On this Halloween day, it makes sense to review 13 scary estate planning mistakes that we see in our Michigan estate planning and elder law office. These 13 scary estate planning mistakes are mistakes that we see families make as they are planning for the second half of life. These estate planning mistakes are mistakes that we have seen over the last 10+ years of serving Livingston County, Oakland County and Wayne County families. I hope you enjoy these 13 scary estate planning mistakes on this Halloween day.
Mistake #1: Having No Estate Plan
One of the biggest mistakes you can make with regards to your estate planning is not having any estate planning at all. That said even if you have not done your own estate plan, the state of Michigan has an estate plan for you and it's called probate and "intestate."
Mistake #2: Having an I Love You Will.
Having a simple "I love you will" or simple last will and testament is a surefire way to almost guarantee that your loved ones will have to go through probate. Most people want to avoid probate because it is a court process that is costly, time consuming, and public. Probate can easily be avoidable by setting up the proper estate plan, that typically involves a trust.
Mistake #3: Giving Property Outright to Your Children
Given property outright to your children can be a huge mistake both while you are alive as well as upon death. I call this the pillowcase of money approach. Because all you are doing is giving a pillowcase of money to the next generation. There are two issues with this, first your children's poor financial management. The second issue would be, assuming your children make good financial choices, you need to protect them against life happening to them. For example, you may want to protect them for their lifetime from things like lawsuits, divorces, and protect the bloodline so that in-laws do not inherit any property.
Mistake #4: Owning Property Jointly
Joint ownership is a great way to own property for a married couple, however, joint ownership should not be used to passing things to the children or other individuals. The problem with joint ownership and naming others joint to your account is that you're opening yourself up to all of the potential liabilities of anyone you add to your real estate or any other accounts. For example, if your to name your daughter joint to your home and then your daughter gets divorced their home may be part of that divorce.
Mistake #5: Not Having a Trust
Not everyone needs a trust, but a trust is helpful in a variety of different situations. There are different types of trusts that are available. For example, you may set up a revocable living trust they can avoid probate and control the distribution upon death. Another example of a trust, would be a Castle Trust, which can control the distribution, avoid probate, and most importantly--add asset protection from lawsuits and long term care costs during your lifetime.
Mistake #6: Not Funding Your Trust
Many people have a trust, but, too often they are not funded properly. A trust is like a suitcase, if the assets are not titled in the name of the suitcase/trust, then all you're doing is passing an empty suitcase to the next generation and most likely you will end up in probate. Many law firms only do a funding letter, which gives instructions to clients and how to fund the trust. Unfortunately, too often life happens and the trust does not get funded. In our office we work with our clients to ensure that the funding gets done by preparing a majority of the funding paperwork.
Mistake #7: Not Having Your Documents Reviewed
An estate plan is not a one and done proposition. It is something that should be reviewed annually because things change. There could be changes in law, changes in your family situation, changes in your assets, and changes in tax law. Due to all of these potential changes, it is important to review your documents on a regular basis. In our office we have a program called the Client Care Program where we meet with our clients on a regular basis to review their plan.
Mistake #8: Not Planning for What Happens if You Don't Die
Estate planning is not just planning for what happens when you die, but it is also planning for what happens if you don't die, continue to age, and face all the issues that go along with aging. We called this elder law. It is important to consider not just what happens when you die but what happens when you live in face of the issues that go along with aging when preparing an estate plan.
Mistake #9: Thinking a Living Trust Alone is Enough
A living trust is a powerful document, but in addition to a living trust there are ancillary documents that are necessary. For example in addition to a trust you should have a pour over will, financial power of attorney, medical power of attorney, personal care plan and if you own real estate--a deed for your property. All of these documents make up a comprehensive estate plan. However are just documents/tools, which takes us to mistake number 10.
Mistake #10: Thinking All Documents are Created Equal
Estate planning documents are just tools. It is important to understand what type of tool do we meet. For example if I ask you to hand me a paintbrush you would have to know in my painting a figurine or painting a wall. So it is always important to first consider the purpose and goals you have, then consider the type of documents you need. For example, often times when I review a financial power of attorney document for client I will see what I call a "blank check" where the document might be only 2 to 5 pages. I call this a blank check because it is not specific enough in its powers and when you go to try to use the financial power of attorney, the financial institutions, like a bank, will not allow you to do what you want to do. In our office our financial power of attorney is about 20 pages and it is not because we like killing trees or paid by the word, it is because we found that we needed to include this expanded language in the document, especially when were concerned about long-term care planning.
Mistake #11: Thinking All Lawyers are Created Equal
Unfortunately one of the biggest mistakes is thinking that all lawyers are created equal. This is not the case. It is similar to martial arts and levels of knowledge. There might be white belt levels of knowledge, blue belt, purple belt, brown belt, and finally black belts. A black belt will have a greater degree of knowledge than a white. Just like in estate planning and elder law, there are people that say they do estate planning and elder law, but they only might be at a white belt level of knowledge. It is hard for a client to tell the level of knowledge that her attorney has. That is why there is the Certified Elder Law Attorney (CELA) exam. An estate planning or elder law attorney who is a CELA is a black belt when it comes to estate planning and elder law. To become a certified law attorney, an attorney must show a certain level of experience, be peer-reviewed, then sit down and take a six hour exam that very few attorneys pass.
Mistake #12: Listening to Neighbors, Friends, or Google
There is a ton of bad legal information out there. One of my favorite pastimes is to go into a bank and listen to all of the bad legal advice that tellers, vice presidents, etc. are giving their clients whether it's advising them to set up accounts joint owners with children or giving them bad advice regarding trust. Similarly, you have to be careful what you hear from your neighbors, your friends at the salon, or even what you Google on the Internet. As an attorney one of my favorite answers to any question is to start out with "it depends" because there are a lot of variables in what may seem like a very simple question. A good example of this is asking how much you paid for estate planning. There are different levels to estate planning, for example someone might pay $1500 for a basic revocable trust-based estate plan with outright distributions at age 25 with no funding done by the lawyer. This is very white belt level estate planning. Someone else may ask how much they paid for their trust, and it could be multiples of that because it builds in spousal protection, builds in legacy inheritance trusts to protect the children for their lifetime from divorces, lawsuits, creditors and the bloodline, and builds an asset protection for the client's lifetime from lawsuits and long-term care costs all by setting up a castle trust. This would be black belt level planning. Many white belts are not even aware of black belt level planning.
Mistake #13 Not Understanding That the Biggest Problem is Not Probate, The IRS, or Long-term Care Costs
The biggest threat to preserving your wealth is not the IRS, probate or long-term care costs. Frankly it is human nature. None of us want to think about our own deaths the possibility of becoming incapacitated. Consequently we tend to put off taking the steps necessary to prepare for what the future may hold. We procrastinate. Our loved ones often suffer the painful financial consequences.
Happy Halloween From The Elder Care Firm
We hope you have a wonderful Halloween and that you avoid the 13 scary estate planning mistakes. If you would like to learn more about how to avoid many of these estate planning and elder law mistakes then please take a moment to RSVP for one of our upcoming workshops. Our free estate planning workshops are held in Brighton, Bloomfield Hills, Livonia and Novi.