How Does One Mess Up an Estate Plan?

Mess up an estate plan
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It is quite easy to mess up an estate plan.

People often feel overly confident about their abilities.

They watch a baking show on television and think they create equally delicious treats, especially if they adopt a British accent while baking.

Others think they can write a book simply because they can appreciate a good story.

When attempting these and other goals, many find them more challenging than they anticipated.

A professional is someone who can make something difficult appear easy.

According to a recent Forbes article titled “5 Ways People Mess Up Their Estate Plan,” the same is true for those seeking to accomplish estate planning on their own.

It is quite easy to mess up an estate plan.
Your loved ones pay the penalty when you mess up an estate plan.

They are often blissfully unaware of what could go wrong and the severity of the consequences.

What are common ways people mess up their estate plans?

Making a gift and not updating the last will and testament.

People create last will and testaments to distribute assets to loved ones.

In some instances, the heirs may require their inheritance early.

If you give the heirs cash while you are alive, you likely will want to update your last will and testament to account for this.

Failing to do so means you may provide some heirs with a double inheritance and diminish the amounts available to the remaining heirs as a result of your mess up.

Failing to properly fund a trust.

Utilizing a trust in your estate plan has many benefits.

One benefit is the asset held by a trust can pass directly to your heirs.

If you have instructed your trust to pay out cash or create trusts for your heirs, you could leave some of your heirs with nothing if the trust has insufficient funds.

To avoid this mess up, review your trust and ensure you have transferred the appropriate assets into your trust.

Assuming all assets pass under the last will and testament.

Even if you have a last will and testament rather than a trust, you can miscalculate gifts.

How does this happen?

This mistake occurs when people include all of their assets when determining the sum of their available gifts.

The problem is some assets are distributed to beneficiaries outside of the probate.

These includes assets with joint ownership or beneficiary designations.

Review the types of assets you hold and deduct these as well as the debts, taxes, and expenses from your available gifts.

Adding a joint owner.

Placing a joint owner on an account or on real estate can seem like an simple solution for transferring the asset to an heir.

It could create problems if the asset or account was something your last will and testament relied on to pay debs, expenses, or taxes.

Additionally, some families find adding a joint owner can trigger will contests.

Changing beneficiary designations.

Changing or failing to change the beneficiary designation on an account could mess up your estate plan.

If you divorce and do not remove your ex as the beneficiary, you would leave an unintended inheritance to your ex.

Yikes!

Alternatively, if you originally had your trust as the beneficiary but changed it to an individual, you could leave your trust without the funds to shelter money from estate taxes or pay taxes or bequests.

Shifting from assets from an individual to a trust and altering the trust beneficiary could also trigger income tax issues.

Working with an experienced estate planning attorney can help you avoid many of the common ways people mess up their estate plans.

Reference: Forbes (Oct. 26, 2021) “5 Ways People Mess Up Their Estate Plan”

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