3 Estate Planning Mistakes You Don’t Want To Make
Updated August, 2022
There are countless ways to mess up your estate plan, but I’ve found the following three mistakes to be among the most common:
1. Failing to name contingent beneficiaries
Life is uncertain. We’d like to believe everything will go as planned, but it’s possible that your primary beneficiary may predecease you. If that happens, you should always have alternate or back-up beneficiaries in place.
To be clear: a beneficiary in this context is the person you appoint to receive your assets after your death as indicated by POD/TOD on your account statements (stands for “Pay on death” or “Transfer on death”). A contingent or secondary beneficiary is the person designated to receive the funds in that account if the primary does not survive you.
If you fail to name a contingent beneficiary and the primary beneficiary is unable to receive the proceeds from the assets, the account will then be distributed in accordance with state laws.
It’s best to make a habit of reviewing the beneficiaries on your financial accounts at the end or beginning of each year. You may be surprised to learn that you haven’t updated your retirement accounts or life insurance policy since before you got married (or divorced).
2. Gifting your home to multiple children or beneficiaries
Every parent wants to believe that their children will take care of how to divide up property after he or she is gone. In the parent’s mind it may seem silly to get into the details and logistics in their Will or Trust. However, by deferring this task to your children (or other named beneficiaries) you open the possibility of creating a huge family conflict.
Have a conversation with your children in advance to let them know of the decision being put in place with your estate plan. For more information on how to start the estate planning conversation see How can I ask my family about estate planning?
For example: one child wants to sell right away to help pay for their kid’s wedding, another child is in no financial rush and wants to hold onto the property until the market recovers, a third wants to rent the property, and a fourth child just went through a divorce and needs a temporary place to stay.
I think you get the point.
To avoid this predicament, most clients will specify exactly what happens to the property as soon as they pass away. It’s also common to insert either right of first refusal language or option to purchase language if you’d like to allow a child to buyout the other children, but if you go with such approach then you must be extremely careful on the parameters of such arrangement (i.e., how is price determined, how much time do they have to exercise such option, what if more than one child wants to buy, etc.)
To streamline things, it's almost always best to have the home in a trust to avoid probate - keeping in mind that a Will alone does not avoid probate.
3. Leaving assets directly to a minor
Similar to common mistake #1, you should carefully think through contingency plans involving younger beneficiaries. If your primary or alternate beneficiary is a minor or under the age of 21 then you may want to specify the assets to be held in a custodial account as long as possible (up to age 21 in Massachusetts).
If it’s a particularly large inheritance, you may take it one step further by considering whether the current parent/guardian of the minor beneficiary is well suited to handle the money or if you would prefer a third party to handle the financial side of things.
And, if 21 seems too young for someone to inherit a portion of your estate, then you can set up a trust to delay that age to one that makes more sense for you. You also would have the added flexibility of having multiple distribution dates (e.g., one-third at 25, one-third at 30, and so on).
Some clients hold off on the estate planning process because it can feel intimidating, but the reality is that estate planning doesn’t have to be stressful or complicated when you are working with the right attorney. It may be a bit of a learning process, but your attorney is there to answer your questions and streamline the process for you.
With a right estate plan in place, you will have complete peace of mind in knowing that your wishes will be followed if something happens to you.
Need help with your estate planning?
If you would like to review or update your estate plan, then give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.
I’m always happy to help!
Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
477 Main Street
Stoneham, MA 02180
