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The first thing you need to know about estate planning is this:

Everyone has an estate plan, whether they create their own via attorney-directed wills and trusts, or whether they allow the state to enact a default plan on their behalf.

This default plan, put together through what are known as the laws of intestacy, allows the state to decide who gets what when you die and also lets them take the maximum amount of tax possible from your estate.

In my opinion this is the very worst thing that could happen to the legacy you’ve worked so hard to leave to your loved ones. Yet, there are thousands of people who die each year without even a simple estate plan; leaving their families to deal with taxes and other consequences estate planning.

So, the first mistake in estate planning is simply to not have a plan in place when you die. What, then, are other common mistakes people make when preparing for the final stage of life?

Estate attorneys have identified some of the most common estate planning mistakes; mistakes that, each year, result in a myriad of problems for the ones left behind.

Here are just

7 of the most common estate-planning errors:

1. Forgetting the IRS is NOT on your side.

The government wants you to die wealthy because it results in more cash for them. Therefore, they have a vested interest in you not taking advantage of laws and strategies which can result in your estate paying ZERO taxes.

You may realize that there are only 3 real ways to reduce estate taxes: give money away while you are still alive, spend the money now, or use a specially-designed trust called a bypass trust that lets you give it away while you are alive while retaining use of the money for yourself.

The IRS is banking on you being the kind of thrifty, careful person who has a hard time letting go of the money you so painstakingly accumulate, because they’ll have more money to TAX!

2. Failing to Ensure Benficiaries Are Correctly Designated on Retirement Accounts

Often times, the beneficiaries of retirement accounts will change, particularly if the primary beneficiary dies before the account owner.

In most cases, the account owner is required to complete a new beneficiary designation form, indicating the new beneficiary. Failure to do so might result in the beneficiary being determined under the default terms of the retirement account agreement.

Payout options under most retirement plans often depend on whether the beneficiary is a spouse of the account owner.. There can be unintended and adverse tax repercussions for those who are not careful in this matter.

3. Inadequate life insurance

Specially designed whole life policies, such as those used in the Bank on Yourself ™ plans make inadequate life insurance less of a problem for those who choose that route.

However, for most people inadequate life insurance a BIG issue.

According to a recent Metropolitan Life Insurance survey, more than half of the widows and widowers who collected life insurance proceeds in the United States received less than one year’s income.

If you are concerned about not having enough life insurance, please give our office a call to arrange a personal consultation. We can go over your insurance to ensure that you have the right amounts for your goals.

4. Wrong guardian listed for your children

If you don’t have a will, the state decides who will care for your minor children. However, if you do have a will, be sure to review it regularly. Check to see if your original guardian is still valid and still willing to take on the responsibility. Things could have radically changed for your guardian such as their job situation or they could have new financial challenges.

5. No medical power of attorney and living will or those documents are not valid

Even if you have a medical power of attorney or living will in place, it is always best to assume that these documents weren’t correctly executed or notarized and are not valid. Assuming this will force you to review those medical papers with an attorney to be sure they are valid in your state and that you’ve addressed every important issue.

If you do not have these documents on file, you are creating a potentially devastating situation for your loved ones should you become incapacitated due to a medical problem. Without a proper durable power of attorney, no one can access funds to pay for your medical care or other bills. They will also be unable to legally sell your property such as a car or real property.

6. Trying to be “fair” with your children

If you have more than one child, the temptation is great to want to divide your estate evenly with all of them. After all, you reason, you love all your kids the same so it is only fair that each one of them gets the same share of your estate.

Unfortunately this can be a great mistake, especially in the case of a family owned business. If you have children who participate actively in the business and others who do not, giving the non-participating child a share equal to the children who actually work the business can cause a lot of resentment and lead to family disputes.

Consider giving shares of the business to your kids who actually work in it and then give non-business-related assets to your other children.

If you feel that this creates an intolerable imbalance, talk to my office about how to correct such an imbalance by purchasing additional life insurance or other methods.

7. Take my debt, please…

Sometimes the law of unintended consequences means that what is supposed to be a loving gift from a parent to their offspring can turn into a stressful financial nightmare.

For example: when an estate comprised of heavy illiquid assets is given to beneficiaries, Uncle Sam wants his cut right away.

As a result, those beneficiaries are often forced to borrow great amounts of money to pay estate taxes because the assets which created the tax situation simply don’t generate enough income to pay it. It is common for those loans to come from banks or other financial institutions, sometimes at unfavorable interest rates.

Again, life insurance is a great solution, providing liquid assets which can be used to pay off taxes and other costs associated with settling an estate. Many of my clients fund Bank on Yourself policies with the express purpose of providing extra cash to their beneficiaries to help them meet their tax obligations.

In Conclusion…

It’s amazing that most people spend more time planning their social calendars than they spend on planning their financial futures.

Yet, few things will have as much impact on your happiness and sense of well-being than knowing you have a current, complete estate plan in place.

If you haven’t talked with an estate planner lately (or at all) you should do so. If you need a referral, check out the resource links listed at the end of this article.

Everyone should have a will!

When someone dies without a will, the distribution of property can get very tricky. In many casess there may be resentment and hurt amongst family members.

Many people don’t understand how complicated this process can be and the how important the difference between ‘separate’, ‘community’, ‘real’ and ‘personal’ property. Here is a quick run-down:

Community v. Separate property- Was the deceased married? If so, everything acquired during the marriage is community property, while everything owned prior to the marriage is separate property.

Real v. Personal property- Real property includes real estate (including mineral interests) while personal property is anything that is not real property (ex. Cash, bank accounts, cars, jewelry, furniture, etc.)

Now that you know the difference, the following rules must be applied when someone dies without a will:

Community Property (Texas Probate Code §45)

Married, no children

All to surviving spouse

Married, with children who are also the children of the Decedent’s spouse

All to surviving spouse

Married, with children, but at least one child is not a child of the Decedent’s surviving spouse.

All of Descendent’s half interest in any community property passes to kids, spouse retains his/her half.

Separate Property (Texas Probate Code §38)

Unmarried, no kids

All to children

Unmarried, no descendants, parents surviving

All to father and mother, equally

Unmarried, no descendants, one parent deceased, at least one sibling

Half of all separate property to surviving parent and the other half to surviving sibling(s) or their descendants

Unmarried, no descendants, one parent deceased, no siblings

All to surviving parent

Unmarried, no descendants, no parents, at least one sibling

All to surviving sibling(s)

Unmarried, no descendants, no parents, no siblings

Half to paternal grandparents (or their descendants) and half to maternal grandparents (or their descendants)

Married with kids

One-third of separate personal property to spouse, two-thirds to kids. All separate real property to kids, subject to spouse’s life estate in an undivided one-third of it

Married, no descendants, no parents, no siblings or their descendants

All to spouse

Married, no descendants, a parent or sibling or niece or nephew

One-half to spouse, other half to parents or siblings as if decedent was unmarried.

For parents, making a will is the single most important thing you can do to ensure that your child is cared for by the people you choose

A will will help manage the money left for them if anything were to happen to you. Without a will, your children’s money would be controlled by a state-appointed administrator (who charges fess, of course). This situation means that not even your surviving spouse could access the funds to raise your children without going through a complicated legal process.

Also, consider the implications of an 18-year old inheriting a large sum of cash- without a trust in place to help them manage their newfound wealth.