Top 10 Estate Planning Mistakes: 3. Treating Your Estate Plan Like a Ronco Product

Your estate plan is not like a chicken rotisserie cooker that you can "set and forget." Estate planning documents should be reviewed and revised after a marriage, divorce, the birth or adoption of a child, the death of a beneficiary, the receipt of an inheritance, and after any other significant change in family structure or personal finances. Beneficiary designations on IRAs, life insurance, and other types of assets that allow for beneficiaries to be named must be kept up to date as well. It is a common misconception that the terms of a will "trump" beneficiary designations on such assets. These assets will be distributed to the beneficiaries named on them, and not in accordance with the terms of your will.

There has never been a more important time to review your "A-B trust." These trusts are designed to allow married people to take full advantage of both of their exemptions from federal estate tax. Many A-B trusts in existence now were drafted when the federal estate tax exemption amount was much lower than it is today . (This is the amount that an individual can pass to beneficiaries other than his or her spouse free of estate tax.)

With an A-B trust arrangement, when the first spouse dies, his or her assets are divided between the A trust, which benefits the surviving spouse, and the B trust, which is for other beneficiaries, typically children. Some A-B trusts allocate  the full estate tax exemption amount to the B trust. Given that the estate tax exemption is now $5 million, trusts that allocate the estate tax exemption amount to the B trust may place more assets than desired beyond the reach of the surviving spouse. These trusts are usually drafted so that the surviving spouse is entitled to income and sometimes even principal from the B trust. Nevertheless, these distributions may not be sufficient to allow for the lifestyle envisioned for the surviving spouse when the A-B trust was created.

Top 10 Estate Planning Mistakes: 2. Failing to Consider the Benefits of a Revocable Living Trust

A living trust is a will substitute. It is a trust that is set up during the life of the trust "grantor," the person creating the trust. A will (unless it contains a testamentary trust) generally provides for an immediate distribution of assets. On the other hand, a trust can control how and when your assets will be distributed. A trust can also protect assets from creditors of trust beneficiaries. Another major benefit of a living trust is that assets are distributed to beneficiaries without probate court oversight and its assocuiated costs and delays.


A living trust, by avoiding probate, also protects your privacy. Wills and other probate documents can usually be accessed by members of the public, so anyone can learn details about your assets and how you have chosen to distribute them. A living trust is a private document, the terms of which need only be known by the grantor, the trustee, and trust beneficiaries.


A living trust also allows you to plan for incapacity, In the trust document you can appoint someone who will manage your financial affairs when you are no longer able to do so. A financial power of attorney can serve the same purpose, but banks and brokerage firms often prefer to deal with the trustee of a trust as opposed to an attorney-in-fact appointed in a power of attorney. Additionally, with a trust you can name a professional trustee to carry out the terms of the trust, including the management of your finances during periods of incapacity. This may be a better option for you if you have significant assets or if you do not feel confident in the ability of a family member or friend to handle the task.


For more information, see the blog article entitled "Who Needs a Trust?"

Top 10 Estate Planning Mistakes: 1. Having No Plan

If you don't have a will or a trust, your assets will be distributed in accordance the terms of an Ohio statute known as the statute of descent and distribution. Obviously, the distribution mandated by statute may not be the distribution you would have chosen. It is also important to have a will in order to name an executor for your estate and to indicate your preference regarding who will become the guardian of your minor children.

Failing to name an executor or to choose a guardian can result in disharmony among your loved ones if there is disagreement about who should serve in those roles. Ultimately a judge will decide who will serve as the administrator of your estate and who will be the guardian of your minor children if you do not designate anyone. 

Estate planning can protect your assets from creditors, help you avoid probate, protect your privacy, and provide many other benefits. Failing to have an estate plan can result in serious estate tax losses. Lack of insurance planning can mean financial disaster for you in your old age or for your family after you have passed away. Failing to make plans for the management of your healthcare and finances during periods of disability could result in costly and time-consuming public guardianship proceedings.

By taking certain steps on your own and by spending a few hours with an experienced estate planning attorney, you can design a fitting estate plan that will serve you and your family well by removing uncertainty as to your wishes, providing for your care during periods incapacity, and avoiding devastating and unnecessary financial losses.