Top Estate Planning Mistakes

Parker Trasborg, CFP® June 24, 2017

Estate planning is an important piece of the financial planning puzzle because it allows you to dictate what will happen to your assets when you are not able to express your wishes due to incapacity or death.  From our oldest client who is close to 100 years old to our youngest clients in their 20s, estate planning is imperative regardless of wealth because there are various factors to consider at any age.  The following are some of the most common estate planning mistakes that we see:

  • Failing to have any estate planning documents

Not having documents in place can have consequences not only at your death but also when you are still living.  If you become incapacitated, an Advanced Medical Directive (in Virginia) outlines your wishes in regards to medical treatments and procedures and can name a person to make health care decisions for you.  If you do not have documents in place, a court may assign a person for you and decisions may be fought in court similar to the Terri Schiavo case in the early 2000s.  At death, not having documents in place can have additional consequences including potentially unnecessary expenses for probate or having assets distributed to your heirs according to the intestacy laws of your state rather than your wishes.

  • Not having accounts titled correctly

So you had estate documents written up; (great work!), but this isn’t necessarily the last step.  You now have to implement the plan and the first step is usually updating the ownership (title) of your assets according to the estate documents.  For example, you may have a Trust created to hold your son’s inheritance until age 30 to prevent him from spending his entire inheritance if you were to die while he is still young.  In this case, if you do not update your account titling to put the assets in the Trust, then the assets would pass according to your Will and he might receive all of the assets outright. The expense of creating the Trust and all of that hard work would be for naught.  At CJM, we ask for a copy of your documents after they are created so we can help to make sure that your estate plan is implemented.

  • Having beneficiary designations that are out of date

There are certain accounts that pass to stated beneficiaries regardless of what the estate documents specify.  They include retirement accounts, life insurance policies, and can include bank or investment accounts that are titled as transfer/payable on death (TOD/POD).  These accounts pass to the beneficiaries that were specified in the paperwork for that particular account.  Beneficiary designations should be updated at each life event such as the birth of a child, death of a family member, and divorce.  There are horror stories of an ex-spouse erroneously inheriting a 401(k) or life insurance policy, and a child accidentally disinherited because the beneficiary designation was not updated. This is why we include a beneficiary designation page in each annual review presentation, every year.

  • Having estate planning documents that are too old

Picture this: Your documents were written 20 years ago in 1997 when the federal exemption was $600,000 and the top estate tax rate was 55%, and HIPPA didn’t exist.  The current federal exemption level is $5,490,000 with a top tax rate of 40%.  As you can see, the planning that was done to protect assets from federal taxation back in 1997 may no longer make sense and actually unnecessarily complicate the process or have other unintended consequences (such as missing basis step-up) in 2017.  Other issues of having documents that are “too old” could include your power of attorney being rejected by financial institutions and your advanced medical directive being rejected by a health care provider because it lacks the necessary HIPPA language.  If these two documents are more than 7 or 10 years old, institutions will often not accept them.  Similar to beneficiary designations, you should review and possibly update your documents at any major life event, in addition to having them reviewed at least every 7 to 10 years.

Learn more about the importance of estate planning from our estate planning two-part video series featuring CJM CEO, David Greene, and attorneys Daniel Vaughan and Martha Sotelo, from Vaughan Fincher & Sotelo, PC.  The videos can be found on our website under……….

Disclaimer: The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from CJM Wealth Advisers, Ltd. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this article should act or refrain from acting on the basis of any information included in, or accessible through, this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.



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