Three Mistakes That Can Derail Your Estate Plan
While it may seem simple enough to create a will online, in reality it’s very difficult to create an effective estate plan without the guidance of an experienced estate planning attorney. More often than not, clients who meet with us to review a DIY plan discover that instead of saving money, they’ve cost themselves much more by buying a plan riddled with mistakes that will leave their family in the lurch.
Here are three mistakes that can derail your estate plan and saddle your family with an expensive mess:
Leaving Assets Outright to Loved Ones
One of the simplest mistakes you can make in estate planning is distributing your assets directly to your beneficiaries upon your death. This isn’t the best idea for several reasons:
The assets are not protected from your beneficiaries’ creditors;
The beneficiary may use the money irresponsibly; and
If the beneficiary is a minor, a court will decide who manages the assets and how and when they’ll be distributed.
Instead of gifting your assets directly to your beneficiaries, consider distributing them into a trust for the beneficiaries' benefit. When creating a trust, you can choose who will manage your assets for your beneficiaries while also sheltering those assets from your beneficiaries’ creditors or their own underdeveloped money-management skills.
Setting up a trust to hold your assets is especially important if you have minor children. Minors cannot own money on their own, which means they can’t receive any assets from you directly on your death. Instead, a court will need to appoint a trustee or conservator to manage the assets you leave for your children. There’s a high chance that the person the court appoints will not be the person you would have chosen yourself. And if the court appoints a professional trustee, your assets will be reduced by expensive trust administration fees.
It’s also important to note that a court-appointed trustee will distribute the assets to your children outright when they reach the age of 18. But few young adults have the maturity or knowledge to manage a large sum of money responsibly. That’s why it’s wise to consider leaving your assets in a trust, established for your child’s benefit.
2. Not Creating a Lifetime Asset Protection Trust
Creating a trust to hold your assets can provide years of asset protection for your loved ones, but that protection only exists while the assets are held in the name of the trust. The second most common mistake we see are trusts that allow assets to be taken out of the trust’s protection and given to your child or beneficiary at a specific age. Even if your child or beneficiary is mature enough to manage a significant sum of money at this time, taking assets out of the trust still leaves them susceptible to future legal and financial risks.
Instead, consider creating a Lifetime Asset Protection Trust to hold the assets indefinitely. This protects the assets while still providing financial support to your beneficiaries. And even if you are leaving behind very few assets, protecting those assets and helping them grow can make a huge difference in the future well-being of your loved ones.
3. Forgetting to Update Beneficiary Designations
The third most common mistake we see in many estate plans is outdated beneficiary designations. Significant life events, like marriage, the birth or adoption of a child, divorce, job changes, death, and purchasing a home can all impact your estate planning. That’s why it’s incredibly important to have your life and legacy planning attorney review your plan regularly to ensure that it remains current and will work when your family needs it most.
Estate Planning That Works
If you already have an estate plan in place, please check it for these three simple, yet significant, mistakes. And if you find a mistake, don’t worry. We can help!
Schedule a consultation with Cedar Counsel today for a review of your estate plan. During our conversation, you'll have the opportunity to discuss your concerns and learn how your current plan will (or won’t) work for you. And if you don’t feel completely confident in your current estate plan, we’ll create a new comprehensive plan for you that will provide the protection and support your family needs for years to come.
This article is a service of Cedar Counsel. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.