Essential Estate Planning Documents and the Pitfalls to Avoid!

Henry Ford was noted for saying “the only real mistake is the one from which we learn nothing.” 

Sometimes in life we learn best from our mistakes, but you don’t want to learn what could be a very hard (and even very expensive) lesson from mistakes made during your estate planning process. In this blog, we will cover the importance of creating an estate plan, the essential estate planning documents as well as some estate planning pitfalls. 

Why is Estate Planning Important?

1. Estate planning will memorialize your intent for how your assets should be distributed after you pass away. This plan can be general, as in simply just stating that all assets are left first to a spouse and, if your spouse should pre-decease you, then to your surviving children. Alternatively, the plan can be very specific. For example, aside from leaving assets to a spouse, some people may have personal items – e.g., cars, artwork, jewelry, pottery, china or just a memorable item---that they wish to leave to a specific relative or family member. In this case you can include a schedule of items with your will. 

2. Estate planning will allow you to designate the individuals you trust to make sure that your wishes are executed, minor children are cared for and representatives are in place to make important financial and medical decisions for you if you become compromised. 

3. Estate planning may help you reduce estate taxes. While the current federal estate tax exemption (the maximum value of an estate which is not subject to federal taxes) is $12.92M in 2023, there are some states (including New York) that have their own estate tax exemption. You should understand how these exemptions apply to you and take planning actions, if applicable, to reduce your estate tax liability. 

4. Estate planning will give you peace of mind, help to reduce confusion and may even reduce legal fees after you pass. 

What Estate Planning Documents Should I Have? What do These Estate Planning Documents Actually Do? 

1. Last Will & Testament – this document will typically be used to outline your wishes for distribution of your assets when you pass. NOTE – this document will apply to assets that do not have a beneficiary, are not held in a trust or do not have a joint owner. This document will also outline important people within your estate plan, as we discussed in the proceeding section. 

2. Financial Power of Attorney – this document outlines the individual who will act as agent for you in any financial matters. These powers can be durable (active upon execution) or springing (effective if you become incapacitated).  

3. Medical Power of Attorney - this document outlines the individual who will make health care decisions for you if you become incapacitated. They should be familiar with and abide by your living will (discussed next). 

4. Living Will – this document will outline the medical treatments that you do or do not want when you are not able to make these decisions due to incapacity. 

5. Beneficiary Designations – these are people you designate to receive your retirement account(s) and insurance proceeds after you pass. For non-retirement accounts you can add a beneficiary by electing for a Transfer on Death (TOD) stipulation including to whom you want the account transferred. 

6. Optional Document: Revocable Living Trust – many people choose to set up this type of trust as any assets held within the trust will avoid the probate system (this might reduce legal fees), keep your estate assets private and also assure assets are not frozen due to a deceased owner. 

What are Estate Planning Pitfalls to Avoid?

1. Not having a plan! 

2. Not executing the estate plan. Often times we will see that clients have their estate planning documents done, but in some cases, have not implemented the plan – meaning they have not transferred title on assets and/or added correct beneficiaries, among other items. 

3. Not keeping a copy of the original documents. The probate court will require an original copy of the will to complete the probate process. 

4. Not reviewing your estate documents over time. As time marches on, it is important to continue to review your documents to make any required changes as kids get older, more assets are accumulated, trusted individuals change, you move to another state, changes in estate and/or income tax regulations and rates, philanthropic goals change or any other related matter. 

5. Not discussing your plans with family, friends and/or other important people who are noted in your plan. 

6. Forgetting about digital assets! 

In summary, it is important for everyone to have an estate plan! And when you do begin the process of starting a plan, we highly recommend that you work with a professional who can guide you through the required documents and who will ensure that all areas are correctly addressed…And finally, make sure you EXECUTE your plan. It doesn’t matter how good the estate plan is if you do not sign, share and/or file all the documents appropriately with the respective parties; if you don’t, you may have paid thousands of dollars for a stack of papers!

As always, please feel free to reach out to us if you should have any questions about your current estate plan!

Best,

NCM Capital Management

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