In the late 1990’s it was estimated that about only sixty one percent of Americans, fifty five years or older had a will or trust established. Recently that number has surprisingly declined to about fifty four percent of Americans having a will or trust in place. Some may have a misconception that not creating a will, or creating a will very late in one’s life may be acceptable, but as many experts have deduced, this is a very wrong way to look about a will or trust. Not having a will, trust or any type of estate planning done as soon as possible will most likely be very costly to you and your loved ones that will have to take care of the estate left to them.


First Mistake – Too young to have an estate plan, or no need for an estate plan because not enough assets to safeguard


Life is not a very predictable thing, and in case of an emergency, the last thing a person wants to do is try to figure out what to do in regards to estate plans and guardianship of minor children. A quick example of this may be that if you become incapacitated and do not have a set estate plan, a family member or friend has to go to court to make medical and financial decisions for you, and if another family member or friend objects then the process could take a long time. The process would not only be long and detrimental to you because you are incapacitated, but also cost a couple of thousand dollars for just the process of choosing your decision maker.


Another very major issue with not having an estate plan established, is that if you do pass away, you do not have any control or decision capability of who becomes the legal guardian of your minor children. This process may also take a great deal of time, be very costly and worst of all, your minor children might end up with a family that would not have been your choice.


A very common misconception in estate planning is that because a couple is newly married and does not have a great deal of assets that if one was to become incapacitated or pass away, the surviving spouse receives everything and it is a very simple process. This is the exact opposite of what happens when there is a death and no estate plan in place, especially if there are no beneficiaries named on bank, brokerage, life insurance, retirement and other financial accounts. The fine print in the documents that correlate to those accounts take place and many will be surprised that the spouse is not the first on the list to receive the monies that they believe is owed to them. A simple estate plan could help with this problem, and alleviate the problems that arise in the passing away of a spouse.


The cost of having a will or trust made and the time it takes to have the estate plan made would be very small compared to the loss of money, time and hassle, and all the types of taxes one would incur by not having a type of estate plan established prior to any incapacitation. Some may think that they are too young to care about an estate plan, but the fact is that surprises in life do happen, and having at least a simple estate plan would help in those situations, and if no surprises occur, then you are still safe in the long run and there is no downside of having an estate plan established too early. Meeting with an estate planning lawyer to just discuss options for an estate plan is a very good starting point, because everyone is going to need a specific will or trust for their specific needs.


Second Mistake – Joint ownership problems


Another very common mistake that people make after a death or divorce is to add their child, relative or friend to the bank accounts, the property titles, the title of other assets so that if they are to pass away, the third person is to be in full control of the asset. This may seem like a good idea at first, especially if the person is a trustworthy individual, but the fact is that as soon as their name is added to whichever asset, that asset becomes also theirs fully. One may trust another person to not do malicious things, but typically people forget that even if the person is trustworthy, if that third person is involved in a lawsuit, divorce or bankruptcy, the assets that their name is on could be at risk.


A very common way to ensure this does not happen with your bank accounts is to fill out a payable-on-death form which a bank typically would have, which basically means that the account is not to have the name of the trusted third party until the passing away of the original owner of the bank account. There are forms like these for other types of assets which are called beneficiary forms which combined with other forms are a good way to ensure protection of assets, but the fact is that a simple written will is a much better way of taking care of the estate plan rather than having dozens of forms which may have fine print and complicate things.

Third Mistake- What a Will does not do for you


A common mistake that people believe in is that a will has the final decision of where assets are placed after a death. If there is a 401(k), an IRA account, payable-on-death forms, named beneficiary forms or other types of these forms, these are the final deciding factors on where assets are placed after a death. Many people forget who is named beneficiary on certain assets and forget to update certain ones or even create certain ones.


Keeping in mind to update all forms named above and to make sure that whoever is named on these documents is correct is a very useful thing to do every couple of years. This is basically a do it yourself type of estate planning, but having a will established can help with the gaps and areas that do not have these types of forms, or do have these types of forms but one may have forgotten to fill one out. Estate planning is a complex thing to do to make sure that every angle is covered, and having a will definitely sets a nice base for safety.


Fourth Mistake – Asset Disbursement


In the event of a death and assets being given to a child, relative or third person, the person that is receiving the assets must obviously be a trustworthy person to make sure that they not treat the inheritance as a gift and spend all of it, ruin business or just do a bad job of financial decision making. Having a will or trust established can allow for sets of rules and instructions on how the assets should be dispersed and also the time frames of how the assets should be delivered.


The beneficiary forms, payable-on-death forms, and all these types of forms typically do not include very specific directions and instructions on payments made to the beneficiary. It is beneficial to have a will or trust established because firstly the person on the receiving end could be more responsible if the assets are given to them in payments, and also, if the person is involved in a divorce, bankruptcy, or lawsuit, the assets would not fully be in risk, because the assets would not fully be in their possession.


Fifth Mistake – Over Complicating the Estate Plan


The federal estate gift tax exemption is about $5.43 million dollars currently, and has been going up every year due to inflation. Spouses may combine these gift tax exemptions to give away $10.86 million dollars without the receiving end owing federal taxes.


When these tax exemption limits were lower, many married couples had complex estate plans to try and save as much money as they could by not having to pay taxes. Bypass trusts were a very common way to try and exempt their heirs from paying taxes on the gifts that they received.


Currently one does not really need to have a bypass trust set up in order to be exempt from large amounts of taxes by using both spouses exemptions, but in certain occasions, a bypass trust may be beneficial to safeguard assets from creditors.


If you have questions regarding Estate Planning, please contact Anthony at 818-839-5220.