Here are some common estate planning mistakes many clients make and how you can avoid doing so.
- Old or unsigned documents. Too often clients show me their existing estate plan, and some of the documents have never been signed – much to their surprise. Or, their documents are outdated and
do not reflect changes in the law. It’s important not only to ensure your documents are signed, but
that you review them every few years.
- Adding another person to a bank account. Many people add another person’s name to a bank or
investment account, thus creating a joint account. An elderly client may add a child to an account,
for example, typically either for convenience or because they believe the assets will be protected
from creditors or a nursing home. Doing so is not bad in and of itself, but there can be unintended
consequences, like unintentionally disinheriting another child or other children. You should make
sure you understand these consequences before creating a joint account.
- Incomplete or incorrect beneficiary designation forms. A significant portion of your wealth may be in life insurance policies, retirement plans, or annuities. These assets pass to the designated
beneficiaries pursuant to the beneficiary designation form. They do not pass under your Will
(unless there is no designation form, in which case the proceeds pass under your estate). It’s
important that you review these designation forms to ensure they are properly filled out and they
accurately reflect your wishes. In addition, if there is no beneficiary designation form, there can
be significant adverse tax consequences.
- Using online or store-bought software. Although using online or store-bought software can be a tempting solution, there are too many potential problems that can arise, even in the simplest of
plans. These services begin by asking basic questions about your assets, your family, and how
you would like to leave your property after you pass away. The questionnaire must apply to a
very broad range of individuals, so the questions are generic and standardized. As a result, it’s
almost impossible for these services to recognize certain issues that may apply to you – issues of
which you may not even be aware. After completing the questionnaire, the resulting product is
typically a set of template documents that differ very little from person to person. If any one of
the following applies to your situation, you should probably steer clear of online or store-bought
estate planning services: a child or grandchild is a minor; a family member has a disability; a
family member owes money or has creditors; you own real estate, especially out-of-state; you
have assets in excess of $1,000,000 (for Massachusetts residents); you want to disinherit
someone; or you own assets like bank accounts or CDs jointly with family members other than
your spouse. Furthermore, because of the generic nature of these estate planning services, so-
called “ancillary documents” (e.g., health care proxies, living wills, HIPAA authorization forms,
durable powers of attorney, and even Wills) do not always address or adhere to state-specific law.
One of the worst things that could happen is to find out that one or more of these documents is
ineffective, especially when it may be too late to have a new document prepared.