1. They have no estate plan at all. This is the worst mistake that Utahans make and it is the most common mistake of all. It can also be the most expensive and lead to the worst results. Most people postpone preparing their estate plan until they reach an age where they realize that death is not so far off. Big mistake. The reasoning may be, “I’m young, no need to worry about that now” or, “My estate isn’t big enough”, or in many cases it probably never crosses their minds. There are no guarantees in life. Every day, we read or hear stories about someone who dies young. Even if you are in the best of health, accidents happen.

First, if you are young, and have a very small estate, you likely have children who are not yet grown. Who will care for them? Who will manage your estate and pay for your children’s education? Who will be responsible for their religious training and who will be encouraging them to go to college? If you have no estate plan, a judge will decide all these issues. A judge will pick your children’s legal guardian (managing their inheritance), and will choose the guardian of their persons, (raising them). A judge may well select someone that doesn’t match your desires. He could even appoint a lawyer, bank or professional trustee to manage the estate. These people must be paid and they don’t come cheap. Your parents or your spouse’s parents may have a strong influence over a court. Godparents are not automatic choices. The personal guardian he appoints may not share your beliefs or religion. The whole process will be in court, will also be very expensive and could take years. Even if you have a very small estate, this is a major reason to have some estate plan. Do not leave these decisions to others.

Secondly, if you have your own business, having an estate plan is critical. With no estate plan, you will have no say as to what becomes of your business, who gets it, and all other decisions that would have to be made when you are no longer there. Also, without a living trust, every aspect of your business, including finances will become public and available to your competitors.

Thirdly, depending on your State of residence, with no estate plan the probate judge will award your estate according to the laws of distribution in your state. Normally this is a part to your spouse and the rest to your children in equal shares. Is that your desire? Or would you rather give it all to your spouse while he or she lives? If you leave no instructions behind, you will have no say in the distribution.

Finally, with no estate plan, you cannot avoid probate. The nightmare of probate should be avoided if at all possible. Probate is the court process for distribution of all estates except very small estates and those with Living Trusts. It is lengthy, public, expensive, and often devastating to families. For more information, review our website information. It’s really frightening.

2. Trying to pass assets to heirs by using joint tenancy. Joint ownership is as bad as or worse than having no estate plan at all. Joint tenancy is most frequently used to pass on the family home. If you put your home into joint tenancy with others, your home becomes vulnerable to that person’s problems. If your joint tenant goes bankrupt, your property will be one of their assets. You could lose your home. If they get divorced, your home will be involved. If they have an auto accident without enough insurance, your home could be taken to satisfy a judgment.

The biggest problem is that you lose control. You want to sell and move? You will need your joint tenant’s signature. Want to refinance? Signatures needed again. What if you change your mind? You can’t change anything without the joint tenant’s signature.

Then there is the loss of the step up in tax basis that would normally occur on your death. What that means is that after you are gone and your joint tenant owns the property free and clear, their tax basis in the property will be the same as your tax basis, (Normally what you paid for the property years ago). When they sell, their gain on the property (taxable as a capital gain) will be based on your purchase price instead of the value of the property at the time of your death. If you have owned the property for a long time, the consequences could be financially catastrophic.

3. Having a Will. Most of our lives, we hear that all we need to disburse our estate is a Will. For most people, this is a bad idea. A Will is a one way ticket to probate court.

There is no way to disburse an estate left by a Will without going through probate. Your executor will have to hire an attorney. That attorney will likely charge a percentage of the estate as a fee, regardless of the time spent. Probate can drag on for years. Probate is public. That means that everyone who is interested can see your entire estate, including business competitors. Probate fees are expensive. Details must be published in the newspaper. A Will is easy to challenge, even if the challenger has no attorney.

Selling real estate through probate is very difficult and nearly always results in the property being sold well below market prices. Lengthy probate often leads to resentment between heirs and your executor as heirs are usually anxious to get their share quickly.

In probate court, your wishes are subject to a judges interpretation and a judges desire to consider the welfare of children over your written instructions. Your wishes may not always be followed.

People believe that Wills are cheaper than Living Trusts. This is a misconception. Yes, a simple Will is relatively inexpensive. Most people need much more than a simple Will. By the time you include all the provisions that you need, it is going to cost just as much as a Living Trust. It is true that you can do almost everything in a Will that you can do in a Living Trust. But, if your will is as complete as your Trust, it will be no bargain and will still subject your estate to probate. A Living Trust will be disbursed in weeks instead of years, is completely private, assures that your wishes will be followed, requires no courts or attorneys and the costs of each, will allow for a quick and effective sale of real estate assets, and will ease the stress on family members. It is virtually always better than a Will.

4. Leaving large gifts to heirs who are not mature enough to handle the responsibility is mistake 4. This is a hugely common mistake. People assume that they will live to an old age and that children will be mature enough to handle their inheritance. Just when you think you have everything in order, something happens to upset your best laid plans.

An unexpected illness or accident can escalate the distribution of your estate to a child who is 18 or 19. (Some children don’t mature until much later.) Even a 25 to 30 year old may not be equipped to handle a large disbursement. There’s nothing much worse than having the estate you worked so hard for be wasted in a couple of years or less by an immature heir. It happens all the time.

With a trust, you can protect your heirs from themselves or from their controlling spouses. You can provide for the inheritance to be used for college or to be used to purchase a house. You can protect heirs with special needs. There is no limit to how you can protect your heirs with a Living Trust.

5. During their lifetime, in order to avoid probate, people give large gifts to their children. This is mistake 5. You think you will beat the system by giving everything away during your life. Then you won’t need a Will or a Living Trust. Wrong! Most people are unaware of the Federal Gift Tax. If, in any calendar year, an individual gives another person more than $12,000, ($22,000 from a couple), that gift will be taxable to the giver to the extent that the gift exceeds the $12,000 or $22.000. That’s right, you will be taxed on the amount you give away to another person. How bad is this tax that you never heard about before? It’s 45% of the value of the excess gift. That is a huge tax. And once it is given, you cannot take it back and say you didn’t know you would be taxed.
6. Mistake 6 is closely related to mistake 5. In order to limit or beat Federal Estate Tax, people give property away during their lifetime.
7. Mistake 7 is choosing the wrong person, or the wrong professional trustee for your estate. This can be costly, indeed.
8. A related mistake is to choose two co-trustees to act together. Co-trustees are not always bad, but if you have only two and they can’t agree on a major matter, their recourse is, again, (can we say it together) Probate Court. You do not want to do anything that is likely to force the estate into probate. Choosing two co-trustees raises the possibility. If you want multiple trustees to watch each other and divide the work, consider choosing three co-trustees. Then you will usually have a tie breaking vote.

As you can see, your choice of Successor Trustee is critical. You should also have at least one backup, two is better. That way, if something happens to your first choice, and they can’t or choose not to serve, you need an alternate or two. Otherwise, it’s back to the Probate Court.

9. Mistake 9 applies only to super big estates. This occurs when people leave large sums to grandchildren. There is a tax called a “generation skipping transfer tax”. This applies to gifts to grandchildren in excess of $1,000,000.

This relates to Federal Estate tax and may also apply to state inheritance taxes in some states. The government has realized that when you give to your grandchildren, the government is losing a generation of Federal Estate Tax. They lose the tax your children’s estate would have been subject to when they left your property to their children. Your gift would only be taxed once instead of twice. You have skipped a generation.

The government is not going to allow that. Therefore, gifts over $1,000,000 will be taxed at a 50% rate. One half of the gift will go to the government. There are other vehicles to assist in making such gifts, but you need to be sure you don’t give half of your bequest to the IRS. Be very careful when providing for gifts to grandchildren. You can see how expensive a mistake in this area can be.

10. The final mistake is procrastination. You see, we have almost come full circle. This very closely related to mistake 1.

The distinction is that you realize you need a Living Trust and may even have taken some steps to put it in place. But, for whatever reason, you have not finished the job. Maybe, you’re concerned about the cost and you can’t fit it in your budget. You want to wait for the holiday bonus at work, that income tax refund or the next government stimulus package. This is nearly as bad as doing nothing and having no plan.