14 Mar 20230 Comments
It is a common misconception that only the “uber rich” need an estate plan, when in actuality, everyone should have a plan. In fact, whether you plan or not, you do have a “plan:” the difference is whether it’s the plan you want or one that New York Law decides for you. Here are five common estate planning mistakes and pitfalls to avoid!
1. Failing to Plan or Revisit your Plan
Failing to have any plan at all is probably the most common mistake. Technically, everyone over the age of 18 should have a plan in place. It can start as a simple Will indicating who is to receive your assets and who will be entrusted with handling your estate in the event of death, and should include documents called advance directives: for medical (health care proxy) and financial (power of attorney) decisions if you were to become incapacitated and unable to make your own personal and financial decisions during your life. It is equally important to revisit your plan regularly to confirm beneficiaries are still alive and those you wish to inherit your assets, and those you have chosen to handle financial and personal affairs are still as you wish.
2. Thinking a Trust is “Over-Complicated” or NOT Funding It
Revocable and/or Irrevocable Trusts are excellent vehicles to avoid “probate” (the Surrogate’s Court process validating one’s Last Will and Testament and the Executor gaining access to funds held in one’s name alone after death) and to specify how funds are to be used and/or when they are to be distributed to beneficiaries. The use of a Revocable Trust as the center piece of your estate plan and the proper funding of it can eliminate the need for probate of your Will.
3. Relying Too Heavily on Beneficiary Designations
While having beneficiary designations on all assets is a common “quick fix” to avoid probate and allows funds to pass to a beneficiary upon death, it sometimes can cause more harm than good. Important New York and federal estate tax planning techniques can be lost if funds are passed directly to a beneficiary spouse. Additionally, if a beneficiary is a minor and receives the assets, a Guardian of Property must be appointed by the Court before the funds are released from the financial institution to said Guardian. These funds would then be held in Joint Control with the Court until the minor beneficiary reaches age of majority. A trust for a minor child could avoid this outcome. Having named beneficiaries and alternate beneficiaries is also important in the event your named beneficiary does not survive you.
Another issue arises if you appoint a beneficiary(ies) for a bank, brokerage or retirement account and that beneficiary is not surviving upon your demise. If there is no surviving named beneficiary, then said account will become part of your probate estate; and if you have received Medicaid benefits (home care and/or nursing home care), it will be subject to any claims made by Medicaid and/or your creditors.
Lastly, funds left directly to named beneficiaries are not necessarily available to pay expenses that might need to be paid after your passing. For example, if one sibling is the beneficiary on your brokerage account, those funds would go to that sibling at your death. But if another sibling paid the funeral and/or other expenses that arose, technically the beneficiary sibling has no obligation to use the funds he/she received to reimburse your other sibling.
4. Using Online Forms
While convenient and cost effective, online forms can lead to mistakes and/or omissions that cannot be corrected once an individual becomes incapacitated or deceased. These forms may be outdated or may not comply with New York laws and/or estate and long-term care planning concerns.
5. Keeping Your Estate Plan and Wishes a Secret
Having open communication with those you trust and advising them what assets you have and the plans you have put in place, and who they should contact in the event of incapacity/death (doctors, financial advisors, accountants, attorneys) is instrumental to ensuring your goals are met and wishes followed. Equally important is discussing your end-of-life wishes, including burial arrangements, location, etc.
Given the complexity of all these issues, working with an Elder Law and Estate Planning attorney can ensure you create a plan that is customized to your needs and reflects your wishes and goals.