Estate planning is essential for Connecticut residents, but you have to approach it properly. Unfortunately, far too many people fail to seek legal advice, and they make mistakes that can be very costly. Let’s look at 10 common estate planning errors that can yield negative consequences.
1.) Not Having a Plan at All
Dying without a will or trust means your estate will go through probate. In Connecticut, this process will take about nine months in simple cases, and more complex scenarios can draw out the process beyond a year.
The court will decide how your assets are distributed based on state law. This may not align with your wishes.
Without a plan, your estate may also face higher costs. Probate fees and legal expenses can reduce the value of your estate. Your beneficiaries may receive less than you intended.
2.) Failing to Update Your Plan
Life changes require updates to your estate plan. Marriage, divorce, births, and deaths can all impact your wishes. If you do not update your plan, it may no longer reflect your current situation.
Changes in the law can also affect your estate plan. Tax laws and estate planning regulations can shift over time. An outdated plan may not take advantage of new opportunities or protect you from new risks.
3.) Overlooking Beneficiary Designations
Many assets pass outside of your will or trust. Retirement accounts, life insurance policies, and bank accounts often have designated beneficiaries. If these designations are outdated or incorrect, your assets may not go to the right people.
For example, if you named an ex-spouse as a beneficiary and forgot to update it, they could inherit your assets. Regularly review and update your beneficiary designations to ensure they align with your estate plan.
4.) Not Planning for Incapacity
Estate planning is not just about what happens after you pass away. It also involves planning for potential incapacity. Without a power of attorney or healthcare proxy, your family may need to go to court to make decisions on your behalf.
A durable power of attorney allows you to appoint someone to manage your financial affairs if you become incapacitated. Your healthcare proxy lets you appoint someone to make medical decisions for you. These documents can save your family time, money, and stress.
5.) Ignoring Tax Implications
Connecticut has its own estate tax, separate from the federal estate tax. If your estate exceeds the state’s exemption limit, your beneficiaries may owe significant taxes. Proper planning can help minimize this burden.
There are strategies to reduce estate taxes, such as gifting assets during your lifetime or setting up trusts. An estate planning attorney can help you explore these options and create a tax-efficient plan.
6.) Choosing the Wrong Executor or Trustee
Your executor or trustee plays a crucial role in administering your estate. They are responsible for managing your assets, paying debts, and distributing your property. Choosing the wrong person can lead to delays, mismanagement, or family disputes.
Consider the responsibilities involved before selecting an executor or trustee. They should be organized, trustworthy, and capable of handling financial matters. You may also want to name a backup in case your first choice is unable to serve.
7.) DIY Estate Planning
Online templates and DIY estate planning kits may seem like a cost-effective solution. However, they often fail to address the unique aspects of your situation. Estate planning laws vary by state, and a generic document may not comply with Connecticut’s requirements.
Mistakes in DIY estate planning can be costly. They may lead to legal disputes, unintended distributions, or higher taxes. Working with an attorney ensures your plan is tailored to your needs and legally sound.
8.) Failing to Plan for Long-Term Care Costs
Long-term care costs can quickly deplete your savings. In Connecticut, the median cost of a nursing home is over $180,000 per year. Medicare does not cover this type of care, but Medicaid will address nursing home costs.
A Medicaid trust can help protect your assets while allowing you to qualify for Medicaid coverage. This type of irrevocable trust removes assets from your ownership, so they are not counted for Medicaid eligibility.
However, Medicaid has a five-year look-back period, so planning ahead is crucial. An elder law attorney can help you set up a Medicaid trust and navigate the complex rules.
9.) Not Using Trusts to Avoid Probate
Probate can be a lengthy and public process. As we have stated, it can also be expensive, with court fees and legal costs reducing the value of your estate. A revocable living trust can help your estate avoid probate.
With a revocable living trust, you transfer your assets to the trust during your lifetime. You can serve as the trustee and manage the assets as you see fit.
Upon your death, a successor trustee takes over and distributes the assets to your beneficiaries without court involvement. This can save your loved ones time and money.
10.) Overlooking Business Succession Planning
If you own a business, it is important to include it in your estate plan. Without a succession plan, your business may face uncertainty after your death. Family members may disagree on how to run the business, or it may need to be sold to settle your estate.
A business succession plan can ensure a smooth transition of ownership. You can specify who will take over the business and how it will be managed. In addition, you can address how your business interests will be valued and distributed.
Proper planning can help preserve the value of your business and provide for your family.
Take Action Today!
When you work with our firm, you will receive the guidance you need to avoid costly mistakes. We have a Westport, CT estate planning office, and another location in Glastonbury. You can send us a message or call us at 860-548-1000 to request a consultation at either office.
Plus, if you would like to learn more before taking that step, join us at an upcoming seminar. They are offered on a complimentary basis, and you can get the details on our seminar schedule page.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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