Estate plans can have all sorts of hidden issues. You don’t need years of study or a law degree to identify some of these very common problems in your estate plan.
- A Will-Based Estate Plan or No Estate Plan
Wills are great estate planning tools when used properly. However, wills do not avoid probate, which should be the first goal of any estate plan. Probate is an avoidable process which is costly, time-consuming, and often frustrating. Likewise, a poorly drafted will can cause problems, such as if it includes property held in joint tenancy or does not adequately express your goals and intentions. This only sets up heirs for a lengthy and expensive probate court proceeding.
- An Unfunded Revocable Living Trust
Trusts only have control over those assets placed within the trust. Certain types of assets, such as real estate, intellectual property, stock, and business assets, will require additional steps to be placed within the trust. A properly funded trust is a powerful tool but an unfunded trust can cause a great number of legal issues and may even require a probate court to resolve.
- Exposed Assets
Assets held jointly with other parties can cause problems. If a surviving spouse or heir has creditors, they may seek to grab those assets. Having assets properly titled and insured will protect the assets. An even better protection against creditors would be to keep assets in the trust even after death.
- Assets Left Outright To Beneficiaries
An estate plan that leaves a distribution outright to beneficiaries is exposed to creditors, predators, divorcing spouses, and lawsuits, not to mention the heir’s own bad judgment. Even worse, if the heir is the recipient of any need-based government program, such as SSI, Medi-Cal, or other programs, leaving assets outright could harm their ability to get much needed care. An experienced estate planning attorney can provide a solution that would protect the assets while giving heirs the benefits of the property.
- Naming Improper Successor Trustees
A successor trustee controls the trust and the property it owns. If the successor trustee does not get along with the beneficiaries, there could be issues of mismanagement or distrust. The inheritors could be stuck fighting in court over the management of the trust. The right successor trustee is one that is not only capable of managing the trust successfully but can also gain the trust of the beneficiaries.
- Outdated Beneficiary Designations
One incredibly common issue is failing to keep the beneficiary designations up to date. Not only should beneficiaries of the will, trust, and other legal documents be kept current but the beneficiaries of financial instruments, such as retirement and investment accounts, need to be kept current. Failure to keep them current could mean confusion as to who has a claim to the property or property being distributed through intestacy.
- Too Much or To Little Insurance
Insurance is a wonderful estate planning tool. It provides a payout at a time that your family needs it the most. Some policies can be tapped in the case of emergency. The right amount of insurance will vary based on your circumstances, such as age, estate size, and after-death needs. Unfortunately, many people get insurance then fail to regularly review their insurance needs.
- Lack Of Long-Term Care Planning
As we live longer, we increase our need for long-term care. A surprising number of people fail to plan for extended medical issues or deteriorating mental capacity. Although long-term care insurance is available, it does not always cover every need. Government programs, such as Medi-Cal, can provide some coverage but qualification can be difficult and require reorganization of estate assets. Even worse, Medi-Cal has the right to reimbursement from the remaining estate assets, which may come in the form of insurance proceeds or retirement accounts. If long-term care is expected, it is best to consult an attorney capable of reorganizing the estate to permit Medi-Cal qualification with no reimbursement.
- Failing To Review The Estate Plan
Many people with estate planning documents simply file them away and forget about them. Unfortunately, estate planning documents age. As things change, the estate plan becomes less effective. Changes include changes to the family (birth, death, marriage, divorce), estate (buy or sell property), health (diagnosis of traumatic illness), goals, values, and the law. That’s why I recommend clients personally review their estate plan at least once a year and consult an estate planning attorney any time they recognize something that might impact their estate plan or every three years, whichever happens first.
If you recognize any of these red flags as part of your estate plan, or you are unsure whether one of them applies, you should immediately consult an estate planning attorney for a review.