Michigan Estate Planning Blog

Top Estate Planning Mistakes Can Easily Be Avoided

The music icon Prince was far from the only celebrity failing to have a will, the most significant estate planning mistake of all. Tobacco heiress Dorothy Duke named her butler the executor of a $1.3 billion estate, and her family spent millions on legal costs before the estate was settled. You don’t have to be wealthy to make an expensive estate blunder, says a recent article from Microsoft Start Money, “Seven Estate Planning Mistakes You Can’t Afford To Make.” Regular people also make costly mistakes. However, they can easily be avoided by following these steps.

Procrastinating until the “right” time. Making decisions when you’re under a time constraint because of an unexpected event is a bad time to do estate planning. Leaving a mess for your children to figure out will almost always end badly. Fighting among family members, assets lost to cost battles and unnecessary stress are just a few of the headaches. It’s not how you want to be remembered.

Not updating your estate plan. Wills are like pets—they require ongoing care. If a new child is born and your will isn’t updated, you’ve effectively disinherited the child. If you remarry and don’t update your estate plan or beneficiary designations, your new spouse will have little recourse to what you might have left them. The same goes for major changes in your financial life, up or down.

Putting your head in the sand about taxes. In the last 15 years, there have been many tax changes. Failing to address tax changes with estate planning in mind can lead to financial disasters. Remember, you may not be near the federal estate tax threshold. However, if your state levies estate taxes, you’ll need to plan for them.

If the lifetime estate and gift tax exemption reverts to pre-2017 tax law levels, “average” wealthy people with estates worth around $6.46 million will pay federal estate taxes. If this is your situation, start talking with your estate planning attorney now to address this change.

Ignoring incapacity. We’re not sure which is harder to consider, incapacity or death. Neither is pleasant to consider; one is likely, and another is certain. Having the right plan in place means having the power of attorney, health care directives, HIPAA release forms, do not resuscitate, living wills and other documents specific to your state are all part of estate planning.

Forgetting to plan for non-cash assets. If you own a home, what do you want to have happen to the home upon your death? If you become incapacitated, who will take care of your home, your pets and any property requiring upkeep? Classic cars, antiques and art collections must be disposed of in a planned manner.

Neglecting digital assets. More and more of our lives are now conducted online. Bank accounts, social media, photos, online businesses and cryptocurrencies are not included in household assets by your will. You’ll need to provide a tech-savvy person with information on your accounts, create an inventory and direct the person to serve as your digital executor.

Trying to do it yourself. Creating an estate plan without the help of an experienced estate planning attorney is asking for trouble. Here’s just one example: a family thought it was a good idea to retitle the house to Joint Tenancy with Right of Survivorship for the parent and an adult child. They didn’t know about the child’s serious debt situation. The child now had an asset, and creditors moved swiftly to put a lien on the house. The family eventually lost the house to the creditors.

Reference: Microsoft Start Money (June 23, 2024) “Seven Estate Planning Mistakes You Can’t Afford To Make”

Your College Student Needs a Power of Attorney for Finance and Healthcare

 

Once a child reaches the age of legal majority, they are considered an adult with privacy rights. This means that parents lose access to private information. This can have dire consequences if the student is involved in an accident or gets seriously ill, explains the article “Navigating The Transition To Adulthood: A Legal Guide For Parents” from mondaq. With proactive steps, parents can address these situations before they occur.

Whether or not your insurance covers your child’s healthcare doesn’t matter. Without a Healthcare POA, parents cannot make medical decisions, speak with healthcare providers, or talk with the health insurance company. Parents are strongly urged to have their college-bound student complete a Healthcare Power of Attorney.

If there is no POA and the child is incapacitated, parents will have to go to court to be able to make medical decisions for their child. Hospitals and healthcare providers are extremely strict about following these rules to avoid litigation and fines. No matter how bad the situation is, don’t expect any rules to be bent.

Your adult child should also have a Living Will. This is a document controlling decisions about end-of-life. It only becomes effective when a person is in a state of permanent unconsciousness, like a coma, or if they are terminally ill. The student uses this document to express their wishes concerning care: do they want to be artificially fed, hydrated, or kept alive by extraordinary means? Do they want to become an organ donor? This document conveys their wishes and can save the family an unimaginable amount of added stress during a trying time.

A Durable Power of Attorney is used to name a person, known as an “agent” or “attorney in fact,” to act on their behalf. The agent can take care of legal and financial matters. This is needed in case of incapacity so the parent or trusted person may deal with financial institutions, colleges, courts and any other company or organization on behalf of the student. Without it, parents cannot access account information or act on the student’s behalf.

Does your student need a will? The estate planning attorney who helps create the documents listed above can help you answer this question. Depending on their situation, if the student owns a car, has a bank account, an inheritance, or sizable cryptocurrency accounts, they may need a will.

The documents mentioned above should also be in place for parents. If parents don’t have a will, Power of Attorney, Healthcare Power of Attorney, Living Will and trusts, if appropriate, their newly minted adult will have a lot to deal with if they should both die unexpectedly. A visit to the estate planning attorney for all generations is a good idea.

Reference: mondaq (June 24, 2024) “Navigating The Transition To Adulthood: A Legal Guide For Parents”

Can You Protect Property and Qualify for Long-Term Care with Medicaid?

 

Long-term care costs keep many seniors and their adult children up at night, with good reason. However, with the right long-term care and asset protection plan, you can protect your home and other assets so you can pay for any supplemental needs and protect a well spouse. A recent article from The National Law Review, “Protecting and Preserving Property When Paying for Long-Term Care” provides details.

Your primary residence remains an exempt asset if you plan to return home. An exempt asset is the term used to describe any asset not countable by Medicaid when considering your eligibility. The property is also exempt if your spouse, minor child, or disabled child lives in the home.

If you have a child who has lived at home with you for at least two years and has provided care that allowed you to remain home, as opposed to being in a nursing home, the property may be transferred to the child, who is then considered a “caregiver child.”

Another permitted transfer of the primary home is to a disabled child. This transfer is allowed by Medicaid and doesn’t lead to any penalty period for Medicaid. Check with your estate planning attorney to ensure that this asset's transfer doesn’t conflict with any Special Needs planning or make the child ineligible for any means-tested government benefits.

Medicaid has a five-year look-back period, when any transfers of any property, as noted above, are not allowed and result in your being ineligible for Medicaid benefits. Many people think Medicaid won’t find out about moving assets, including retitling homes or accounts. However, this is not a good idea in this age of data connectivity.

A Medicaid Asset Protection Trust is commonly used if created five years before applying for Medicaid benefits. The family home, investment accounts and other assets are retitled to be transferred into the trust. The assets within the trust are protected and exempt from Medicaid. This allows the well spouse to continue to live in their home and enjoy using the assets saved for retirement or plan for these assets to be passed to the next generation.

Suppose the need for Medicaid benefits arises and no planning has been done. In that case, some home sale proceeds can be protected by using Medicaid Compliant Annuities and creating supplemental needs trusts. An estate planning attorney will review your situation and determine the best options for each situation.

Reference: The National Law Review (June 20, 2024) “Protecting and Preserving Property When Paying for Long-Term Care”

Top Myths of Estate Planning

 

There are far more than five myths about estate planning. However, the article “5 common myths about estate planning, debunked” from Utah Business examines the most common ones. Estate planning is crucial to safeguarding your financial future and asset disposition and ensuring that the right people are involved in caring for you in case of incapacity. Estate planning is for your life and your legacy.

Biggest myth of all: You only need a Will for estate planning. Your estate plan begins with a Last Will and Testament. However, a comprehensive estate plan addresses more than the distribution of assets. Trusts are used to ensure that assets are transferred to the right beneficiaries in a timelier manner than they would be if passed through your will. Your estate plan should include a Power of Attorney, Health Care Directive and a Living Will.

Myth 2: Only seniors need estate plans. Anyone of legal age who has a family and owns property needs a will. Young families need an estate plan to protect their children and ensure that the parent’s assets and any life insurance proceeds are managed and distributed to their children according to the parent’s wishes. Parent’s wills need to include naming a guardian to raise children in the unlikely event of both parents dying while the children are still minors. Without naming a guardian, a court decision will determine who raises your children.

Myth 3: Only rich people need wills. An argument could be made that estate planning is more critical for people who aren’t rich, protecting and growing more modest estates. A well-crafted estate plan will protect the estate from creditors, deter litigation between family members and minimize tax liabilities so wealth can be passed to the next generation.

Myth 4: Estate planning is only about what happens after death. Estate planning addresses what should happen in case of incapacity because of illness or an accident. If you can’t communicate your wishes, these documents allow others to act on your behalf. A Power of Attorney appoints someone to handle your financial and legal matters. Standard POAs aren’t the best option, since they may allow someone too much or insufficient control. You’ll also want a Health Care Power of Attorney so someone you name can take over your medical care and talk with your doctors and health insurance company. Another reason for placing assets into a trust is that the successor trustee may manage assets in the trust if you are incapacitated.

Myth 5: Once your estate plan is created, you’re all set. Your car and home require ongoing maintenance—and so does your estate plan. Life and laws change, and your estate plan won’t work if it’s outdated. Triggering events like marriage, divorce, birth, relocating, or big changes to your financial situation require a review of your estate plan.

Consult an experienced estate planning attorney to create or review your estate plan. You’ll breathe easier knowing you’ve taken steps to protect yourself and your loved ones.

Reference: Utah Business (June 12, 2024) “5 common myths about estate planning, debunked”

 

Top Estate Planning Mistakes to Avoid

Suppose you’ve reached retirement age and have savings, including a 401(k), IRA, investment accounts, home and life insurance policies. Congratulations! While you’ll use these assets during retirement, some of them may end up in your estate. This, according to a recent article from Rocky Mount Telegram, “Avoid these estate planning mistakes,” is why you need an estate plan.

An estate planning attorney will be able to create such a plan. They’ll also know how to avoid common mistakes made by people with less experience. Once you get your information in order, the process isn’t as daunting as you think. Here’s what you need to know to have a successful plan:

Don’t wait until the “right time.” Putting off creating a plan and taking care of the details, like funding a trust or getting documents executed, leaves many people with no plan. Illness and accidents occur without warning. Estate plans address incapacity and distribute assets. If there is no will, your state’s laws of intestacy will determine how to distribute your estate. Contact an estate planning attorney and schedule a meeting sooner, not later.

Neglecting to update an estate plan and related documents. Estate planning isn’t a “set it and forget it” process. Most people’s lives include change—marriage, divorce, moving, etc. Your estate plan needs to change too—to be updated in the event of a large event, like the birth of a second child or grandchild, moving, a change in health or financial status and to take advantage of always-changing tax laws.

Forgetting to update beneficiaries. The number of people leaving generous surprises to people no longer in their lives because they forgot to update their beneficiaries would surprise you. However, it would not surprise an estate planning attorney. People start retirement funds at their first job and forget they assigned someone to receive the assets twenty or thirty years later. Your will only addresses assets in your estate—accounts with beneficiary designations are outside the purview of your will.

Neglecting to fund a trust after it’s been created. This is another common mistake to avoid. The entire estate plan might not achieve your goals if the trust is created and not funded. Assets being moved into the trust need to be retitled, and it takes some attention to detail to ensure that this is all done.

Naming a bad executor. The executor is responsible for carrying out your wishes as expressed in your will, overseeing the distribution of assets, filing estate and final personal taxes and many other tasks. They need to be extremely well organized and financially responsible. Your legacy will be impacted if you choose someone based on family relationships instead of competence.

Most people start this process by consulting with an estate planning attorney. It will take some time and effort on your part. However, imagine your family having to dig through all your records and documents and guess what you wanted to happen. Is that not a pretty picture? A better choice is to start and finish your estate plan with an experienced attorney.

Reference: Rocky Mount Telegram (May 10, 2024) “Avoid these estate planning mistakes”