Top Five Estate Planning Mistakes
by Wayne E. Thomas

Proper estate planning allows for accomplishment of a number of goals.  Two of the primary goals of estate planning are the transfer of your assets in the manner you intend and the avoidance or reduction of taxes.

Over the years, we have seen people make a number of mistakes in their estate planning.  These mistakes can frustrate the intended result of the estate planning process.  Some common estate planning errors are discussed below.

1.  Failure to Plan
One of the most common estate planning mistakes is the failure to plan.  In fact, studies show that around two-thirds of Americans do little or no planning.

A properly drafted plan allows you to make provisions for the disposition of your assets at your death.  The basic planning document is your last will and testament.  A properly drafted will would name your executor, who is the individual designated to see that the provisions of the will are followed.  Importantly for parents, your will can name a guardian to care for any minor children who have no surviving parent.

An estate plan can minimize or avoid federal and state taxes that would be imposed upon the transfer of property at your death.  These taxes do not affect many people, but tax planning is very important for those persons who are affected.

Some individuals use a revocable trust to accomplish much of what a will would do.  Neither the revocable trust, nor the assets it holds, are subject to court-supervised probate, and there is no public disclosure of the assets held in the revocable trust.  The trust can also provide for management of your property if you become incapacitated.

2.  Failure to Keep Plan Up to Date
Changes in the law and in your personal financial and family situation make it essential that you periodically review your estate plan to make sure it still carries out your wishes. Any of the following events may call for a review of your estate plan:

• Marriage
• Birth of a child or grandchild
• Receipt of an inheritance
• Death of an intended beneficiary
• Sale or acquisition of significant property
• Changes in tax or probate laws.

In order to keep up to date, we recommend that you review your plan every three to five years.

3.  Failure to Coordinate Beneficiary Designations and Asset Ownership
Certain types of assets pass directly to the recipients specified on beneficiary designations you make (for example, life insurance policies, IRAs and transfer-on-death securities accounts).  Other assets pass by right of survivorship (for example, bank accounts or real property held as joint tenants with right of survivorship).  Assets such as these pass according to the beneficiary designation or to the surviving joint tenant, regardless of the provisions of your will.  Therefore, when planning your estate, it is important to review these types of assets to be sure that the individuals designated as beneficiaries are those you intend to receive these assets. 

4.  Failure to Deal with Conflict Situations
Conflicts among intended beneficiaries can lead to problems in administering an estate in accordance with the decedent's wishes.  For instance, it is not unusual in second marriage situations for conflict over the estate to arise between a surviving spouse and children from a prior marriage.  If your situation seems ripe for conflict among beneficiaries, it is important that you express your intent very clearly in regard to the disposition of your property.  This will help to minimize conflict over the estate.

5.  Failure to Plan for Incapacity
Any of us could suffer some form of disability.  Therefore, the estate plan should address the possibility that you may become incapable of making medical and financial decisions for yourself.  Without proper planning, court proceedings may be required to name a conservator for you.  Court-supervised conservatorships are cumbersome and expensive, and financial decisions are restricted.  To deal efficiently with a possible disability, the following documents should be considered: a living will; a power of attorney for health care; and a durable power of attorney. 

A living will allows you to state in writing your desire whether or not you would want to be kept alive artificially if you are in a permanent vegetative state or suffering from a terminal illness from which there is no prospect of recovery. A more comprehensive form of living will, known as an "Advance Care Plan," has recently become available for Tennessee residents.

Under a power of attorney for health care, you appoint someone to make health care decisions for you in the event you are incapacitated. 

A durable power of attorney allows you to name a trusted person to handle all of your personal business and financial affairs in the event you become disabled.

If you think one or more of these mistakes may have been made in your planning, we suggest that you take corrective action without delay.  If you have questions about how these mistakes may affect your own situation, we would be happy to discuss those questions with you.