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Two More Common Estate Planning Mistakes

Two More Common Estate Planning Mistakes

If you haven’t already, read Part 1 of this series On Common Estate Planning Mistakes

In our last post, we discussed why having a complete, up-to-date estate plan is so important by addressing two common estate planning mistakes – not having a plan and not naming guardians for minor children.  Here, we discuss two more mistakes and misconceptions:

– Relying on joint ownership. Many older people add an adult child to the title of their assets (especially their home), often to avoid probate. This can create all kinds of problems. When you add a co-owner, you lose control. Jointly owned assets are now exposed to the co-owner’s creditors, divorce proceedings and possible misuse of the assets, and the co-owner must agree to all business transactions. In addition, there could be gift and/or income tax issues. Also, if you have more than one child and only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances. A much better option would be to put your assets into a Trust drafted by an experienced Estate Planning Attorney.

– Not planning for incapacity. If someone cannot conduct business due to mental or physical incapacity only a court appointee can sign for this person—even if a valid Will exists because a Will only goes into effect after death. The court usually stays involved until the person recovers or dies and the court, not the family, will control how their assets are used to provide for their care. The process, often described as a “living probate” is public and can become expensive, embarrassing, time consuming and difficult to end. The goal is to avoid this government intervention.

Giving someone power of attorney as a way to avoid the court process (without having a Trust in place) can be risky because that person can do anything they want with your assets with no real restrictions. For this reason, a Living Trust is often preferred for incapacity planning. With a Trust, the person(s) you choose to act for you can do so without court interference, yet they are held to a higher standard as a Trustee. If they misuse their power, they can be held accountable.

Someone also needs to be given the power to make health care decisions for you (including life and death decisions) if you are unable to make them for yourself. Without a designated health care agent, you could be kept alive by artificial means for an indefinite period of time. (Remember Terri Schiavo? Terri’s story and information about the Terri Schiavo Foundation can be found at http://www.terrisfight.org/). The exorbitant costs of long term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning. Consider long-term care insurance to protect your assets in addition to having the proper estate planning documents in place.

Continue on to read Part 3 of this series.