Financial Advice for Retirement, Social Security, IRAs and Estate Planning

7 Estate Planning Mistakes That Could Be Costing You

If you’ve never seen an estate planner…

Or if your estate plan hasn’t been revised within the last three years…

Then your plan is likely to have at least one of these classic mistakes.

Today let’s go through these estate planning mistakes, one by one…

1. Relying only on a will.

A written will is an essential part of every estate plan, but it isn’t enough.

A complete estate plan includes key documents that might be needed before your passing, such as a power of attorney and advanced medical directive.

These documents name one or more people to make decisions regarding your assets or medical care when you can’t do so.

Without these documents, many actions are taken only after a court appoints someone to act for you, and it could be someone you wouldn’t have selected.

Or doctors take the actions they deem best, even if it’s not what you would have decided.

A will also doesn’t cover the assets that have ownership transferred by operation of law outside of the will and the probate process.

These assets include annuities, life insurance, retirement accounts (such as 401(k)s and IRAs), jointly-owned property and more.

The beneficiary designations of these assets decide who inherits them, often without reference to your will.

Trusts are more important to many estate plans than they were a couple of decades ago and often now are more important than the will.

You might want one or more trusts supplementing your will.

2. Expecting too much from a power of attorney.

The power of attorney (POA) is an essential estate planning document, but many people don’t know its limits.

Ideally, the agent named in your POA smoothly takes over and seamlessly manages your affairs when you can’t and continues doing so, either until you again are able to take over or pass away.

Often, however, things don’t work that way. It can take time and some effort to convince a financial institution to accept a Power of Attorney and the designated agent.

Many institutions want a copy of the Power of Attorney in their files well before the agent takes authority, so lawyers or other staffers can review it.

Others only accept Power of Attorneys executed recently, say in the last six or 12 months.

Some institutions insist that you execute their POA forms or have specific language in the POA, and others require you to re-affirm a POA periodically if it hasn’t been used.

You shouldn’t think all your work is done and the problems are solved when you leave the lawyer’s office with a POA.

There could be more work needed to ensure your affairs will be handled properly, and you should do it soon.

3. Not avoiding probate.

When an asset passes to others through a will, it must go through the probate process. Probate can be both time-consuming and expensive.

The details vary from state to state and even among localities in a state.

Many states in recent decades enacted less expensive and more streamlined probate, at least for estates of lesser value. But in other states, the delays and costs of the old probate process remain.

In addition to being expensive, probate can be disruptive to the management of your assets and leave beneficiaries uncertain when their inheritances will be received and how much they’ll receive.

When you own assets in more than one state, your estate might have probate procedures in each of the states.

Probate also is a public process. Anyone can go through the probate court records to determine how much your probate estate was worth and how you divided it.

Discuss the local probate process with your estate planner so you’ll know the potential cost and time delay involved.

Also, consider your privacy preferences. Then, determine how much of your estate you want to avoid probate.

Some assets avoid probate by operation of law, as discussed above. Others can avoid probate by transferring them to a trust, such as a revocable living trust.

The living trust is perhaps the most common way to avoid probate, and we’ll discuss it in more detail in next week’s issue, along with 4 more classic estate planning mistakes.

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