Mistake #5 - Revocable Trusts Without Retirement Plan Language
Today many people have a significant portion of their estates invested in qualified plans such as 401(k)s and IRAs. But if they've designated their Revocable Trust as the beneficiary of these accounts and the trust hasn't been updated in a while, then chances are it doesn't contain the appropriate language to allow the Successor Trustee to deal with retirement accounts that have been left to the trust. If this language is missing, then the Successor Trustee's hands will be tied and negative income tax consequences will result.
If you've named your Revocable Living Trust as the beneficiary of your retirement plans, then check with your estate planning attorney to make sure that your trust contains the appropriate retirement plan language and, if not, then ask your attorney to amend your trust immediately.
Mistake #6 - Powers of Attorney Without Retirement Plan Language
If you've funded all of your assets into your Revocable Living Trust, then in general your Power of Attorney won't be needed since the assets in the trust can be managed by the Trustee. But since 401(k)s and IRAs can't be funded into your trust (otherwise the assets will be included in your taxable income for the year of the transfer), you'll need a Power of Attorney with appropriate retirement plan language to allow your Attorney in Fact to manage your 401(k)s and IRAs if you become disabled. This should include the power to establish new accounts; make contributions; rollover benefits; endorse checks and receive distributions; arrange for direct deposit of distributions; elect forms of payment; and borrow money and purchase assets.
If your Power of Attorney hasn't been updated in a while, then chances are it doesn't contain the appropriate language to allow your agent to manage your retirement accounts. Check with your estate planning attorney to make sure that your Power of Attorney contains the appropriate retirement plan language, and, if not, then ask your attorney to draft a new one that has the proper language.
Mistake #7 - Old Advance Medical Directives
In 2001 Congress enacted rules governing the Health Insurance Portability and Accountability Act of 1996 (or HIPAA). Part of the act deals with the privacy of medical records and who can and can't have access to them. Thus, if your Advance Directive was written before 2001, then you'll need a new one that contains the appropriate HIPAA language. And beware - I've also come across Advance Directives signed after 2001 that nonetheless don't contain the necessary HIPAA language.
What will happen if your Advance Directive doesn't contain any references to HIPAA? Then your health care agent may not be able to make informed decisions about your medical treatment because your agent won't have any access to your medical records. This is particularly important if you've named someone other than a close relative as your agent since distant relatives and non-family members will be denied access to your medical records. If it has been a while since you signed your Advance Medical Directive, then check with your estate planning attorney to insure that your document contains the necessary HIPAA language and releases.
Mistake #8 - Taxable Assets Left Outright to Your Spouse
Even if the estate plan of a married couple doesn't commit the third common mistake (an estate plan without any estate tax planning), many plans leave the taxable portion of the deceased spouse's estate outright to the surviving spouse instead of in a Marital Trust. In other words, instead of having a true AB Trust system, the plan only creates a "B Trust," and the taxable portion, or "A" portion, will go outright to the surviving spouse instead of into a Marital Trust.
Why is this a problem? Because there are several benefits to having the taxable portion pass into a Marital Trust for the benefit of the surviving spouse instead of outright. First, the Marital Trust is an irrevocable trust, and, if structured properly, can prevent the trust assets from being snatched by the surviving spouse's creditors. Leaving the taxable assets to the surviving spouse in a Marital Trust will also protect the assets from being divvied up in a divorce or taken as part of an elective share if the surviving spouse remarries. Finally, in a second or later marriage, the use of a Marital Trust can insure that the assets remaining in the trust when the surviving spouse dies will go to the deceased spouse's children and not those of the surviving spouse.
If you and your spouse think that your estate plan could benefit from a true AB Trust system, not just a "B Trust," then ask your estate planning attorney if your plan includes a true AB Trust set up, and, if not, amend your trusts accordingly.
Mistake #9 - Improperly Signed Estate Planning Documents
There are actually two areas where this comes into play: (1) When documents are flat out just not signed right; and (2) When documents that were signed properly in the client's previous state of residence need to be signed differently in their new state.
The former problem usually is the result of an attorney who doesn't normally draft estate planning documents and, therefore, doesn't know the formalities required for signing these types of documents. That's why it's important to work with an attorney who has several years of experience drafting estate planning documents because this will insure that the documents have actually been tested by banks, hospitals, and the probate court.
On the other hand, estate planning documents that were properly executed in one state can be rendered completely useless in another state. For example, in Florida a Power of Attorney must be signed with the same formalities as a deed for real estate in order for the Power of Attorney to be used to transfer Florida real estate. That's why it's important not only to have your estate plan reviewed if you move from one state to another, but also to have your documents reviewed by a local attorney where you've bought real estate outside of your home state. This will insure that the documents will work in your state as well as the other.Read More...Mistakes 10-12
Checklist of Twelve Mistakes