5 Common Estate Planning Mistakes

28 May 2015 lawreynold Articles

Working in the wacky and wonderful world estate planning for over 15 years, I have truly seen it all. Unbelievable greed, generous charity, scandalous affairs and odd pet obsessions are just the beginning. All excitement aside, the most important realizations I have had is the number of misconceptions people have about estate planning. Today’s blog is dedicated to those common misconceptions, and dispelling them once and for all.


I don’t have an estate, I don’t need an estate plan.

How would it feel to have a judge supervise the person who makes your healthcare decisions or pays your bills? What if the doctor couldn’t even talk to your family about your health situation unless they first obtained a court order? What if no one had authority to pay your rent or your mortgage while you were in the hospital and by the time they got the court order to do so, you had already been evicted or forced into foreclosure? My brother didn’t think he needed an estate plan at age 34, until he was suddenly in a coma, and then the family disagreed about whether they thought he would want to be kept alive on machines in hopes of recovery. It would have been clear had he just written his wishes down. THAT’s an estate plan!


No IRA beneficiary, no problem, because I have a will.
The great thing about IRA beneficiary designations is that they avoid the court process called probate as long as you name a living person as your beneficiary. If you fail to do so, it passes by law to your estate. That means your will controls who will get the IRA at the time of your death, but the IRA may go through the probate court process first. In that event, the IRA loses its tax deferral, so all the income tax would be due immediately. Whereas, had you named someone on the beneficiary form, they could have taken it out slowly over their lifetime. The high cost of probate would further erode the value of the IRA before it reaches the intended beneficiary. I’ve yet to meet someone who likes the idea of probate court making all their decisions.


We own everything jointly, so we don’t need a trust.

That assumes three things that may not be true:
(1) That you’ll die in a certain order. If you die together, then the property passes ½ to each person’s estate through the probate court process.
(2) If you don’t have enough time to put it in your own trust. When you inherit through joint tenancy, you must transfer it quickly into your own trust to avoid the probate court on your death. Why wait for that? Why not just put it in trust from the beginning?
(3) Creditor Exposure and taxes. For those who put their children on the deed early as joint owner to avoid probate, they pay a high price. First, it exposes the property to any creditor of the child and second, the child does not enjoy the usual step up in basis at parent’s death and therefore may pay more capital gains tax someday.


Without a will, everything goes to the state.
The great thing about not having a will, is that one was already written for you! That’s right, the state of California has determined what you would want and who should get your assets. If the state cannot locate your closest relative, it claims ownership of your assets. So, if you don’t want to give your hard earned estate to the State, then write your own will and make your wishes known.

The choice is simple, take the time to create a thoughtful will to benefit your loved ones, or let the State of California determine what’s right for you.


I’m too young for estate planning.
In our American culture, we think becoming an adult at 18 means freedom. We often forget it also comes with responsibility. After 18, our parents or sweethearts can’t make any decisions about our healthcare or our finances without a court order and court supervision for the rest of our lives if we’re incapacitated. One of my clients’ daughter died at age 23 in a drunk driving accident recently. When the mother called the hospital to ask what had happened, she was met with the strict privacy law that requires court involvement. Then it’s already too late to put the privacy release in place.

I hope you found these 5 myth busters useful and that you are inspired to take action to protect your loved ones and assets. While you may not reap the benefits of estate planning today, it is better to live a life of intention, not luck. Start now with 3 free estate planning documents from Your Legacy Lives.