Avoid These 10 Most Common Estate Planning Mistakes

The team with Theus Law Offices works with people from all walks of life. While everyone has varied needs and desires, it can be universally said that failure to plan for matters related to incapacity or death is in effect planning to fail. More often than not we see people who have made well-intentioned mistakes with their estate planning. It is our hope that by being cognizant of these correctible errors, you can avoid (or help loved ones avoid) significant inconvenience, stress, expense or disappointment. So, here are the ten most common estate planning mistakes.

Estate Planning Mistake No 1: Procrastination

While no one really wants to reckon with their
own mortality, thoughtful preparation for what
will occur after your death is one of the most
important things you can do to ensure your
personal and financial affairs will be handled
properly. The good news is that once you have a
properly designed estate plan in place, you can
rest easy knowing that you have taken care of your
responsibilities to others and — everything you
own and everyone you love will be protected.

Estate Planning Mistake No 2: Not Updating Your Estate Plan

Change is the only constant in life. Many
changes will occur within a family or business
structure, including birth, marriage, divorce,
death, incapacity, graduation, career change,
business evolution, new property acquisitions,
change of financial circumstances, and
retirement. We recommend that you review
your estate plan at least every three (3) years,
or at any life changing event, to ensure the
assets you leave behind are given to those you
love and that your personal and financial affairs
remain in order. Theus Law Offices offers a
complementary estate planning review as a
service to our clients.

Estate Planning Mistake No. 3:Misuse of “Canned” Documents

Beware of documents prepared by “trust mills”
or other non-lawyers. Beware of any document
you download from the internet or purchase
at the office supply store. Only a licensed
Louisiana lawyer can give you proper counseling
regarding your estate plan to ensure your
wishes are carried out with minimal expense and
inconvenience. Due to the proliferation of bad
forms, courts are now quick to annul a will that
fails to comply with the particular requirements
of Louisiana law. Having successfully litigated
numerous will contests, it is “penny wise and
pound foolish” to entrust anyone other than a
qualified Louisiana estate planning attorney to
prepare your estate plan.

Estate Planning Mistake No. 4:Failure to Coordinate Non-Probate Assets and Over-Use of “Pay on Death” Accounts

The distribution of life insurance, annuity
and retirement proceeds simply must be
coordinated with the entire estate plan to
avoid unintended results and provide estate
liquidity, where necessary. Non-probate assets
are not considered part of a probate estate
in Louisiana, so a valid last will and testament
does not control disposition of these assets.
Testamentary intent can easily be frustrated
by failing to take into account and coordinate
non-probate assets in Louisiana.

In a medium or large size estate, holding significant assets “…with rights of survivorship” or “pay on death”, potentially thwarts an overall plan and increases taxes. This should only be done when the particular circumstances have been analyzed and there is specific legal advice to do so.  The mistake is exacerbated if the surviving spouse accidentally waives the right to disclaim these assets by exercising ownership over them prior to consulting his or her tax advisors.  Consult with a qualified estate planning attorney about how to hold your accounts and again immediately after the death of a loved one.

Estate Planning Mistake No. 5:Failure to Plan for Blended Families and Other Contingencies, Such As People Dying “Out of Order”

“I won’t have trouble  with my husband’s kids when he dies — I get along with his kids.” Please don’t count on it! Unpleasant dynamics emerge even in the best of  families. Successions tend to bring out undesirable character traits and unresolved issues in most people.  Plan for  the worst and then hope for the best.

All governing documents (including the will
and all beneficiary designations on retirement
assets, annuities and life insurance policies)
should cover contingent situations such as a
predeceasing spouse or children. If minors
or incapacitated persons could conceivably
inherit, a trustee or custodian should be named.

Tutors / guardians should be nominated  for minor children.

Over-use of the simple “I Love You” plan (a/k/a “Sweetheart Wills”) which leaves all assets to the surviving spouse may increase taxes ultimately paid by hundreds of thousands of dollars. On the contrary, utilizing a tax-sensitive will or trust could preserve the tax-free amount and result in significant tax savings. Tax laws are constantly changing, so even if your estate is currently under the value threshold subject to Federal estate tax, it is always best to plan for that contingency, especially in this volatile political climate.

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Estate Planning Mistake No 6:Over-Use of Revocable Living Trusts

A Living Trust can be a useful tool, but is not a magic
elixir. Living Trusts (also known as Revocable Trusts) can be expensive to
prepare and often are more expensive than a probate. Proper funding of the
Living Trust is vital and often overlooked, which defeats the purpose of a
Living Trust in avoiding probate. The cost and administrative burden of the
probate process tends to be greatly exaggerated. Laws allowing for independent
estate administration minimize probate expenses for most Louisiana residents
who utilize this procedure. A Living Trust is no longer necessary to maintain
privacy due to the enactment of a new law in 2017. While a Living Trust can be
useful for certain purposes, most Louisiana residents do not really need a
Living Trust. Living Trusts can be useful in limited circumstances, such as
preserving the characterization of assets, avoiding ancillary probate in
another state, or as part of a comprehensive asset protection plan. Living
Trusts provide zero asset protection or tax benefits alone, but in conjunction
with other devices, can be useful in toggling control or effecting a relatively
quick transition of assets across state lines or into more protective entities.
Beware of promoters and always seek a second legal opinion on the need for a
Living Trust.

Estate Planning Mistake No 7:Overuse of Living Trust Planning When No Real Need for a Trust Exits

Unless the property on hand at the termination
of a marriage in Louisiana can be proven to be
the separate property of one of the spouses,
it is presumed community property. This is
true even if the property is held in the name of
only one spouse. This can dramatically impact
the dispositive plan. Surviving spouses can
be left destitute. Children can be effectively
disinherited. Disputes regarding the character
of property are commonplace and expensive.
Failure to consider, change or preserve the
character of property in Louisiana can disrupt
the best laid estate plan.

Estate Planning Mistake No 8:Failure to Plan for Potential Incapacity

A durable power of attorney will allow you
to select in advance who will handle your
financial affairs in the event of your later
incapacity. Likewise, a medical power of
attorney will allow your selected person
to arrange for medical care if you become
incapacitated. Failure to have these two
documents could mean a curatorship or
guardianship would be necessary. If you do
not want to be kept alive on life support if
your condition is terminal or irreversible, a
directive to physicians should be considered.

Estate Planning Mistake No 9:Putting a Child’s Name on a Deed or Account, or Using a Medicaid Asset Protection Trust

If you need to divest yourself of assets for some reason,
create a plan that allows you to maintain control of your assets in the event
you need continued access without having to negotiate with your child or any
other person. Assets transferred to a child during life are subject to the
claims of creditors of the child, which puts your financial security at risk if
you need continued access. When you put a child’s name on a deed, you are
making a taxable gift. The child will not receive a step-up in tax basis for
any asset received as a lifetime gift, which can be costly if the asset is
later sold by the child. Conversely, assets received by way of an inheritance
receive a step-up in tax basis, which means they can be sold tax-free. Beware
of Medicaid Asset Protection Trusts, which are designed to qualify an
individual for public long-term care benefits. These trusts are “income only”
trusts, which specifically preclude access to principle. If assets are
insufficient to produce a large enough income stream, a settlor can find
themselves in a very uncomfortable financial situation. Theus Law Offices has
developed a proprietary alternative to a Medicaid Asset Protection Trust that
allows continued access to principal in the event of financial need without
rendering such assets “countable” for purposes of qualifying for Medicaid.

Estate Planning Mistake No 10:Choosing the Wrong Attorney and Not Discussing Asset Protection.

An experienced estate planning attorney can provide you with
strategies based on the particular needs and demands of your estate. Beware of
“trust mills” and other promoters who use scare tactics and sales techniques to
“sell” rather than “advise” a client. Many attorneys claim to provide Asset Protection
services, however, there are very few attorneys with the resources and
capabilities to provide effective Asset Protection. In selecting an estate
planning attorney, you should look for an attorney who also specializes in
Asset Protection in order to provide you with the most advanced tools and
advice for protecting yourself and your family. This is particularly important
in Louisiana where virtually anything, including your home, can be seized and
sold to satisfy claims. At Theus Law Offices, we use the most trusted and
tested Asset Protection tools available, and our clients are guided by the
nation’s top Asset Protection attorneys and experts, which include J. Graves
Theus, Jr. In addition to being a certified specialist in Estate Planning &
Administration, as well as Tax, with over 20 years of experience, J. Graves
Theus, Jr. is the only certified specialist in Louisiana who is also licensed
to practice law in the State of Alaska — the first state in the United States
to adopt domestic asset protection legislation and universally considered a
top-tier Asset Protection jurisdiction. As such, Theus Law Offices is uniquely
qualified to offer estate planning with integrated Asset Protection solutions
of the highest caliber.