How to avoid estate planning mistakes

By Christopher Miller, Esq.

When it comes to your to-do list, is estate planning in the top 10? Top 20? Is it on there at all? Estate planning is easy to put off, but there are numerous reasons why you shouldn’t. This list encompasses some of top mistakes that estate planners see in practice.  I will save you some of the suspense, the biggest mistakes in estate planning are not having a plan at all or having a hopelessly out of date plan. Check out the following estate planning mistakes. If any of them sounds like you, you should consider an appointment with an estate planning attorney.

5. Not considering the impact of right of survivorship accounts on your estate plan.

When you implement a Last Will and Testament, it is extremely important to understand the impact of right of survivorship accounts on your Last Will. The prototypical example of this mistake is a mother who has a Last Will that benefits her two children, Child 1 and Child 2. Child 1 is known as the “helpful” child so Child 1 is added to Mother’s bank account as a joint tenant with right of survivorship. If this account makes up a large portion of Mother’s estate, this can be a big problem. The Last Will is not necessarily going to work as intended, because Child 1 will automatically be entitled under the law to the bank account; the Last Will does not change that.

Sure, there are some claims that Child 2 can try to assert in court, but this is the type of problem that some thoughtful estate planning can avoid. Your estate plan should try to avoid problems, not create them for your beneficiaries. Beware the right of survivorship!  Also, beware the “helpful” bank employee who recommends a right of survivorship account without having any knowledge of your family or current estate plan.

4. Believing that a Last Will is all that is required for an estate plan.

Many people think of an estate plan as a Last Will, but there are other documents you should have as well. The Last Will only comes into play after your lifetime. But what if you are still alive but become disabled or incapacitated?

The Durable Power of Attorney for Finances will help your named agent be able to manage your finances and assets during your lifetime. Powers that may be granted include selling assets, hiring an in-home caregiver, or executing a placement into a nursing home or assisted living if you become physically or mentally incapacitated.

The Health Care Power of Attorney will help your named agent make health care decisions for you if you become unable to do so for yourself. Health care decisions include admission or discharge from a hospital, types of treatment to be provided or declined, and the administration of pain relief.

3. Not being concerned about taxes.

It is true that the federal estate tax currently only affects very large estates. The year 2018 federal estate tax exemption amount is $11.18 million dollars (double for a married couple). Your estate has to be quite large to have to be concerned about estate taxes. But this does not mean you can disregard taxes altogether.

If you gift away an asset during your lifetime and there are unrealized capital gains associated with the asset, unnecessary income taxes can be incurred upon the subsequent sale of the gifted asset. From a tax perspective, it can be much better to inherit an asset, rather than receive it as a gift. When considering making a substantial gift, you should seek out advice as to whether the gift may result in an unexpected and undesirable tax result.

Retirement accounts are also a potential source of tax complexity. Retirement accounts such as traditional IRAs and 401ks generally contain large amounts of tax-deferred income. Eventually the tax authorities would like to receive income taxes from those accounts. You can make bad moves with these accounts that can result in the loss of the opportunity for continued tax deferral. Loss of tax deferral leads to increased taxes payable, loss of appreciation, and ultimately less money available from the account. Retirement account tax rules are very complex; it cannot be stated enough that professional advice is needed when trying to make plans for retirement plans.

2. Not updating an estate plan after an important life event.

Certain life events warrant a review and possible update of your estate plan. Marriage, divorce, death of a spouse, or the birth of a child are all events that are worthy of a review of your estate plan.  If you have gotten married or had a child, you may want to consider drafting a new Last Will that takes this into consideration. The law calls a spouse who married you after you created a Will an “omitted spouse.” The law calls a child who was born after you created a Last Will an “after-born child.” While the law does allow an omitted spouse or after-born child to receive benefits from your probate estate, this requires resort to judicial remedies after your lifetime and these remedies generally must be requested relatively quickly after your death.

Do you really intend to disinherit a spouse or a child simply because they came into your life after you implemented a Will? Not necessarily, so if this situation applies you should think about having a discussion with an estate planning attorney.

1. Not having an estate plan.

When you do not implement a Last Will, the state decides for you who your estate’s beneficiaries will be after your lifetime. If you die without a Last Will and you are survived by a spouse and no children, your spouse will receive your probate estate. If you are survived by a spouse and children, your spouse and children will split your probate estate in half. If you are not survived by either a spouse or children, the law looks then to your parents, siblings, nieces/nephews, etc., in that order. Depending on your family tree, somebody who you didn’t really intend could end up inheriting from you if you do not say otherwise in a Will.

Most people would be surprised to hear that their surviving spouse may be forced to share an inheritance of their probate estate with the children. In some cases, this might be desired, but it is definitely a question that should be considered in a thoughtful way. This mistake becomes much worse if the surviving children are minors or are disabled. In these situations, a minor conservatorship would have to be set up or a special trust created to prevent a disabled person from being disqualified from receiving public benefits, such as Medicaid.

Don’t let your estate plan fall by the wayside. If you believe you have a need for it, give The Miller Law Firm, P.A. a call (864-527-0413) to set up an estate planning consult or feel free to email me directly at chris@themillerlawfirmpa.com.  With a little bit of pre-planning, you can avoid some of the most common mistakes outlined above.

Christopher Miller is licensed to practice law in both South Carolina and New York and handles complex estate planning, estate probate and administration for The Miller Law Firm, P.A. To contact Christopher directly, call The Miller Law Firm, P.A. at 864-527-0413 or you may email Christopher directly at chris@themillerlawfirmpa.com

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