3 Mistakes To Avoid In Estate Planning

Why do you need to work with a lawyer to create an estate plan? One reason is to avoid the mistakes people often make when they decide to do it themselves. Here are three common mistakes people make in estate planning, and why they are a bad idea.

1. Leaving a "homemade" (handwritten) will, or modifying a will by hand

Handwritten wills are easily challenged because of unclear (nonlegal) language and lack of witnesses to prove the person writing the will was legally competent. Lawsuits challenging the will are expensive and usually result in a compromise, with the beneficiaries you wanted to eliminate getting part of your estate. Caution: Do not attempt to change a will prepared by your attorney by writing on the document. Adding words or crossing out language could invalidate the entire will.

2. Using joint tenancy as a substitute for a will

If a coupled is married, holding assets in joint tenancy between spouses is okay but not ideal. Married couples living in a community property state can obtain a "step-up" in basis in both the decedent's half of community property as well as the survivor's half, but they lose this advantage by keeping assets in joint tenancy.

However, adding anyone else as a joint tenant can create other problems such as:

  • The new joint owner could misappropriate the asset. After all, you gave it to him or her.
  • Did you file a gift tax return when you added his/her name to your asset? Adding a name to an asset is a gift.
  • Do you really want to expose your money to someone else's problems (for example, adding children or relative as joint tenants)? If the joint tenant gets involved in a divorce, bankruptcy or lawsuit, your asset may be tied up in a long legal battle and you lose your money.
  • Joint tenancy means "automatic right of survivorship" so the surviving joint tenant will get the entire asset regardless of what your will says.

3. Having only a simple will when you have significant assets

A simple will does not avoid probate. If your assets exceed $100,000 at your death, probate will take at least one year and 6 percent to 8 percent of your estate before your beneficiaries receive any money. Trust provisions within a will can prevent an 18-year-old from inheriting his/her entire share in one payment.

People with large estates will create a tax for their beneficiaries from 37 percent to 50 percent of the amount exceeding $1 million by relying on a simple will or joint tenancy. Utilizing tax provisions in your estate documents help protect your heirs from estate taxes. A trust can protect what you want your children to inherit.

Learn How To Create A Strong Estate Plan

To talk to our lawyer about creating a successful estate plan for your family, contact The Sexton Law Firm at 619-678-1833 for a free consultation or send us an email.