5 Most Common Estate Planning Mistakes & How to Avoid Them
Estate Planning Mistake Number 1: Not having a plan
Every year caring.com surveys Americans about estate planning. Caring.com is an organization that helps families, “seniors & their caregivers…through empathetic, expert guidance” with aging, long term care and end of life care. Every year for the past several years, without fail, their survey has shown that about two-thirds of Americans have no formal estate plan in place. And when we say “formal” estate plan, we include both a vehicle for distributing assets after death as well as a plan for how to pay for the long term and end of life care. This should include not only a will and/or trust, powers of attorney and HIPPAA release forms, but should also include a way to communicate end of life wishes and intentions during and after life.
The annual survey also gives the biggest reasons that Americans fail to plan for disability and death: procrastination and misunderstanding. The biggest misunderstanding for most people is they think they don’t have enough money to get an estate plan. They believe estate plans are only for the rich. If you own your own home, or have more than $72,000 in assets including your vehicle, then you should really consider a formal estate plan. Not only that, but if you don’t have a way to pay for increasingly expensive long term aging care (either in your home or in a residential facility) then you are at risk of not being able to pay for it. More on that later.
Without an estate plan, parents are exposing their children to headaches and heartaches, placing the burden of care and accounting unnecessarily on the next generation.
How to avoid Estate Planning Mistake Number 1: Choose an introductory webinar or workshop today to get started.
Read the free download 7 Things You Need To Know Before You Hire An Estate Planning Attorney. https://coloradoestateplan.com/free-downloads/
If you currently reside in Colorado, come to one of our introductory workshops or webinars to get the process started. It will take 4-8 weeks to complete and your family will be fully protected. https://coloradoestateplan.com/register/
If you are reading this and don’t reside in Colorado, choose an experienced elder law attorney in your state that specializes in estate planning.
Estate Planning Mistake Number 2: No plan to avoid Nursing Home Costs
The second mistake that people make even if they have an effective, written will and/or trust is to have no plan to pay for long term care aging costs. Studies show that after the age of sixty five, 75% of adults will require some type of long term care helping with the activities of daily living. The average stay is just over three years. The current monthly cost for long term care in Colorado is over $9,000 per month. That means a couple could need $648,000 to pay for an average stay in a nursing home.
Most people are under the potentially very costly misunderstanding that Medicare will pay for long-term care costs. It will not. Aside from Medicaid, which will pay for care under certain conditions, but generally offers significantly reduced quality and requires years to plan financially, the only two other options to pay for long-term care costs are long-term care insurance and paying out of pocket.
Without a plan for paying for long-term care costs, we see families become destitute trying to pay for care. Also, without a plan to pay for these likely costs, we see the burden of the cost fall on the adult children in the family. Because families support one another as they age, when their parents no longer have funds to pay for care, then either the children become unpaid caregivers or mortgage their retirement funds to pay for their parents’ care.
A plan to pay for care keeps you from being a financial burden on your children as you age.
How to avoid Estate Planning Mistake Number 2: Plan for Nursing Home Care Costs
Talk to your Financial Planner about how to make your assets available to pay for long-term care costs. We believe strongly that sensible planning requires coordination in areas of your life beyond just the legal documents. A coordinated financial and estate plan will help you make sure that you have the assets to pay for your care as you age.
Many financial planners don’t necessarily think in terms of anticipating long-term care costs. Their solution, driven in part by their own commissions, is to maximize your investable assets for you. However, it might make more sense to invest in an insurance plan to protect you and your family from the very real possibility of substantial and large health care costs later in life. Be sure to talk to a fiduciary financial planner, one legally required to act in your best interests, rather than one who benefits financially from selling you certain products. Ask your financial advisor for a detailed plan for how you should pay for long-term care.
If you don’t have your estate plan in place, add the question of paying for long term care to the list of questions you ask estate planning attorneys that you interview. If you have an estate plan but are surprised to find you don’t have a plan to pay for long term care, call us today to discuss how to integrate it into your existing plan.
As our long-term care insurance specialist reminds me, the insurance market is complex and ever changing. There are new products every year to help tailor a financial plan to fit your needs. Most of us continue to have a perception of financing from last century. However, the insurance industry, like all others these days, continues to come up with different products that could fit your exact needs. The only way to do this is to meet with someone who specializes in comprehensive aging care.
An estate plan without a way to address the significant, too often completely surprising and rising costs of taking care of ourselves as we age puts your family at risk. Protect them with a plan.
Estate Planning Mistake Number 3: Not Keeping up with Changes in the Law
All too often, we meet with adult children who are doing their best to carry out their parents wishes using estate planning documents written decades ago. People feel that once they have the legal documents they are finished with estate planning and can check it off their list. The reality is that no estate planning attorney can track changes in laws for every client. It will be your responsibility to make sure that you meet with an attorney every three years to review your plan and changes in laws to make sure your plan is up to date. A ten year old plan will not work as well as one that has been updated. At best, that plan will cost your heirs money. At worst, it could create disagreements about money that linger for a lifetime.
A good recent example of keeping up with new laws was the Secure Act. This legislation changed how long retirement accounts could be held by heirs. Many of our clients chose to make changes in their estate and financial plans as a result.
Another example is the federal estate tax exemption. For years the amount of assets exempt from Federal taxes has been high enough not to affect most estate plans. With debts, deficits, and global economic insecurity at an all-time high, it is very possible that the US federal government will lower the exemption to generate revenue thereby changing your estate planning strategies.
How to Avoid Estate Planning Mistake Number 3: Find a good firm and stay in touch.
Keep your friends close, your enemies closer, and meet with your estate planning attorney every three years. One of the reasons cheap, Internet based downloaded estate plans don’t work is that there is no way to keep them up to date. You deserve a firm dedicated to elder care and estate planning which stays current on all state and federal laws affecting your aging, retirement, and estate plan.
Our clients enjoy dozens of educational workshops and webinars every year. They receive vital information through monthly eNewsletters and quarterly print newsletters. In addition, many of our most discerning clients are a part of our Legacy Protection Maintenance program, a program designed to keep your estate plan up to date while deepening your commitment to your family and living your best life. You deserve an estate planning attorney that offers you multiple ways to stay engaged to ensure your plan continues to work for you and your family.
Estate Planning Mistake Number 4: Not Updating Your Plan to Reflect Family Changes
Your successor trustee is the person who will manage your estate when you are no longer able, either through your incapacity or death. We have seen some people who try to rely on successor trustees who have passed away or are no longer part of the family. Some successor trustees are no longer up for the job due to illness or their own incapacity. Keeping a competent and capable successor trustee is just one example of keeping your estate plan up to date.
Another way your plan fails is when you don’t keep your beneficiaries up to date. Making sure your beneficiaries are correct and the kinds of assets going to them are appropriate and truly helpful for their lives is another example of making sure your estate plan keeps up with your family.
One example is grandchildren. People who design their estate plans in their 50s before they have grandchildren will likely design their plan towards helping their children succeed. After the grandchildren arrive, there are more people to think about. What specific gifts could go to the grandchildren to help set them up for success in life separate from your kids?
How to Avoid Estate Planning Mistake #4: Update your plan every three years
Our clients visit us every three years at a minimum. During that visit they answer a specific list of questions designed to capture any changes to family, assets and life goals to identify any changes necessary to make sure your estate plan isn’t outdated.
Are your successor trustees still alive and healthy? Who represents you in your Powers of Attorney? Are they still capable and interested in this responsibility? Have there been any new family members? Divorces? Deaths? If your parents passed away, did they leave you assets that we need to examine and put into an existing revocable living trust?
Our Legacy Protection Maintenance Plan Members take advantage of an annual meeting and free changes to their documents to protect their family with an up to date and accurate estate plan. Read more about how the Legacy Protection Plan helps our clients stay on top of their family changes.
Estate Planning Mistake #5: Your family does not know anything about your plan.
The most common way estate plans fail is due to a lack of communication. Do your successor trustees know who they are and what their role is as successor trustee? Does your healthcare agent know your end-of-life care wishes? Some of our clients are surprised to know that the people responsible for their healthcare decisions may have no idea what kind of decisions they might need to make and no idea how you feel about end-of-life care. Make sure the major players who have responsibilities in your estate plan know that they are supposed to play those roles and what each role is designed to do.
If you passed away today, would your successors know where to look for all of your bank accounts? Passwords? Would it be clear to them where the title to your automobile is? How many checking accounts do you have? A comprehensive list of assets, websites, usernames and passwords will go a long way towards avoiding confusion after you pass away. It will save your successors hundreds of hours searching through your records or computer files to try to piece together your financial life.
Any lack of communication will cause family members to develop grudges because they misunderstand the intention behind distribution of assets or personal property. And it’s not always about money. One famous pie pan nearly created lifelong animosity between sisters until they realized the pan could spend six months each year at each sister’s home. Clarity about this cherished pie pan could have gone a long way towards easing the sister’s anxiety. When assets are involved, it is too easy for siblings and other loved ones to interpret gifts as representing their own value and worth. This can be a dangerous situation that might lead to lifelong fighting.
How to Avoid Estate Planning Mistake 5: The Family Meeting and Clear Communication
Having the Conversation about end-of-life care is a topic crucial to have before you need it. Make sure your healthcare agent, or the person who will make healthcare decisions for you, knows exactly what kind of healthcare procedures you want should you not be able to speak for yourself. Visit https://theconversationproject.org/ to get the Conversation Starter Guide.
To communicate roles and responsibilities, our clients take advantage of the Family Meeting, where we sit down with the important players to explain the estate plan roles and responsibilities. They also attend and send their children (or successor trustees) to workshops and webinars like Trustee School where their successor trustees learn exactly what they need to do to be a successful trustee.
After collecting a complete list of assets and leaving it on file with us, our clients might also have a meeting with their estate plan players and their professional advisors as well. If your successor trustees already know and are comfortable with your CPA, financial advisor and estate planning attorney, it makes it easier for them to approach the task.
In order to avoid family fighting, we recommend that our clients write letters of intent to go along with their estate plan. This letter will spell out the goals and guidelines of the trust, for example, to make decisions clear and understandable. In addition, many of our clients attend our workshop, “Legacy Letter Writing” to write different letters to each of their children or any of their loved ones. These letters, along with the Letter of Intent go a long way towards spelling out the “why” behind your decisions in your estate plan.
Now that you are aware of the 5 most common estate planning mistakes and how to avoid them, you can have a plan that will not put your loved ones at risk.
Learn More to Avoid Common Estate Planning Mistakes:
Caring.com’s 2022 Wills Survey Finds That 1 out of 3 Americans Without Estate Plans Think They Have Too Few Assets to Leave Behind
67% of Americans have no estate plan, survey finds. Here’s how to get started on one
Find more resources on how to get started having tough conversations with loved ones