Being prepared to pass your estate to your heirs will give you and them some peace of mind. Once your estate plan has been created, you will be glad your house is in order. Hopefully, you made it with the help of a professional estate planning lawyer to ensure setting it up correctly.
Why Estate Plans Often Fail
Many estate plans,
Forbes says, will fail to complete the intended asset transfer to the designated beneficiary. The biggest reason is that clients do not follow the instructions from the professional estate planner. In other words, the plan was good and would have worked, but there were some things that the client never completed.
Another reason an estate plan fails to fulfill its intentions is that it needs to be reviewed every couple of years with an attorney to ensure it will still accomplish its goals. Laws concerning estates are constantly changing.
It is also possible that your assets do not get distributed as hoped because your plans are too detailed. It needs some leniency because you cannot anticipate all potential problems.
Because circumstances are not always foreseeable, a slight change can cause your plan, or parts of it, to fail. When challenged because it cannot be distributed as planned, it will be up to the court to make those decisions. Forbes reveals that courts often consider how to share assets evenly among the heirs—at least where the questionable parts of the estate plan are in question.
Failure of wills and estate planning can occur if you have a beneficiary named on a bank account or other document—but someone else’s name is in your will for the same account. When a beneficiary is named on an account or in a life insurance policy,
PolicyGenius says that it will usually supersede what is written in a will.
Failing to Keep It Updated
Life can present many unexpected changes. It can mean the potential number of beneficiaries may change (new marriages and births), situations in the life of beneficiaries can change (divorces, remarriages, drug or alcohol problems), and so can problems with your or your spouse’s health—which can eat up your wealth before death.
A serious problem can occur if you designate bank accounts to a daughter while unmarried and later marry. It could leave your new spouse with nothing if you do not update your estate plans.
Not Putting Assets Into the Trust
A trust is of no value if there are no possessions in it. It requires transferring the ownership title of those possessions from yourself to the trust, which means that the name of the trust must be on the title. If you have no assets in the trust, all your assets will go through probate.
When you put real property into the trust,
LegalZoom mentions that a quitclaim deed is the easiest way to do it, but a warranty deed may be better when your beneficiaries want to sell it. You will also need to file a real estate deed with the county.
Before transferring real estate, LegalZoom says to make sure it will not affect the mortgage. Also, the title insurance company may require purchasing a new policy.
Not Creating All the Necessary Documents
A good estate plan needs several documents to ensure its intended fulfillment. The first thing you need is a will, and possibly one or more trusts. These documents must have beneficiary designations. If you have underage children,
Investopedia says you should have guardians appointed for their care if you should die before they reach 18.
If your health fails and you become incapacitated, you need a healthcare power of attorney to give someone you trust the authority to decide what healthcare you receive. A durable power of attorney is also necessary, which gives another individual authority to handle your financial matters while you are incapacitated.
Not Planning for Taxes or Debt
If you do not include preparing for taxes on your estate plan, you will find that the government will get a much bigger chunk of it than you want. It also means that your beneficiaries get much less than you hoped. Estate tax is 18–40 percent, depending on your income. Although the federal government does not have an inheritance tax, some states have both an estate tax and an inheritance tax. Debt must also be taken into account since money to pay those bills is removed from the estate before being distributed.
Because settling an estate can take months or even years, your beneficiaries will need money immediately to be able to continue their lifestyle. They also need money for property taxes, living expenses, mortgage payments, insurance, maintaining the property, educational costs, etc. One of the best ways to meet this need is through a life insurance policy, which is usually settled quickly.
Pour-Over Will
Some assets should not be put into a trust or a will. One reason is that some accounts cannot change the beneficiary’s name.
TheBalanceMoney says they include life insurance policies, uniform transfers to minor accounts (UTMAs) or uniform gifts to minor accounts (UGMAs) (education accounts), health savings accounts (HSAs), medical savings accounts (MSAs), and vehicles.
Personal assets that you have, and other assets not put into a trust, can be placed into it after death through a pour-over will. This document transfers all other possessions into the trust that are not in it at the time of death. Different states may have different laws concerning this document.
The reasons mentioned above reveal many reasons estate plans fail, but these are only a few. When you make your estate plans, talk to an estate planning attorney to avoid unnecessary mistakes and to ensure that your assets go to the beneficiaries you want to have them.
The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
