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Do It Yourself Mistakes in Estate Planning

Estate planning is best done with an experienced professional. However, some people believe they can short-circuit the process. Their errors and omissions do not come to light until after they die. As a result, the family has to pick up the pieces.

Not having an estate plan is the biggest mistake of all. When this occurs, the court takes over the administration of the estate, including paying creditors and distributing property. Loved ones have no recourse, since there is no documentation of the decedent’s wishes.

What are the most commonly made mistakes in estate planning?

Failing to update an estate plan. There have been many changes in tax laws in recent years. Even the best estate plan created five years ago may not take advantage of new opportunities to minimize taxes. Many lives have been altered permanently by the pandemic. However, without an update, it is possible that the beneficiaries named in an outdated last will and testament will receive an inheritance, even if that is no longer intended.

Neglecting to fund trusts. Once a trust is created, it must be funded, or the planned outcome of removing assets from the probate estate will not be achieved. Re-titling assets to change their ownership from an individual to a trust is sometimes seen as an annoying task. It requires multiple phone calls or processing paperwork. Left undone, the assets will not enjoy the protection of being placed inside the trust.

Transferring an asset or selling an asset without legal guidance. Selling a house or other asset for a below-market price in an attempt to avoid paying estate taxes rarely goes undetected. The IRS will deem the sale to be a gift if it is below fair market value. Those who receive the asset will have to pay taxes on the gain.

Trying to control from the great beyond. Putting the family vacation home into a trust or a family partnership so siblings will always have a place to go to for vacations and holiday gatherings is a great idea. Adding a provision stating the property cannot be sold unless all siblings are in agreement and prohibiting them from buying out each other’s shares is asking for trouble.

Giving bequests to minors and disabled individuals. If a disabled individual is left assets outright, it will jeopardize their eligibility for any means-tested government benefits. Funds can be left through the use of a Special Needs Trust. However, they cannot be left directly to the individual.

Minor children cannot own property. A minor child may be a beneficiary. However, they may not own property until they are of legal age, 18 or 21. If assets are left outright to a minor, the state law determines who will have control of the assets on their behalf. A last will and testament created for parents of minor children often includes a trust funded by life insurance policies and a named guardian who will raise a minor child if orphaned.

Estate Planning Mistakes Are Easily Avoided

These mistakes are just a handful of errors made in estate planning—there are many more. With proper legal guidance, these and others can easily be avoided.