If you’re currently researching your options for retirement, you may recognize the name of our guest writer! Bob Carlson of www.RetirementWatch.com has become one of the most trusted voices for retirees and those looking to plan for retirement in the most effective ways, and we are proud to welcome Bob as one of Woodside’s newest property owners. We are excited to share some of Bob’s advice below on estate planning, and the mistakes you need to avoid:


Avoiding the 7 Deadly Estate Planning Mistakes

By Bob Carlson

When a mistake is made in an estate plan, it’s usually one of the classics. While every estate plan has unique features, the same problems and mistakes recur. Many of the recurring mistakes don’t vary with the value of an estate and other factors. Each of the classic mistakes is avoidable. All that’s needed is knowledge of what to beware of and a little time working with your planner.

Estate Planning Mistake #1: Not understanding the plan.

Many people, even sophisticated and wealthy people, become passive in the presence of an estate planner. They rely on the planner to make sure everything in the plan is what they need and is done properly. It is not unusual for a person to sign the documents and say to the attorney, “I don’t really know what I just signed.” A few years back, I reported on a survey of estate planning attorneys. The attorneys said they believed a high percentage of the plans they prepared weren’t fully implemented, and that the major reason for failure to implement is the clients didn’t understand the plans or the follow-up they needed to do.

Part of the estate planner’s job is to be sure you understand the basics of how the plan works, what you need to do to implement or maintain the plan, and how it works for you and your beneficiaries. Part of your job is to understand those things. You don’t need to know all the legal angles and why certain language is used, but you do need to understand the fundamentals.

Sometimes that means insisting the planner spend time walking you through the plan and the documents. Another good tool is to take notes at each stage of the planning process. Often people make decisions after a discussion with the estate planner. At the time, they fully understand the decisions and the reasons for them, because they’ve been hashing them out with the planner. But days, weeks, or months later, the details are hazy. Take notes about the key decisions and why you made them, so you can refer to them in the future.

Estate Planning Mistake #2: Outdated beneficiary designations.

I mention this one often, because it is endemic for both IRAs and estate plans. There’s a steady stream of cases and rulings in which an old beneficiary designation leads to disaster. What many people don’t realize is that for some assets it doesn’t matter what your will says. Your beneficiary designation form controls what happens to the assets. These assets include retirement accounts, annuities and life insurance.

Failure to update beneficiary designations means an asset might go to your parents or siblings, because that’s what you put on the form years ago. Sometimes the asset goes to an ex-spouse, the estate of a deceased person, or other unintended beneficiaries. Other times someone is inadvertently excluded, because they were born or married into the family after you completed the form.

Review your beneficiary designations every couple of years and after every major life change in your family.

Estate Planning Mistake #3: Not updating asset ownership.

You might own some assets in your own name and others in joint title with your spouse, an adult child, or someone else. Some assets might be in trusts, limited partnerships, or other vehicles.

Like the beneficiary designations, these need to be reviewed. Does the arrangement still meet your needs? Has something changed in your situation, the law, or something else that makes different ownership better?

Estate Planning Mistake #4: Failure to fund revocable trusts.

Many estates include a revocable trust, also known as a living trust. Assets owned by the trusts avoid the cost and delay of probate and help with disability planning and some other issues. They generally aren’t created to save taxes.

The problem in many estates is the owner skips a step. The trust is created after the attorney prepares the trust agreement and all the interested parties sign it. After that, the trust has to be funded. That means legal title to assets has to be given to the trust.

For some assets that’s easy. Household and personal effects are transferred to the trust with simple language in the trust or a schedule of assets attached to the trust agreement. But other assets require more. For real estate, the deed has to be changed to reflect that the trust now is the owner. Automobile registrations have to be changed. For financial accounts, you have to change the name of record with the custodian. That might mean applying to open a new account and transferring the old account assets to the new account.

None of these steps are difficult or expensive, but many people neglect to do them. The result is they waste money paying for the trust documents, and most of the estate eventually goes through the probate process. Be sure you are clear with your planner about any actions you need to take to ensure the plan is fully implemented and maintained.

Estate Planning Mistake #5: Not coordinating trusts and retirement plans.

Many people routinely designate their living trusts or other trusts as beneficiaries of their retirement plans. There can be good reasons to name a trust as an IRA or other retirement plan beneficiary. But there also are potential problems. Because of IRS regulations, naming the wrong type of trust as an IRA beneficiary can accelerate taxes.

To retain the tax deferral of a retirement account, a trust that is the beneficiary of the account needs to have certain language that qualifies it as a see-through trust. Be sure any trusts you named as beneficiaries qualify and meet your goals. Otherwise, name individuals as beneficiaries instead of a trust.

Estate Planning Mistake #6: Not updating advanced directives.

Every estate plan needs advanced directives and powers of attorney. You need at least one for financial matters and one for medical care. You’re more likely to become disabled and need these documents before you need a will and the rest of your estate plan.

Unfortunately, many people don’t have either of these documents and others haven’t kept them up to date or given the details much thought. Be sure you haven’t made these mistakes.

Estate Planning Mistake #7: Not updating the plan.

I’ve highlighted some parts of the plan that routinely become obsolete for many people. There also are other parts of the plan that might need to be changed from time to time. You should be in touch with your estate planner any time there’s a major life change in your family, such as a birth, death, divorce, or marriage. Changes in your net worth, the composition of your estate, job status, residence and many other factors also should trigger a review of your plan. Of course, a change in your goals or in the law also means a meeting with your planner is in order.


Bob Carlson is editor of the monthly newsletter and web site Retirement Watch. He was trained as an attorney and accountant, graduating from Clemson University and the University of Virginia School of Law.