Estate Planning can be complex, but its core purpose is simple: to transfer assets in a tax efficient manner that addresses family needs and goals.
The following are some of the most common estate planning mistakes that people make. Familiarizing yourself with some of these mistakes can help you avoid them and efficiently plan for your family’s future.
1. Not having an estate plan or failure to update an existing plan. If you do not have a Will, Louisiana law supplies one for you. Generally, Louisiana law provides that the estate goes to children, equally, but the decedent’s community property is subject to a usufruct in favor of the surviving spouse, which terminates upon the survivor’s remarriage. This usufruct does not qualify for the marital deduction for federal estate tax purposes. Secondly, family situations and assets change over time, requiring you to update your estate plan when appropriate.
2. Failure to plan for incapacity. As COVID-19 has shown us, medical or physical incapacities can strike at any time, leaving you unable to manage your own affairs or make your own decisions. You should have current financial powers of attorney, healthcare powers of attorney and a Living Will. The default option is an interdiction, which is time consuming and expensive and there is no certainty who will be appointed curator.
3. Not taking into consideration potential long-term care needs. The current cost of long-term care in Louisiana can exceed $60,000-$70,000 annually. For many people, maintaining financial independence and stability in old age is a must. You should think about long-term care financing, including the feasibility and affordability of private long-term care insurance or “combo” products.
4. Directly paying for a life insurance policy. When you pay for a life insurance policy directly for your beneficiaries, the total amount paid to beneficiaries on your death may be included in your estate, which means it can then be taxed under the estate. There are many ways to pay for a life insurance policy without the policy being included in your estate, such as an irrevocable life insurance trust. If you have a life insurance policy or are considering getting one soon, talk to your estate planning lawyer to find out what estate planning device might best suit your needs.
5. Failing to periodically review and coordinate beneficiary designation forms. Many assets pass outside of a Will or revocable trust. Instead, beneficiary designation forms, such as life insurance, qualified retirement plans, IRAs and annuities, dictate who gets what. Beneficiary forms should be coordinated with your overall family and tax objectives, and reviewed periodically when circumstances change, such as divorce, death or incapacity of the designated beneficiary, etc.
6. Not utilizing trusts for family members who are minors, disabled, suffer alcohol or substance abuse, or who are too immature to handle funds wisely. A trust allows you to “manage” assets for someone who may otherwise be unable to do so. If you are worried about giving someone a large sum of money free and clear, or want money to be used for a specific purpose, then a properly drafted trust can do that for you.
7. Forgetting about your business. For business owners, you should consider having a business succession plan. Only 25% of family businesses survive the second generation and 10% survive the third generation. It is important to structure ownership succession and develop agreements among owners for continued, multi-generational management and operation.
8. Not appointing or updating fiduciaries. Your “fiduciaries” are the people who help you manage your affairs whenever you cannot. Executors, Tutors, Trustees, Agents under Powers of Attorney and back-ups, if the designated person is or becomes unwilling or unable to serve, are all fiduciaries that you should consider. Each plays a different role under different circumstances. You should think about who you trust to fill each role and discuss it with your estate planning attorney.
9. Failure to plan for remarriage issues. People often get remarried for a number of reasons. In any case, there are a number of considerations for each spouse, such as: blended family issues, long-term care, the handling of a shared home and finances, etc. Depending on when in life you get remarried, you may want to keep assets separate. You may also have to deal with community property issues from a previous marriage. It is important to plan before you remarry to ensure the best outcome for your family and new spouse.
10. Overlooking revocable trusts designed to avoid probate (called “succession” in Louisiana). Probate (succession) makes sure property and possessions are given to the correct people and that any taxes or debts owed are paid in full upon death. By setting up a revocable trust, you can be sure that your family gets what you want them to have quickly and with less hassle. However, once you have one set up, it is important to keep the revocable trust property up-to-date to ensure that your family benefits from it. If not, then the property not included in the revocable trust will pass in probate.
We recommend that you consult with an estate planning attorney to avoid these common mistakes. It can save your family and loved ones the stress, cost, and heartache of dealing with these problems down the road. We get it, planning for your own mortality can be unsettling, but don’t let ignoring it get in the way of your wishes.
Baldwin Haspel Burke & Mayer’s estate planning attorneys and specialists develop plans for managing and disposing of estates in accordance with the wishes of our clients with appropriate care to reduce exposure to federal estate tax and other transfer taxes. Contact us at (504) 569-2900 to schedule a complimentary 30-minute estate planning consultation.
Baldwin Haspel Burke & Mayer Estate Planning + Successions Attorneys