Attorney at Law | Red Oak Legal, PC
In our practice, we commonly see the same mistakes being time and again. Sometimes we see the client early enough to correct the mistake before any harm is done, but not always. Read on to learn about three of the most common mistakes, and how to avoid them.
Mistake One – Not Planning for Disability
People are living longer than ever before. If you need proof, just look around at the number of nursing homes, assisted living facilities, home health agencies, and similar organizations that care for the ever-growing senior population. The longer we live, the more likely it is that we will deal with a period of disability late in life during which we will need others to help care for us.
The starting point in disability planning is to be sure that you have, at a minimum, a durable power of attorney and an advance directive in place. Note that not all of these documents are created equal. For example, most advance directives focus on end-of-life scenarios in the event that we are in a coma, or require machines to keep us alive. They often fail to adequately address a more common scenario—one in which we require nursing home or other long-term care for an extended period of time.
While the advance directive deals with health care issues, a durable power of attorney grants a person of your choosing (your agent) the authority to handle your business and financial affairs. Importantly, however, the law is clear that your agent only has the powers which are granted to her in the power of attorney. The problem is that just reading the terms of the POA won’t necessarily give you the complete picture of what powers your agent does or doesn’t have.
Under the new Alabama Uniform Power of Attorney Act (effective January 1, 2012), granting your agent the power to do “everything” you could do yourself, doesn’t actually mean that the agent can handle “everything” they may need to address. Instead, you have to specifically state that your agent has the power to handle certain kinds of transactions. That’s why it is important to include expanded powers in your power of attorney, particularly for clients over age 65.
Mistake TWO – Not Knowing How You Own Your Assets
I regularly teach an educational workshop on estate planning to members of the public, and one of the topics that tends to get people’s attention is the discussion of how you own your assets. You see, the way your assets are held or titled can have a significant effect upon whether your estate plan “works” the way that you hope it does.
For example, many kinds of jointly owned property will automatically become the sole property of the surviving joint owner upon the death of the other owner, regardless of what the deceased person’s will says about who gets the property. Similarly, beneficiary designations on life insurance policies, retirement accounts, and other accounts will determine who actually gets the money in those accounts after the owner’s death. For an average middle class family, the bulk of their estate’s value will consist of three types of assets—the home, retirement accounts, and life insurance proceeds.
Consider John Doe, whose will leaves his entire estate to his favorite niece, Sally. Assume John jointly owns a house with his wife, Jane. He has a 401(k) that names Jane as the death beneficiary, and a life insurance policy that names his son, Billy as the beneficiary. At John’s death, his wife Jane will own the house and get the money in the 401(k), while Billy gets the life insurance money. Even though the will leaves “everything” to Sally, she won’t actually inherit anything at all.
Mistake THREE – Leaving Assets Outright to the Spouse
This mistake is not true in all cases, but consider the increasingly common second marriage. When each spouse has their own children, this can be a source of hurt feelings when one spouse dies before the other. The children of the deceased spouse often resent their step-parent for spending “their” inheritance.
The better choice is to leave those assets in trust. For example, John and Jane get married. They are both in their 50’s, and each have their own children from prior marriages. John dies first. His will leaves the bulk of his estate to Jane, in trust, to make sure her basic needs are provided for. The terms of the trust, however, prevent Jane from leaving John’s money to her new spouse (if she remarries) or to her own children. Instead, whatever is left will pass to John’s children after her death.
In conclusion, I’ll leave you with a question: Do any of these examples sound familiar to you?
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