Like most people, you probably have the best intentions for distribution of your property after death. Unfortunately, without proper planning, your best intentions may not be enough. Here are the 5 most common mistakes people make:
- Failing to plan. The biggest mistake of all is failing to plan in the first place. Your “plan” should include a distribution document, like a Will or a Trust; both a Property and a Healthcare Power of Attorney; a Property Division List; and a document organization and storage plan. Your plan should be well thought out, thorough, and understood by yourself and all involved.
- Ignoring beneficiary “designations”. Your property can pass to your heirs in one of 3 ways: (1) designation, (2) Will or Trust, or (3) by state statute. By “designation”, I am referring to “POD” (Pay on Death), “TOD” (Transfer on Death”), or JTWROS (Joint Tenancy with Right of Survivorship). All such designations transfer property at your death without the need of Probate or a Trust. More importantly, designations always trump a Probate or Trust transfer. For example, suppose a Will says that all of the decedent’s property is to be split evenly between the children. However, the decedent’s checking account has a POD to son, John. Guess who is legally entitled to the entire checking account?!
- Skipping over POAs. A Power of Attorney (POA) is a written document in which you grant another person(s) authority to make decisions, or act, for you. A Durable Power of Attorney gives someone the right to make decisions regarding your property. For example, managing your checkbook. While a Power of Attorney for Healthcare authorizes someone else to make your medical treatment decisions if you are unable. Given the miracles of modern medicine, the odds are great that all of us will need to use our POAs, before our Will or Trust comes into play.
- Creating a cash deficient plan. If all your property has been designated (JTWROS, POD, or TOD), then it will all land directly in the hands of your beneficiaries. While this avoids the probate process and simplifies distribution, it may leave your Personal Representative without funds to pay taxes or last medical bills. Better to leave some non-designated cash in the estate to take care of these matters. In Nebraska, you can leave as much as $50,000 in cash without driving the estate into probate.
- Not reviewing your plan. Once you’ve got an estate plan in place, it’s important to keep it up to date. Everyone’s circumstances change over time. A marriage, divorce, children, a major change in assets, or changes in the law – all can impact your plan. If nothing else, a periodic review should be done to make sure your wishes are still expressed.
Estate planning involves a lot of pieces nowadays. So, carve out some time to plan how these pieces should fit together for you. Then get some help to create the documents you need, and periodically check your plan to see if everything still fits.