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Estate Planning Mistakes That You Must Avoid

While it may be a difficult topic to think about, estate planning is an important step you can take to protect the interests of your family. A well-prepared estate plan will help you ensure your wishes are carried out and your loved ones are taken care of once you’re gone. It can be a hard conversation to have with family, but if you pass away without a plan in place, your family members may be left to sort out a legal mess in court.

There are different tasks to complete depending on your stage in life and how you are affected by someone’s estate plan. You may be preparing for your own future, are the surviving spouse, or stepping in as a health care proxy for a loved one. You might be named the executor of a parent’s estate or be sorting through an unplanned estate with no will. You could be the named beneficiary of an estate in a will, but are curious about planning strategies to avoid probate.

Many things come into play with an estate plan. Life insurance policies, state laws and exemptions, federal estate tax, retirement accounts, and tax planning are key financial tasks on one side of estate planning. The other side is more personal. Making funeral plans, planning financial gifts and sentimental items to pass on, choosing someone you trust for end-of-life medical care, and other similar choices can be emotional. Being informed can help bring peace of mind. Estate planning is the most essential way to prepare for future incapacity, reduce liabilities to your wishes, and clarify your bequests. No one wants to think about these choices but it is the best way to care for your legacy and loved ones.


A Last Will and Testament

After a loss, your last will and testament can help make the transition as painless as possible for your loved ones. Your property will be transferred quickly and many tax burdens can be avoided.

A will is a legal document that typically:

  • Describes the estate including money, property, real estate, bank accounts, IRAs, and more
  • Names individuals who will receive specific property (called beneficiary designations)
  • Spells out any special instructions you may have
  • Nominates a responsible individual (called an executor) to oversee the duties related to the estate’s administration

Depending on your wishes and the size of your estate, your will could be anywhere from a single page to a lengthy document.


Health Care Directives and Living Wills

While a will allows you to express your financial and property wishes once you’re gone, a living will or health care directive expresses your health care preferences while you’re still alive. With a living will, you’ll be able to designate the medical treatment you wish to receive, should you become unable to communicate your wishes due to illness or incapacitation. A health care power of attorney, on the other hand, allows you to designate a person who can make medical or end-of-life decisions on your behalf.

Financial Power of Attorney

You will explain your accounts, retirement plans, and current financial situation in your will. An executor will make sure these wishes are followed. A financial power of attorney is different. You can choose someone to act in your financial interests at any time (nondurable power of attorney) or if you are incapacitated (durable power of attorney). Some states have guidelines on who this person can be, but generally, you can pick anyone you trust.

Trusts and Revocable Living Trusts

Trusts are another estate planning tool you can use to manage your property and avoid tax burdens. A trust can either be created during a person’s lifetime or after death by a will. There are a number of different types of trusts serving a wide range of functions. An asset protection trust, for example, is designed to protect a person’s assets from future creditors. A charitable trust, on the other hand, is used to benefit a particular charity or cause. A special needs trust can financially protect someone needing additional care throughout their lives.

Probate and Taxes

If a loved one dies without a will, probate could be necessary. Probate is the court-supervised process of sorting out a deceased person’s affairs. It may be important for you to find professional help during this process. An estate planning attorney will be able to guide you through the probate process and represent your interests in court. They can also discuss tax law, gift tax, and other considerations for handling your finances and property.


Estate Planning Mistakes and How to Avoid Them


  1. Not Having An Estate Plan

The most obvious mistake is failing to draw up a will or any other form of the estate planning document. Dying without a will results in the court conducting the probate process, often leading to choices you might not necessarily like. This lack of planning can also delay settlement, meaning that if you have heirs relying on your estate for funds, they may be hanging in financial limbo for years after your death. Rather than allowing the state to make decisions for you, create a will. Our estate planning team will be with you every step of the way.

  1. Failing To Remove Beneficiaries

Most married couples name one another as the beneficiary and executor of their estates upon their deaths, but they forget to update their documents if the marriage ends in divorce. Eliminating a former spouse as a beneficiary and fiduciary (personal representative, trustee, or agent to act on your behalf) clarifies your intentions and best serves your wishes. It makes certain that your former spouse does not benefit from your estate at the expense of your intended beneficiaries after your death. It’s essential to remove your former spouse from financial and medical power of attorney and update your estate plan immediately after the breakup to reflect your current wishes.

  1. Failing To Add Beneficiaries

Use life-changing events to remind you to review and update your estate planning documents and beneficiaries. For instance, failing to add your newborn children to your will means they may lose out on their inheritance, which will instead go to your other beneficiaries  Or your closest family member if you are childless and without a partner. Though we can never predict when life-changing events will take place, it’s our job to work together and forecast how your situation and the law may change in the coming years or decades. As a result, most estate planning documents are written to account for future descendants. However, it’s ultimately your responsibility to update your estate plan after a significant life event.

  1. Hiding Your Estate Plan

Common advice says to put your will in a safe place. Unfortunately, many people interpret this to mean that they should hide the will completely from the world, which can be disastrous if no one can find the document after your death. In addition to the copy your estate planning attorney has in their records, it’s good practice to make another copy and give it to your Power of Attorney or named executor. They are the ones who will be responsible for managing your estate after your passing.

  1. Not Putting Everything In Writing

When it comes to wills and trusts, only written documents are binding. Don’t rely on verbal promises. If you want to keep your word, make sure to amend your will regularly to meet your current desires. If you don’t have the time to spend with an estate planning attorney, write down the new promise on a separate document with several witnesses and work with a notary public to formally notarize the document. Then make sure to store it with all your other documents and let your estate planning lawyer know about the change.

  1. Failing To Fund A Trust

When used properly, a trust is an excellent estate planning tool. However, establishing a trust is not sufficient; you must also use the trust as intended. For instance, if you create a revocable living trust to transfer your wealth to your children and spouse after your death but do not fund it, your entire estate will remain outside the trust and might go to people you did not intend. Failing to use a trust as intended is as bad as not establishing a trust in the first place. Make sure to register your assets in the trust’s name to gain maximum benefits from the tool.

  1. Putting It Off. A significant percentage of people in the Utah die without having a valid Will in place. That means that state law will determine who receives your assets. The government’s plan may differ from what you would have chosen for yourself.
  2. Not Naming a Guardian for Minor Children. Young people who have not accumulated substantial assets often think a Will is unnecessary. However, one of the most important provisions of the Will names the guardian of minor children. In the absence of a Will, the court will appoint a guardian without knowing who you would have chosen.
  3. Using Simple “I Love You” Wills. An “I Love You” Will simply leave all assets to the surviving spouse. It is true that the estate tax marital deduction results in no estate tax at the death of the first spouse to die, but this arrangement can result in estate tax after the death of the second spouse to die, if his or her assets exceed the exempt amount (currently $5,740,000 per person, and $11,400,000 per person for federal estate tax purposes). While there is “portability” for the unused federal estate tax exemption of the first spouse to die, this concept does not apply for Utah estate tax purposes (or generation-skipping transfer tax purposes), and the unused federal exemption can be lost in the event the surviving spouse remarries (depending upon the order of death of the spouses in the second marriage). The solution is to have the exempt amount of assets pass to a “bypass trust” under each spouse’s will. The Bypass Trust is so named because the assets “bypass” the taxable estate of the surviving spouse after the surviving spouse’s death, even though the trustee can make distributions from the trust to the surviving spouse during his or her lifetime.
  4. Improper Form of Asset Ownership. Assets must be titled correctly in order to take advantage of the Bypass Trust described above. The most common error of this type is when spouses jointly own major assets such as the residence. Since joint property passes automatically to the surviving joint owner, it cannot be passed to the Bypass trust. This can be corrected by changing the form of ownership to a tenancy-in-common. Similarly, joint bank and brokerage accounts can be separated into individually owned accounts so that each spouse has enough assets to fund the Bypass Trust in the event of that spouse’s death.
  5. Assuming Your Will Covers All Your Assets. Many significant assets are not controlled by your Will. For example, beneficiaries under life insurance policies, retirement plans and IRAs are not named by Will. Instead, the beneficiary designation under the policy, plan or IRA trumps the Will, so it is important to periodically review these designations to make sure they reflect your current wishes.
  6. Owning Life Insurance Yourself. Life insurance proceeds are included in your taxable estate for estate tax purposes if you had any “incident of ownership” over the policy. Inclusion of life insurance proceeds could easily turn a non-taxable estate into a taxable estate. Life insurance is by definition designed primarily to benefit your beneficiaries after your death, not you during your lifetime. You can avoid holding any incident of ownership by establishing an irrevocable life insurance trust (“ILIT”) to own the policy. This can ensure that your beneficiaries receive the full amount of life insurance benefits unreduced by estate tax.
  7. Not Taking Advantage of $15,000 Gift Tax Annual Exclusion. The federal gift tax law allows each individual to make a gift of up to $15,000 per year to any individual without gift tax consequences. A married couple together can gift up to $30,000 per year to any individual making use of their gift tax annual exclusions. These gifts can reduce your estate subject to estate tax, or perhaps even eliminate the potential estate tax. Furthermore, the appreciation on the gifted assets is also excluded from your taxable estate. Gifts in excess of the annual exclusion amount can also be beneficial under the appropriate circumstances; such gifts reduce the unified federal lifetime gift and estate tax exemption (or are subject to gift tax if you have already exceeded the lifetime exemption amount).
  8. Not Making Direct Gifts for Tuition and Medical Expenses. Federal gift tax law also allows you to make unlimited gifts that do not reduce the exempt amount if the gifts are in the form of direct payment of tuition or medical expenses. This is in addition to the $15,000 annual exclusion described above. Thus, you can directly pay the tuition bill of a child or grandchild (or anyone else) without gift tax consequences, even if the bill exceeds $15,000 in a year. The same rule applies to the direct payment of medical expenses.
  9. No Business Succession Plan. Family-owned businesses have only a 40% chance of surviving when passed from the first to the second generation, and that survival rate drops precipitously when we look at family businesses passed to the third or fourth generation. The failure of these businesses to survive as they are passed to lower generations can be explained by both tax and non-tax considerations, but the odds can be dramatically improved by careful planning, taking into account, where necessary, the needs of children who work in the business and children who do not.\
  10. Not Planning for Incapacity. Estate planning usually includes preparation for the possibility of becoming incapable of making medical and financial decisions for yourself during your lifetime. You should execute documents that authorize someone else to act on your behalf in the event of your incapacity. Without these documents in place, court proceedings to name a guardian may be required, no matter how costly and unpleasant for all concerned.


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