Estate planning is one of the most important financial decisions you'll ever make. Many families fall victim to estate planning mistakes that could have been prevented with the right guidance. If you fail to plan correctly, your family will lose tens, even hundreds of thousands of dollars.
From putting off important decisions to relying too heavily on a simple will, these missteps can leave your loved ones unprotected and your wishes unclear. In this article, we’ll explore some of the most costly estate planning mistakes and show you how to avoid them before it’s too late.
There are many reasons why estate planning mistakes happen. Some people think they're too busy. Or they don't own enough. Or they're not old enough. Most of us simply don't want to deal with the possibility of our own death.
Many people are confused, and rightly so, by incorrect and misleading information from professionals who are influenced by the products or services they sell. As a result, many consumers don't know what to do or whom to trust, so they do nothing.
Some think the only reason to do estate planning is to write down "who gets what" after they die, and they think their families will be able to decide that among themselves. Remember, most people don't plan to fail. They simply fail to plan.
Takeaway: Putting off your estate plan doesn’t make the need go away; it magnifies the risks for your family. Taking one small step today ensures your wishes guide the future, no matter what happens.
Joint ownership is a very common way of owning assets. If you are married, you and your spouse probably own most of your assets jointly. After all, that just seems like the fair thing to do. And many older parents add an adult son or daughter as a joint owner, thinking it will make things easier when the parent becomes ill or dies.
The kind of joint ownership most people use is called "joint tenants with right of survivorship." Many have come to rely on this kind of joint ownership as an alternative to Wills, primarily to avoid probate.
Joint ownership doesn't really avoid probate; it just postpones it. When one joint owner dies, ownership will transfer to the other owner without probate (that's the good part). But when the second owner dies without adding another joint owner (which is usually what happens), the asset must be probated before it can go to the heirs (that's the bad part).
Joint ownership can cause you to unintentionally disinherit your own family. Because the assets transfer automatically to the surviving owner(s), it is not controlled by your Will. And if you die first, the asset will be owned by your co-owner, who can then do whatever they want with it.
It's very easy to add a co-owner. But taking someone's name off the title can be very difficult. If your co-owner does not agree, you could end up in court.
Jointly owned assets are exposed to your co-owner's creditors and debts. A creditor could force the sale of the jointly owned asset to collect your co-owner's share of the proceeds.
There can be a gift tax problem. Anytime you add someone as a co-owner of the real estate or securities, the IRS considers that to be a gift. And if you give someone more than $19,000.00 (this amount will increase periodically) in one year, you must report the gift to the IRS.
If you are married and your current estate is worth more than $4,000,000 and you and your spouse own most of your assets jointly, you could end up paying too much in estate taxes. The current Illinois estate tax exemption is $4 million per person, and the Federal exemption amount is over $13 million per person.
If your co-owner becomes incapacitated, you could end up with a new co-owner, the Guardianship Court. That's because with many assets, especially real estate and securities, all signatures are required to sell or refinance. And if your co-owner is not able to conduct business, only a court appointed guardian can sign for them, even if the ill owner is your spouse.
Takeaway: Don’t let joint ownership derail your estate plan. Use beneficiary designations, transfer-on-death accounts, or a revocable trust to avoid probate and keep full control over who ultimately inherits.
Most people know that a Will lets you specify to whom you want to leave your assets after you die. But many are surprised to learn what a Will does not do. For example:
A Will does not avoid the costs, delays, and publicity of probate. Probate costs can take from 3-8% of your assets. It usually takes from nine months to two years to complete the process. Every state has a mandatory creditors' claims period once Probate has started. During this period, your assets are frozen to allow creditors to be paid off before your family. In Illinois, the claims period is 6 months long, starting on the day the judge approves your Will, not on the date of your death.
Because probate is a public process, any "interested party" can read your Will, see what you owned, who you owed money to, and who will inherit specified assets. The probate process, not your family, determines how much it will cost, how long it will take, and what information is made public. Much of this information is now (or shortly will be) accessible via the internet.
Also, many people are surprised to learn that a Trust combined in a Will (called a Testamentary Trust) does not avoid probate. The Will must be probated before that type of Trust can go in effect.
A Will does not prevent court control of assets at incapacity. That's because a Will can only go into effect after you die. If you become unable to handle your financial affairs (pay bills, make investment decisions, etc.) due to mental or physical incapacity, for example, because of Alzheimer's Disease, stroke, heart attack, or injury, your spouse and other family members cannot automatically step in for you. Only a Court appointed guardian can conduct business on your behalf. This ongoing court process can be expensive, embarrassing, time-consuming, and difficult to end if you recover. Plus, it does not replace probate when you die.
Wills do not control all of your assets. Jointly owned assets and those with beneficiary designations are not controlled by your Will. When you die, these assets automatically go to the surviving joint owner or the person you have named as beneficiary (assuming, of course, this person is alive, competent, and an adult at that time). This can cause one person to receive more or less than you intended and can even cause you to unintentionally disinherit someone. If you are married and your total estate is worth more than $4 million (under current legislation) and these assets go directly to your spouse, it could also cause your family to pay too much in Illinois estate taxes.
A Will does not prevent court control of assets left to minors. If you leave assets to a minor child or grandchild in your Will, the court will set up a costly guardianship to "protect' the child's assets until they reach legal age (18). Including a Trust in your Will can help prevent this, but the Will must be probated before the Trust can even go into effect. This is the Testamentary Trust previously referred to in this section.
Takeaway: Pair your Will with a comprehensive plan, revocable trusts, beneficiary designations, and powers of attorney, to avoid probate, protect incapacity decisions, and ensure assets flow exactly as you intend.
None of us likes to think about mortality, which is exactly why so many families are caught off guard and unprepared when incapacity or death strikes. But without the right guidance, estate planning mistakes can quietly unravel even the best intentions.
By addressing estate planning mistakes early and building a clear, reliable plan, you can safeguard your family’s future. If you’re ready to create an estate plan that avoids these mistakes, we’re here to help. Please call us at (847) 670-8200 or email info@kf-lawgroup.com if you have any questions.