Mistakes to Avoid When You Begin Estate Planning
First of all, you should know that you’ve already avoided the biggest mistake: not having an estate plan at all! Without a will or trust in place at your passing, your belongings will pass to your next of kin through state intestacy laws. Depending on your relationships with the people in your family, your property might not be distributed in the way you would want. Some small mistakes that have significant consequences include:
Drafting and Language Problems
Thousands of websites offer free or low-cost legal documents, including last wills and testaments. However, the language used on them is boilerplate and rarely state-specific, which may cause problems down the line. In addition, a do-it-yourself approach to estate planning can backfire depending on the words used. For example, if a will states that property should pass to a man’s “surviving wife and children,” what happens if the man had two ex-wives and several children from other marriages? On the other hand, suppose the same man had three daughters and left “equal shares of the estate to my descendants.” The will was made when his children were teenagers, but two of them had a child of their own at his death. The term “descendants” includes children, grandchildren, and great-grandchildren, making it possible for his children and grandchildren to receive a fifth of the estate—even though he intended to give a third to each daughter.
Retitling Your Home
You may have heard that adding a child to the deed to your home allows the house to pass to the joint owner without probate. While this is technically legal, there are a few things to consider before co-owning the house with your children. First, if you have a surviving spouse whose name is on the deed, the spouse will already inherit the house without probate through tenancy by the entirety. Second, the IRS can tax you and your child if the home is in joint tenancy since you are “gifting” the child half of your home. Your child might incur capital gains taxes, you might have to file a gift tax return for the year you made the transfer, and the gift could risk your Medicaid eligibility. Finally, placing your home in a child’s name turns the house into one of their assets, potentially opening it up to lawsuit judgments, tax liens, divorce settlements, and creditors.
Dividing Assets Unequally
Attempting to split your assets between your heirs by yourself can have unintended consequences. For example, imagine you have two children and want them to inherit equal property shares. You add your son’s name to the deed on your house and name your daughter as the beneficiary on your savings account. Your son gets the house at your passing, but he has outstanding debts and is forced to sell the home to pay off his creditors. Meanwhile, you forgot that you also named your daughter as the beneficiary on your 401k, giving her thousands more dollars. You might think your daughter will offer financial help to your son, but she is under no legal obligation to share the funds she inherited.
Failing to Fund Your Trust
Once you have gone through the process of creating a trust to protect your assets from Medicaid and pass your property to your heirs, there’s one vital step to take: you have to fund your trust! The trust document is not legally binding unless the assets are correctly retitled or transferred into the trust. If you’re unsure how to do this, an attorney can walk you through the necessary title and beneficiary designations.
Let Us Create an Estate Plan That Accomplishes Your Goals and Gives You Peace of Mind
Landskind and Ricaforte Law Group, P.C. has helped countless clients make comprehensive and customized estate plans to fit a variety of needs. We can take the guesswork out of planning for retirement and beyond, giving you peace of mind and your heirs the inheritances they deserve. Contact us today through our online form to get started or read our free book, Estate and Medicaid Planning in New York: What Everyone Needs to Know.