By David Inabinett, Attorney at Law
Estate planning is the process of deciding how you wish your financial and physical assets to be distributed upon your death, along with who you wish to oversee that process. It includes making certain you have the necessary legal paperwork in place under North Carolina law to ensure your assets are distributed based on your wishes. If you do not have an estate plan (at a minimum, a last will and testament), your assets will be distributed by the court based on current NC law.
There are some common mistakes we have seen people make when planning ahead. Here are five things to watch out for when considering your estate plans:
- Mistake #1: Putting off planning. There is no time like the present. You may want each child to receive a certain piece of jewelry that has special meaning to them. Or perhaps one of your children has special needs and you want that child to receive a larger percentage of your estate or have it held in trust for someone else to manage on their behalf. That makes sense. Unfortunately, if you do not put your wishes in writing and in a format that complies with NC law, these things may not happen or be enforceable. People tend to assume they will have plenty of time to create an estate plan. They decide to do it tomorrow, or next week, or next month, or next year. They hesitate to discuss it in front of the ill family member who they do not wish to upset. Does it need to be said? Accidents happen. Sickness and incapacity occurs and often progresses faster than expected. Diseases are contracted. And that all happens without warning. If you wait too long to plan your estate, you may not have the opportunity to ensure that your wishes are implemented. Take action sooner rather than later, and even if you have documents in place, review them on a regular basis to ensure that they remain consistent with your current wishes and desires.
- Mistake #2: Making it hard to find your estate planning documents and financial records. It is imperative to let someone know where to quickly find your legal documents. This can be the administrator of your estate, your attorney, your spouse or other family members. Death is an emotional time. This is not the time to have your loved ones rifling through boxes, files, drawers, locked safes, or scrambling for the key to your safe deposit box hoping to find the documents they need at this traumatic time. Your important documents should be in a known and accessible place so that when needed, it is a simple process to locate the original signed documents and proceed. Reviewing and organizing them now also alerts you to mistakes and changes that may need to be made, such as updating beneficiary designations or ensuring proper ownership of accounts.
- Mistake #3: Not considering tax consequences. You want your assets to go to loved ones, designated charities, or other specified entities, with those beneficiaries receiving as much value from your estate as possible. With many estates, there may be tax consequences impacting beneficiaries and estate distribution. This is especially true with larger estates or those with certain types of assets, like tax-deferred retirement accounts. Based upon how you have set up the distribution of your estate and your understanding of tax law, there are certain actions that you can take to minimize the taxable portion(s) of your estate or minimize taxes during your later years as you take distributions from taxable accounts. Having a knowledgeable and competent attorney draft your estate plan, and also consulting with a tax advisor in conjunction with having the proper documents will help understand how taxes will come into play and help your designated beneficiaries get the maximum amount from the assets while minimizing the tax consequences.
- Mistake #4: Not understanding the rules of estate administration in your state of residence. Process and procedure count. Each state has their own specific laws outlining the requirements of a valid estate plan and related documents – Will, Trust, Power of Attorney, Healthcare Proxy, Guardianship Designation, etc…. If the legal procedure is not followed and the requirements for proper signing, witnessing and notarization of the documents are not met, the estate plan can be ineffective, contested and found invalid. If your estate plan is found invalid, there is a possibility that the assets will not be distributed in accordance with your wishes or in the most tax and cost-advantaged way. Developing your estate plan with a knowledgeable and competent attorney can help you avoid a future situation where your will is contested.
- Mistake #5: Not talking to your family up front. It is best to avoid surprises. The more people who know of your intentions and wishes, the less likely it is that there will be hurt feelings or legal action to contest the will or trust instrument. It makes for a dramatic Hollywood movie moment when the family members are all present for “the reading of the will” or upon receiving a copy they are shocked by the contents. But, in reality, shock and surprise typically do not result in harmony and smooth transitions. If people are aware of your wishes and intentions, it increases the likelihood that those wishes and intentions will be carried out or at a minimum, not contested.
In summary, take time now to make your estate plans. Share your thoughts with your beneficiaries. And update your plans on a regular basis. Need help with estate planning? Contact our office to make an appointment with one of our estate planning attorneys.