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Common Mistakes in Estate Planning

Nov122020

Here are some common estate planning mistakes many clients make and how you can avoid doing so.

  1. 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 Or, their documents are outdated and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.
  2. 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.
  3. 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.
  4. 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.
Category: Estate PlanningNovember 12, 2020
Tags: accountassetsbeneficiarydocumentsfamily

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