Here are 4 of the most common estate planning mistakes you can make.
1. Not having an estate plan. About 50% of Americans don’t have any estate planning documents.
Obviously I have a bias toward all adults having estate planning documents. However, there is very good reason for this aside from what I do for a living. You spend your life taking care of your family. If you are like most people, if asked, you would say your family is the most important part of your life. You would do anything to protect your family. You certainly would protect your family from strangers, from money woes and from unnecessary pain and confusion.
Not having any estate planning documents flies in the face of your family priorities; you are leaving your family totally unprotected if you become incapacitated or pass away. A major stranger, i.e. a judge, will be your family’s protector. Keep in mind, this is a judge who knows absolutely nothing about your loved ones. On top of this, add that if your wishes are unknown, your family could be socked with guilt, second guessing important decisions and all around being more miserable than necessary.
2. Naming your minor children as beneficiaries on your life insurance.
Many people come to me and say that they have named a spouse as the primary beneficiary on their life insurance. This is a solid idea. Then they go on to say that their 3 kids, ages 2, 4 and 6 are named as the secondary beneficiaries. This is an awful idea. Children under the age of 18 cannot legally inherit money outright, i.e. a check cannot be written to them for the life insurance proceeds before age 18. So, the only option is to have someone go to court and become a conservator for the minor kids. A conservator is a court-appointed money babysitter who is usually required to place those life insurance proceeds into a restricted account. This means the money cannot be spent, on behalf of the child, without a court order. At age 18, the restricted account funds are paid out to the child. If we are talking about 6 figures, this pay out could be disastrous for an immature 18 year old. Naming a Revocable Living Trust as the beneficiary of a life insurance policy is a much better idea than naming the minor children.
3. Thinking your spouse can make all decisions for you automatically.
This is simply not true. Here are 2 situations where you could have a major problem.
- Your spouse has a 401K. You are named as the primary beneficiary. He works for ABC company. Your spouse becomes incapacitated. He needs extensive medical treatment, which means you really need to tap into the 401K for funds. You call the ABC company and ABC company will not acknowledge the existence of the 401K let alone release funds to you. The fact that you are a spouse or the primary beneficiary means absolutely nothing.
- You and your spouse own your house as joint tenants with right of survivorship. This means you own the house equally. When your spouse becomes incapacitated, you decide the house is too big or too hard to maneuver around and so you want to sell the house. You hire a realtor and find a buyer. You go to sign papers and find out that just because you are a spouse and equal owner of the house, does NOT mean you can sign on behalf of your incapacitated spouse. The sale grinds to a halt.
A Financial Durable General Power of Attorney helps you avoid these scenarios. You and your spouse give each other legal authority to handle the 401K, the sale of a house, and all other financial matters in the event one of you is incapacitated.
4. Having estate planning documents written in legalese that you don’t understand.
Most estate planning documents are written with an overabundance of legalese. Legalese can be Latin terms, like “per stirpes”. It can be chains of synonymous verbs: he will buy, purchase, acquire, and obtain a car…..It can be using the term “notwithstanding”, which always relates to some provision, which you may or may not be able to determine.
It is a huge mistake to have estate planning documents written in a way that you do not understand. You want estate planning documents to state your wishes. If you don’t state your wishes in Latin combined with verb chains, why should your documents? I honestly believe that there would be far fewer will contests, and families splintering apart after a death, if the wording of the documents is clear and straightforward. People may not like what you have chosen to do, but if it is clear what your wishes are, they may be more inclined to get with the program and not fight as much. A person’s death is sad enough without adding the possibility of a death of the entire family unit to the mix.