not checking one's beneficiary designations. All individuals should periodically review their retirement plan beneficiary designations to make sure they are not outdated. Retirement accounts are most often distributed according to the forms that are filled out with the account holder. Typically, a retirement asset will not pass to the beneficiary through a will or trust. Every retirement account owner needs to make sure that he has named a beneficiary as well as a successor in case the named beneficiary predeceases him. If a retirement account does not have a named beneficiary, it will pass through the person's estate, which may result in negative tax consequences.

6. Not reviewing the plan. Once a person has an estate plan in place, it is important to keep it up to date. Circumstances change over time, and one's estate plan needs to keep up with these developments. Major changes that may affect a person's plan include getting married or divorced, having children, or experiencing an increase or decrease in assets. Even if an individual does not experience any major changes, he should review his plan periodically to make sure it still expresses his wishes.

Consulting with an experienced estate-planning/elder law attorney is probably the best way to ensure that these mistakes are not made.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The Wealth Management Firm can be reached at 516-466-3300 or 800-353-3775.