Creating an estate plan is one of the most important endeavors you will undertake during your lifetime. A well-thought-out estate plan can protect and provide for your loved ones. Given the importance of your estate plan, it only makes sense to do everything possible to avoid making mistakes during the creation of your plan. Toward that end, here are four common estate planning mistakes you should try and avoid.
Waiting Too Long to Start Planning. One of the biggest misconceptions when it comes to the need for estate planning is the idea that you need to reach a certain point in your life or you need to achieve a certain material success before the need for an estate plan really kicks in. While it is true that as your family and your estate grow, you will need to build on your basic estate plan to accommodate that growth, every adult should have at least a basic estate plan in place. A basic plan usually consists of a Last Will and Testament, Power of Attorney, and Health Care Proxy. The Will does several things that would not be done if one did not exist. First, it prevents you from leaving behind an intestate estate should something happen to you. With an intestate estate, New York state law controls to whom your estate is distributed. Second, a Will allows you to decide who will oversee the probate of your estate and provides you with the only official opportunity you have to let a judge know who you would want to be the guardian for your minor children if one is ever needed. Third, for those with young and/or immature children, you can create a Trust to hold the child’s inheritance until they reach an age of your choosing. Along with creating this Trust, you can appoint a Trustee to control the assets and determine when distributions should be made for your child’s benefit.
Appointing the Wrong People to Fiduciary Positions. Throughout your estate plan, you will have several opportunities to appoint people to fiduciary positions. The Executor of your estate, the Trustee of a trust, and an Agent in a Power of Attorney are all examples of fiduciary positions. While your initial thought may be to appoint a spouse, friend, or family member to one of these positions based solely on the fact that you trust that person, take some time to think about the duties and responsibilities of the position before making your final choice. Fiduciary positions often require legal and financial knowledge and experience that a spouse/friend/family member doesn’t have, making them a poor choice for the position after careful thought. Discussing your choice with your attorney is crucial so you can understand what is required of each fiduciary position.
Failing to Review and Revise Your Estate Plan. Your estate plan is not something you should create and then forget about if you want a plan that grows with you. Just as your life doesn’t remain static, neither should your estate plan. As you grow and change, so should your plan. During your working years, you should routinely review and revise your estate plan every three to five years. Once you retire you can stretch that to every five to eight years. Certain life events also call for a more immediate revision of your estate plan. Marriage or divorce, for example, should prompt an immediate update to your plan as should things such as retirement, a move to a new state, the birth of a child, or the death of a fiduciary. Even a quick check-in with the attorney that drafted your documents can lead to a worthwhile conversation.
Failing to Discuss Your Plan. Disputes amongst families after the death of a parent can occur for numerous reasons; however, a common theme is a surprise. When beneficiaries and/or heirs are surprised about the terms of an estate plan, their first reaction is often to contest the Will or otherwise initiate litigation. Discussing the basic terms of your plan ahead of time is one way to decrease the likelihood of disputes during the probate of your estate. If you don’t want to go that route because you believe it might cause disputes now, drafting a “Letter of Instruction” is another option. A Letter of Instructions is simply a letter that you include with your estate plan that includes additional information not found elsewhere in your plan. In this case, the letter might offer explanations for the decisions you made in your estate plan, making litigation less likely.