Estate planning will effect almost everyone at some point in their lives, whether it’s through creating their own estate plan, or through being a party to someone else’s estate. Despite its far-reaching effects, most of us are still in the dark about what estate planning entails. This results in a lot of problems that arise by the time it’s too late to fix them, as there is no revising your estate plan once you pass away. Fortunately, the most common estate planning mistakes are easy to avoid.
Your estate attorney should be able to seamlessly address these issues in your estate plan, so that you and your family can have the peace of mind you deserve. Here are some “mistakes” we try to help clients avoid:
- Failing to name guardians for minor children
We’ve all heard of “godparents,” and many of us have named godparents for our children. We’re not here to tell you that something is wrong with naming godparents for your kids . . . at least, there’s nothing wrong with it while you are still alive. However, contrary to popular belief, a godparent does not assume legal responsibility for your children in the event that you pass away. Even if that’s what you intend, a godparent will have no legal right to your children in the event of your death. Unless, that is, you designate said godparent as the legal guardian of your children in your will.
Should both a child’s parents pass away, a judge has to appoint a guardian to care for the child. If you do not name a guardian in your will, a judge who knows nothing about your family and friends will decide who gets to raise your children. The best way to make sure your personal choices are honored is to name a guardian and alternate guardian for your children in your will.
- Assuming that stepchildren are included as “children or issue”
If you are a step-parent, our guess is you love your step-child as if they were your own. Perhaps you would even like to provide for your step-child in the event of your death. Another common misconception is that step-children are legally recognized as your “children”; but, in New York State, they are not. You and your step-child may be part of the same family unit, and you may provide that child with as much emotional and financial support as any biological parent would; however, the law does not recognize that familial connection unless you go the extra mile to adopt your step-child.
The only way to remedy this deficiency in the law (other than adoption) is to write your step-child specifically into your will. General bequests to “my children,” “my child,” “my issue,” etc. will leave your step-child with nothing. If you intend to provide for your step-child when you pass away, you must make a bequest directly to that step-child by name.
- Failing to name alternate beneficiaries
Life insurance policies and 401ks are just two of the ways you can avoid probate and provide for your loved ones when you pass away. When you designate beneficiaries on these and other types of accounts, your beneficiaries can receive their share of those assets without the hassle of the probate process. However, if you pass away without a designated beneficiary on these accounts, the accounts will have to go through probate before being distributed to your loved ones. Although probate should not take years, the process may nonetheless slow down the disbursements of monies to loved ones. You may be thinking that since you named a beneficiary on your life insurance policy, you don’t have to worry about this happening to your policy. However, this can happen even if you DID name beneficiaries on these accounts if those beneficiaries passed away before you. Naming alternate beneficiaries is a simple fix that not enough people take advantage of. We highly recommend that you revisit your life insurance policy, IRA, annuity, etc. and add alternate beneficiaries if you haven’t already done so. Also be careful in naming minors as beneficiaries as there is no trust or other protection in place.
- Failing to create supplemental needs trusts for loved ones receiving government benefits
Loved ones who receive government benefits (including SSD and Medicaid) have certain restrictions on the amount of assets they can have while still receiving benefits. Passing assets to these loved ones without taking those restrictions into consideration can cause real problems for your loved ones’ benefits eligibility. Creating a supplemental needs trust (a.k.a. special needs trust) for those receiving government benefits is the best way to provide for your loved ones without making them ineligible for the benefits they receive.
- Not knowing the difference between probate and non-probate assets
The difference between probate and non-probate assets is important to understand when creating your estate plan, because it changes the way you should approach estate planning. Most people think that executing a will is the pinnacle of estate planning, but they couldn’t be more wrong. All assets that have to pass through a will are probate assets. What this means is that every step of the administration of those assets must be reported to and approved by the court, and those assets may need to remain in the estate to give your creditors the chance to file a claim against your estate.
Probate-avoidance can be part of responsible estate planning provided the circumstances are right. Non-probate assets include 1) accounts that have designated beneficiaries such as life insurance policies, IRAs, annuities, and 401(k)s, 2) payable on death accounts, 3) transfer on death accounts, 4) jointly-owned property, such as joint bank accounts, 5) life estates, and 6) trusts such as revocable living trusts and totten trusts. This list is non-exhaustive, but you can see that there are various ways in which you can ensure your property will not pass through probate when you pass away; you need to determine if this is what you intend.
- Failing to periodically review and update estate planning documents
We recommend reviewing your estate plan either every 3-5 years, or after every life-changing event such as divorce, having a baby, getting married, getting re-married, the death of a loved one, adopting a child, or gaining a step-child etc. This is because your family will change over time, and your estate plan will not change along with it if you don’t update it periodically. This means that your actual intentions to take care of your loved ones may not be carried out in the way you would want them to be because your estate plan did not account for these contingencies. Making revisions to your estate plan can ensure that nothing is left to chance.
Call the estate planning attorneys at HoganWillig (716) 636-7600 with any questions about any information discussed here or with other questions you may have.