Mistakes people make when it comes to estate planning

As an attorney who handles elder law, estate planning, and probate, I have seen, and heard stories about a lot of mistakes people made in estate plans. If the person who made the plan is still alive and competent, we can generally help them correct the mistakes. Sadly, sometimes it is too late to correct the errors. I also regularly speak on estate planning topics. At these events, it is common for me to hear about mistakes families had to deal with because their parents did not have a great estate plan. Also, when people ask me questions at these events, I often hear of estate planning done that will fall short of the goals. For the purposes of this article, when I mention estate planning, I mean having a plan that: covers who can take care of managing your assets and paying your bills if you want or need help while you are alive; says who can make health care decisions if you can't; says where your stuff goes when you are gone; who is in charge of paying the final bills and distributing the assets when you have passed; will determine if your assets go through probate or avoid it; may or may not create extra taxes or be tax efficient; may or may not protect any assets from nursing home costs; may or may not make sure your spouse will be financially okay if you go to the nursing home; and may or may not let your spouse be okay if you pass first. I can't cover everything in this article about mistakes people make. However, I can address a few of the mistakes in the hope that you can avoid making them. I am not going to spend much time on the most common estate planning mistake people make, and that is never getting around to creating a legal estate plan. When this happens, if you are alive and become incapacitated, the state gets involved as you will need a guardianship. When you pass, the state often decides who gets your stuff and who is in charge. Don't let this happen! Put an estate plan in place. It's a gift to your family and frankly it's a gift to you as you can quit worrying about it. This next one that is on my mind as I've had it come up a few times in the last month which is failing to properly take care of your spouse if you go first. There are all kinds of ways this can happen. Here are a couple. Let's assume you retire, and you worked at a job that provided a pension. You had choices about whether to take a higher pension amount that would end when you pass or a lower pension amount that would continue on in some fashion (at the same amount or maybe lower) if you pass and your spouse is still alive. Usually, we don't know about this problem until the first spouse dies, and the pension stops because that is what was selected by the spouse who passed. Now, the surviving spouse, usually the wife, doesn't have enough income to make it. Not only has the surviving spouse lost the pension income, but now only has one social security check to live off of. Often when we dig into this, we find out that the spouse who decided the pension should end when they pass based that on the assumption that there would be lots of other assets that the surviving spouse could use to live off of for the rest of their lives. Sadly, that's not always the case. There will be even less assets left, if the spouse who passed spent years in the nursing home before death unless they had a great elder law plan in place. This ties in well to the next issue I wanted to mention and that's long-term care costs. Without a proper elder law plan, if one spouse goes to the nursing home, it can jeopardize the ability of the other spouse being able to afford to live and can even cause the at-home spouse to lose the home. Most people never think about nursing home costs. I really can't blame anyone for this. It's not fun to think about. I'd much rather think about where I'm going to vacation than how to pay for a nursing home. However, it really is important to think about and have a plan that's more than "I'm never going to live in a nursing home." Most people don't realize how expensive a stay in a nursing home is. They also don't realize a long-term stay is not going to be covered by health insurance, Medicare or a Medicare supplement. Medicaid can pay for a nursing home stay, but you must apply and meet strict eligibility requirements. Too often, people without an elder law plan in place meet the asset limitations by wrongly believing they must spend the assets down at the nursing home which then leaves less for the at-home spouse. To make things worse, while the at-home spouse gets to keep his or her income, the at-home spouse may lose all the their spouse's income to the nursing home. Please, do not put your spouse in this predicament! Another mistake I see is going to a "jack-of-all-trades, master-of-none" attorney for strategies on how to legally and properly protect assets from long-term care costs. Recently, at the end of a public talk I gave, one of the audience members shared that his dad had protected his home by meeting with his general practice attorney who did a life estate on the property. He said the property was now owned by all the kids, but dad had the right to live there for the rest of his life. He then asked me what I thought. I said that type of plan used to protect a home from nursing home costs, but it isn't used much any more by elder law attorneys because the state had changed the rules and inflated the values of life estates. The state now says that a 90-year-old's life estate interest is worth about 20% of the value of the property which often means the state can come after a significant portion of the property if the life estate owner goes into the nursing home. Additionally, I said, when dad passes having to get all the kids who now own the property, and their spouses who have dower rights, to agree on how to sell the property can often be a significant challenge. The audience member then asked, "wouldn't the executor sell the property?" I explained that no executor is involved, because a life lease passes the property outside of the Will and probate process. I could tell he was unhappy with what he was learning! Unfortunately, I only had time to scratch the surface regarding mistakes. I'll end with this. Do yourself a favor and put a proper estate plan in place using a lawyer that focuses most of his or her time on estate planning. Put a great estate plan in place to take care of you and your family!