When most people think of estate planning, they imagine creating a will and maybe taking out a life insurance policy. However, there are many other types of estate-planning documents to consider.
Creating a detailed, personalized estate plan can protect your assets and your loved ones after your death. But if you make one or more errors while creating your plan, your beneficiaries could face confusion, unintended tax liability, and other setbacks.
In this article, we’ll take a closer look at common estate-planning mistakes in Missouri and how the right attorney can help you avoid them.
The Danger of Setting and Forgetting Your Estate Plan After Major Life Events
If you’ve already started the estate-planning process, you likely understand that creating an estate plan isn’t a set-and-forget endeavor.
Most people hope to lead long, happy lives, but the unfortunate truth is that life-ending events may strike at any time. When you keep your estate plan updated, you can at least ensure that your family members will be taken care of if anything happens to you.
Any qualified attorney will tell you to update your estate plan after any of the following major life events:
- Getting married or divorced
- Having a child or grandchild
- Moving across state lines
- Experiencing significant changes in income or finances
- Losing an executor or beneficiary to death
- Being diagnosed with a serious illness
One of the most common estate-planning problems, however, is failing to look at your estate plan between these sorts of events. When you haven’t experienced any sudden changes, it’s easy to assume that your plan is still current. However, as a general rule, it’s best to take a look at your estate plan every three to five years.
How Outdated Beneficiary Designations Can Completely Override Your Will
Forgetting to update your beneficiary designations is another one of the most common estate-planning mistakes in Missouri. It might not seem like a big deal to forget to take your ex-spouse off an account or otherwise update your beneficiaries, but such an oversight can have big financial consequences.
Why? Many people don’t realize that beneficiary designations on financial accounts override what your will or other estate planning documents say.
For instance, with most married couples, each spouse names the other as the beneficiary on their retirement and investment accounts. If you get divorced, remarry, and leave your ex-spouse as the beneficiary on the account, your money may go to them instead of your surviving spouse.
Each time you update your will or a trust document, take the time to thoroughly review other estate-planning documents, as well, including beneficiary designations on retirement accounts and other financial accounts. This step could spare your family unexpected financial and legal hurdles after your death. Your attorney can also help you spot mistakes in a Missouri will or trust.
The Hidden Financial Risks of Using Generic DIY Estate-Planning Forms
Given the rising cost of living, it’s understandable that many people hesitate to seek out legal or tax advice. If you’re worried about the cost of estate planning, you might be considering using DIY online estate-planning forms. However, relying on online forms is one of the most common mistakes when creating a will.
Although many people are drawn to these forms because they’re free or inexpensive, it’s important to understand that they come with several issues that could actually make them more costly in the long run.
Improper Execution
Many online wills contain generic language so they can legally be used in every state. However, most online estate-planning services don’t include instructions for properly executing a will. If a will or trust document isn’t properly executed, it could be declared legally invalid.
Each state sets its own requirements for executing estate-planning documents. For example, in Missouri, you must sign your will in front of two competent witnesses, who must then sign the will in front of you. However, to simplify the probate process, most attorneys recommend notarizing your will and attaching a self-proving affidavit.
Failure to Plan for Contingencies
Many DIY forms handle the basics of estate planning. However, most don’t take you through secondary planning steps. What happens if a beneficiary dies or is otherwise unable to inherit anything? What if your appointed executor isn’t able to manage your estate after your death?
When you work with an estate planning attorney, you’re more likely to create a plan that can adapt to changes without delay. For instance, you might name a contingent beneficiary (someone who may inherit if the primary beneficiary is unable to) for each asset. Similarly, your attorney can help you designate backup executors.
If you don’t have these contingencies in place and the unexpected happens, the court may need to intervene and choose a beneficiary or executor. This can lengthen the process and increase your estate’s liability for probate court costs.
Not Coordinating DIY Documents With Other Accounts
People who create estate plans using DIY tools often fail to make sure their documents are consistent with their financial accounts. For instance, you might specify something like, “I want to leave my 401(k) balance to my children” without realizing that your account designates your spouse as the beneficiary.
These kinds of mismatches can lead to confusion and disputes. But in almost every case, the beneficiary named on the account itself is the one who receives the funds.
Surprising Your Loved Ones With Tax Liability
Many DIY forms for estate planning don’t go into the intricacies of tax planning. Although some states have an estate or inheritance tax, Missouri doesn’t. If your estate is large enough to incur federal estate tax, your attorney or tax professional may be able to help you take steps to reduce your total liability.
Even if your estate won’t be responsible for federal estate taxes, your executor might have to pay taxes on your behalf.
For example, if you have income-generating assets (like investments) in a trust, the trust may have to pay income taxes. When you work with an attorney who understands state and federal tax laws, you can plan ahead for any potential tax liabilities.
Confusion and Misinterpretation
No two estates are the same, so it’s important for estate-planning documents to thoroughly and accurately capture your assets and your family situation. DIY forms often work like fill-in-the-blank documents, and many use similar formulaic language.
If the language in your will and other estate planning tools isn’t specific enough, your family members may disagree on how your property should be distributed or who your beneficiaries are. No one wants family strife to be a major part of their legacy.
Why Planning for Incapacity Is Just as Crucial as Planning for After Death
In an effort to avoid Missouri estate-planning mistakes like the ones mentioned above, many people work hard to ensure that their will and trust documents are thorough, personalized, and legally valid. However, by focusing entirely on assets and their distribution, they’re neglecting a critical part of estate planning: planning for incapacity.
If you’re badly injured in an accident or suffer from a sudden illness, you may not be able to communicate your wishes for medical care. Worse, your family and other loved ones may not be able to manage your assets for you, which could lead to long-term financial consequences.
In Missouri, there are a number of documents an experienced estate planning attorney can help you create to shield yourself and your assets, including the following:
- Living Will: Expresses a wish to withhold certain death-prolonging procedures if your death is imminent
- Advance Directive: Explains which medical treatments you do and don’t consent to if you become incapacitated
- Healthcare Power of Attorney: Nominates a trusted person to make medical decisions for you if you’re unable to
- Financial Power of Attorney: Names a trusted person to manage your finances for you when you are unable to
It’s important to note that in Missouri, living wills are much more limited in scope than in other states. Some states use the terms “living will” and “advance directive” interchangeably, but in Missouri, an advance directive is much more comprehensive.
When creating a healthcare or financial power of attorney, it’s vital to make sure you have a durable power of attorney. With a durable power of attorney, your trusted person (also called your “agent”) is allowed to make decisions on your behalf even after you become incapacitated.
The Critical Step Most People Miss: Failing to Fund Their Trusts Properly
Many of the most common estate-planning mistakes in Missouri have to do with creating and executing a will. However, if you’re creating a trust as one of your estate documents, you should understand some of the missteps people most often commit when forming trusts.
You might be surprised to hear that one of the most frequent trust-related mistakes is failing to fund the trust properly. A trust can be an effective tool for avoiding probate mistakes in Missouri, but if it’s improperly executed or funded, it could cause more problems than it solves.
Once you’ve created a trust with the help of your attorney, the next step is funding it. Generally, funding a trust means retitling assets in the trust’s name, but the process can look slightly different depending on asset type:
- Real Estate: Create a deed listing the trust as the new owner and file it with your local recorder
- Vehicles: Update registrations to list the trust as the owner
- Bank and Investment Accounts: Retitle accounts in the trust’s name or list the trust as a transfer-on-death (TOD) beneficiary
- Retirement Accounts and Insurance Policies: List the trust as a primary beneficiary
Trust assets don’t have to go through the probate process after your death. If there are remaining assets outside the trust when you die, however, they might need to go through probate.
Choosing the Wrong Fiduciaries: Why Naming Co-Executors Can Lead to Conflict
What are the most common estate-planning mistakes in terms of administrative considerations? Among all the estate-planning errors to avoid, choosing the wrong executor is one of the most problematic.
Unfortunately, you may have no way of knowing you’ve selected the wrong executor. Try to choose someone who’s both trustworthy and capable of managing your assets according to your wishes. If you aren’t sure who to name, working with an estate-planning lawyer can be helpful.
There’s one related mistake you can absolutely avoid: naming co-executors. It might seem like having two executors would help both people share the administrative load, but in reality, this decision almost always leads to several negative consequences. Here are some potential hang-ups:
- The executors may disagree on key decisions (like whether to sell estate property)
- One executor might take on more of the work, leaving the other feeling uninvolved
- Financial institutions usually need signatures from all executors, so meeting to sign documents can be difficult
If an estate has multiple executors, all of them must unanimously agree on every decision. If they can’t, the estate administration process may stall. The experience can cause anger and resentment, and if the executors are part of the same family, it may even lead to long-term family conflict.
The Unintended Tax and Creditor Consequences of Making Children Joint Account Owners
Sometimes, the steps people take to simplify the process ultimately lead to more problems. For instance, making your children joint account owners might seem like a good idea, but in many cases, it just leads to poor estate-planning consequences.
As soon as your child becomes a co-owner on an account, that account becomes exposed to their liabilities. For example:
- Your child’s creditors may be able to claim some or all of the account
- If your child gets divorced, their ex-spouse may be entitled to some of the funds
- If your child has a child support garnishment or a tax lien against them, funds could be taken from the account against their will
Many people don’t realize that if you make a child a joint owner on an account they can withdraw money from for personal use, you’ve legally given them a personal gift. That means you may have to file a gift tax return, depending on the value of the account.
Losing Track of Digital Assets and Original Documents When They’re Needed Most
Finally, one of the most serious estate-planning pitfalls in Missouri is failing to keep your estate-planning and account documents organized and in a place your loved ones can easily access. As digital assets become more prevalent, this issue increasingly impacts families with recently deceased loved ones.
The majority of people now primarily do their banking online and receive account statements via email. If you don’t tell your loved ones how to access various accounts after your death, they may have trouble carrying out the instructions in your will or trust.
In many cases, it’s a good idea to create a master list of online accounts that includes the following:
- The name and URL of each account
- The login information for each account
- What you’d like your family or executor to do with each account
You might also consider giving your executor the information to log into your email accounts. If they can log into your primary email, they should be able to reset passwords for financial accounts if needed.
Some people choose to keep this list as a physical document, while others prefer to make it digital.
However it’s stored, you should keep your list alongside your will and any trust and power of attorney documents you may have. When your loved ones are dealing with the pain of loss, they’ll likely be thankful that you thought ahead and made it easy for them to access the documents they need to move forward.
Get Qualified Legal Help With Estate Planning
Creating an estate plan requires thinking about your own mortality, which can be emotionally draining and difficult. But when you take the initiative to create an estate plan (and understand how to avoid costly mistakes), you can give yourself and your loved ones peace of mind.
If you’re taking steps to get your affairs in order for the first time, experienced estate planning attorney Dave Schleiffarth is here to offer dependable guidance.
Dave’s personalized approach focuses on helping people like you create estate plans tailored to their individual goals. He can also help you steer clear of troublesome estate-planning oversights. Get in touch today to schedule your consultation.
