What comes to mind when you think about your estate plan? Most people think about a Last Will and Testament —or “will”—and many people also incorporate a living trust into their estate plans. These two estate planning tools cover a lot of ground. But it’s a mistake to believe that if you have a will and a trust, your estate planning is done. In order to have true peace of mind, consider these eight frequently overlooked estate planning issues:
Failing to fund a trust
Creating a living trust can help avoid probate and protect assets, but only if assets are actually transferred into the trust. In order to be subject to the trust, ownership of the asset must be in the name of the trust, not your individual name or jointly with another person. Assets in your individual name are subject to the probate court, regardless of your intentions.
Not considering family dynamics
Many people, when naming a trustee or executor, fail to think about the real-life implications of their choice. Will choosing one child as executor over another create resentment? If you choose co-executors, will they be able to work together? Consider family dynamics carefully, and think about communicating your choices and reasoning in advance, one-on-one, to avoid unpleasant surprises later.
Forgetting about beneficiary designations
Some assets, like retirement accounts and life insurance, cannot be controlled by a will. They are transferred to a named beneficiary on the owner’s death. Other assets can be transferred by will but can also be transferred directly to a beneficiary outside probate. Be aware of which of your assets have beneficiary designations and keep them updated. Consider establishing beneficiary designations for other assets where possible.
Trying to transfer joint accounts by will
If you hold any type of account jointly, such as a checking account, savings account, or certificate of deposit, you cannot transfer that asset via your will. Instead, upon your death, the assets in the account will pass directly to the other named account holder(s). That person is under no obligation to distribute “your” share according to your will. Don’t want this to happen? Establish separate accounts.
Thinking taxes aren’t an issue
Many estates are exempt from federal estate tax, but that doesn’t mean there aren’t tax consequences. While Michigan does not (at this writing) collect an estate or inheritance tax, the estate may have to pay income taxes on such things as investment income earned before settlement of the estate.
Not having enough liquidity
Estates have many expenses. These include attorney fees, probate fees and court costs, debts to the decedent’s (deceased person’s) creditors, and possible payment of taxes. In addition, dependent surviving spouses and children have living expenses. Make sure there are enough liquid assets in the estate to cover all of these expenses.
Leaving property outright to heirs
If you intend one of your heirs to have an asset, what could be more straightforward than leaving it to him or her in your will? Not much, but this action can have unforeseen consequences. Depending on the circumstances, a direct bequest may make an heir ineligible for needed government benefits, or it could be gobbled up by the heir’s creditors, consumed in a divorce, or simply mismanaged and dissipated. Discuss with your estate planning attorney the advantages of various types of trusts (and remember to fund them).
Not giving executors access to information and documents
Many people think the best place to keep an original will is in a safe deposit box. Unfortunately, when they die, their executor may not be able to access the box without the original will, which grants authority to access the box. Avoid this Catch-22. Keep your original Last Will and Testament and any trust documents in a safe but accessible place, such as your attorney’s office. Keep a notebook for your executor with this information, as well as a list of accounts and assets, any needed passwords, and other information he or she will need to administer your estate.
Unfortunately, overlooking a few small details can lead to delay, expense, and discord in the administration of your estate. Prevent these problems by consulting with an experienced Rochester, Michigan estate planning attorney. Attorney Jim Hubbert can help you avoid overlooking issues that will complicate the administration of your estate, so that you and your loved ones can have peace of mind.