TOP 10 ESTATE PLANNING MISTAKES TO AVOID (Part 2)
By: Sandra L. Clapp, Esq.
In the second part of our series, we will continue to explore the biggest planning mistakes you can avoid to increase the chances your personal and business affairs will be handled appropriately and as you intend. In the last issue, counting backward, the top planning mistakes reviewed were (10) being naïve, (9) failing to address a change in circumstances, (8) procrastination, (7) lack of liquidity for taxes and expenses, and (6) forgetting to consider a new spouse or child. Without further delay, the top 5 planning mistakes to avoid are:
- Failure to Confirm Asset Character. The character of assets only applies to a married person, but this mistake in failing to confirm whether an asset (or debt) is community property or separate property can have significant impact on the distribution of an estate. In Idaho, without a marital agreement, assets acquired during marriage are presumed to be community property unless the asset can be traced to separate property. Income on separate property is community property, potentially causing a change of character of the asset. Community property is generally owned one-half by each spouse. The character of assets can result in unequal estates, allow claims by children in an intestate estate, and otherwise add administration expense to resolve any issues.
- Incorrect Asset Titling. The title on assets or beneficiary designations can unwittingly defeat intended distributions in an estate plan. A will only distributes assets that are in the estate for administration. An asset that is held with another person as joint tenants with rights of survivorship, pay on death, or as beneficiary may result in the asset automatically transferring to the named individual even if the transfer is in contravention of the decedent’s will. These transfers are known as “non-probate transfers” and automatically occur. The title and beneficiaries on all assets should be consistent with the estate distribution.
- Not Using Professionals. The failure to use professionals will increase the potential for future issues. The problems with “do it yourself” kits or personally prepared documents may include (a) failure to contemplate estate or income tax planning, (b) incorporating the laws of a state other than Idaho, (c) utilizing forms that are not recognized under the laws of Idaho, (d) signing a document that is not enforceable, (e) ambiguity in interpreting the document, and (f) failing to consider changes in the law. The cost of hiring an attorney, accountant, financial advisor, or other professional often is much less than the cost of a mistake or dispute in the future.
- Failing to Plan. This mistake should be easy to avoid, but is among the most commonly encountered. Planning for death or incapacity is not pleasant and is not confronted for various reasons. Although a solution may not be perfect under a given scenario, at least the solution or distribution is what is selected by you and not one imposed by law or through costly legal action in court. Once a plan is adopted, it needs to be regularly reviewed to insure it is still accurate under the facts and law then in effect.
- Picking the Wrong Person. The top mistake may come as a surprise, but is a key to legal dispute and loss in the estate administration. You can have the perfect legal documents and have all of your affairs in order, but if you choose someone who is inept, incompetent, unorganized, deceitful, dishonest, unreasonable, or biased to carry out your estate administration, your perfect preparation may be destroyed through the actions (or lack of action) of this person. In selecting a fiduciary to handle your affairs, consider their business experience, individual financial stability, personal traits, organizational skills, and other factors that insure the person utilizes diligence, intelligence and reason in the administration of your affairs.
Read Part 1
This article is not intended to replace legal advice applicable to
your situation and should be used only for informational purposes.