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Biggest Mistakes in Estate Planning: Part II

Each individual state has its own trusts and estates laws. While there are many similarities among these laws, there are also important differences. Some states are notoriously difficult when it comes to the probate process. Fortunately, other states – like New York – make the process much easier when you take the time to properly plan. In the second part of our series on common mistakes many individuals make in estate planning, we will explore some of the more technical mistakes that can be made. Being aware of these specific mistakes can help you ensure that any estate planning mechanisms you have comply with the law and are established to correctly meet your needs.

Improper Use of Trusts

Trusts can be a useful tool for many people depending on their individual circumstances. One of the most common benefits of a trust is that assets within one are typically not subject to probate. However, the type of trust to select to meet your goals is extremely important as selecting the wrong type can not only be costly and time-consuming, but can frustrate your purpose. One common mistake individuals make with trusts is failing to transfer assets to the trust. Simply establishing a trust is not enough for it to be effective. It is important to work with an experienced estate planning attorney to ensure that assets you want to be part of that trust are eligible to be transferred to it and are, in fact, actually transferred. This may often involve formally changing the title of ownership for an asset, and in some cases with financial accounts such accounts may need to be closed and reopened in the trust’s name. Without properly funding a trust, the trust will most likely be ineffective in helping assets you want to be held in it avoid probate.

Discrepancies in Beneficiaries

Throughout our lifetime, we experience many significant changes. These can include marriages, births, deaths, divorces, remarriages, and other important events. When these events occur, it is important to update your estate plan accordingly. One of the most important yet often overlooked updates is changing beneficiaries. You may want to revise your estate plan to include new considerations in the distribution of your assets, especially in the case of divorce. Additionally, there may be discrepancies in the beneficiaries you nominate for assets. For instance, you may direct your retirement fund to one heir in your Will but the beneficiary form for that fund could list another primary beneficiary. This is a recipe for contesting a Will and creating animosity between your heirs. A comprehensive estate planning attorney will help you periodically review your estate plan to make sure all your beneficiary forms are properly updated and reflect your most current wishes.

Large Bequests to Minors

Families often want to make sure that their assets are used to provide financial stability for children in that family. However, children are typically prohibited from receiving property outright and will require a trustee to manage such property. Even children that are of age, typically those over the age of 18, may not be able to properly handle large sums of money or large property in an appropriate manner. In such instances, it may be wise to establish a trust that becomes effective upon the establisher’s death to handle these assets.

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