When you don’t know a great deal about estate planning, you could make assumptions that ultimately yield negative consequences. In this blog post, we will look at some of the mistakes that people often make so that you can steer clear of them.
Do-it-Yourself Estate Planning
There are people who like to take on do-it-yourself projects. Without question, if you want to save money, you may be able to find instructions online and take care of certain tasks on your own.
However, the key is to know where to draw the line. When it comes to important legal matters like estate planning, you are taking a big risk if you try to go it alone.
There are websites on the Internet that sell boilerplate legal documents. You can go to one of these sites and use tools that they provide to create a last will. A few years ago, researchers from Consumer Reports did just that. They visited three of the most popular sites that sell generic legal documents, and they used hypothetical circumstances to create three different wills.
To find out how effective the wills would be, the magazine engaged three legal professors that are affiliated with major universities. After they examined the documents, they stated that unintended negative consequences can come about if you use these downloads and worksheets.
In the end, Consumer Reports advised readers to avoid do-it-yourself estate planning notions.
Trusts Are Only for the Wealthy
Some people harbor misconceptions about trusts. They assume that trusts are only for very wealthy individuals. The idea is that a last will is the only logical choice for a person of ordinary means.
In reality, this is a misconception that can lead to negative consequences. There are trusts that are used by wealthy people, but there are also trusts that can benefit those who are not multimillionaires.
For example, let’s say that you have a loved one with special needs. This family member is enrolled in the Medicaid program as a source of health insurance. Medicaid is only available to people who can prove that they have a significant level of financial need.
If you were to leave this loved one a direct inheritance through the terms of a will, his or her financial situation would change considerably. As a result, eligibility for Medicaid could be forfeited.
Under these circumstances, you could preserve Medicaid eligibility through the funding of a supplemental needs trust. The trustee could use assets in the trust to make the beneficiary more comfortable, but there would be no loss of eligibility.
A revocable living trust is another type of trust that can be very useful for people who are not necessarily wealthy. One major benefit that you would gain if you use a living trust is the avoidance of probate. A will would be admitted to probate, and the heirs would have to wait out the process. No inheritances would be distributed during the probate process, and it will take around a year if there are no complications.
On the other hand, with a living trust, the trustee that is named in the document would be able to distribute assets to the beneficiaries outside of the probate process. Plus, with a will, the inheritors would receive lump sum inheritances. They could squander their money, and this can be a source of concern.
You can prevent this if you use a living trust by instructing the trustee to distribute limited assets over an extended period of time.
A Medicaid trust can also be very beneficial for people who are not in the upper financial stratosphere. Many seniors seek Medicaid eligibility, because the program pays for long-term care. Medicare does not pay for living assistance.
As we mentioned previously, you cannot qualify for Medicaid if you have significant assets in your own name. To qualify, you could convey assets into a Medicaid trust.
Relying on the State
There are those who think that the state will take care of everything appropriately if you die without an estate plan. In fact, people that you love could wind up with nothing if you pass away intestate.
A court would step in, but your assets would be distributed under intestate succession laws, and his can leave some of your loved ones out in the cold.
Set Up a Consultation
If you would like to discuss your estate planning objectives with a licensed professional, give us a call at (802) 879-7133 or send us a message through our contact page to set up a consultation.