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Mistakes to avoid during estate planning

Experts agree the biggest pitfall is doing nothing

Professional estate planners can easily tick off long lists of what can go wrong in planning for what happens to your money and property when you die, but they pretty much agree on the worst mistake you can make: Doing nothing.

“The biggest mistake anyone can make is to not do any estate planning at all,” said Tom Byers, a tax partner at Ellin & Tucker and leader of the Baltimore accounting firm’s Estate Tax Planning and Compliance Group.

“For many, it’s a difficult topic to approach,” he added. “No one likes to think of their own passing, and many people start thinking about it too late. But it’s something everyone needs to do.”

Howard “Buddy” Goldman, director of estate and business planning for Northwestern Mutual, in Baltimore, said, “I often tell people that without proper planning, Uncle Sam may become the primary beneficiary of their estate.”

Planners also agree that anyone with assets needs a thoughtful estate plan, and that certain mileposts in your life — getting married, having your first child — can dictate when it’s time to get one.

A good estate plan includes several basic legal documents, planners say: a will; a financial power of attorney giving someone the authority to act for you; a health care directive giving someone the authority to make health care decisions for you if you can’t; and, possibly a trust.

The documents should be written and reviewed by an attorney, planners say, and as unambiguous as possible.

“A will needs very clear instructions,” said Frank Cannon, first vice president of wealth management at UBS Financial Services, in Baltimore. It should include not only financial assets, he said, but also plans for possessions like artwork, cars or a favorite piece of furniture.

“It has to be stated very clearly so there are no misunderstandings,” Cannon said.

Another way to avoid misunderstandings, planners said, is to talk to heirs about your estate plans.

“By and large, I find that communication, openness … makes for a smoother transition of assets,” said Robert Horne, an estate attorney with the Baltimore law firm of Adelberg, Rudow, Dorf & Hendler.

It’s advice that many ignore. A recent survey by UBS Financial Services, Cannon said, found that nearly half of benefactors had not discussed their inheritance plans with their children.

Planners also advise against using form wills, such as those found online.

“If you have enough assets to worry about estate taxes, you should get an attorney,” Cannon said.

“I’ve seen do-it-yourself wills bought by very intelligent people, people smarter than I am, and they don’t work,” Horne said.

Estate laws vary from state to state, he said, and many such forms are generic.

“When clients brings these forms, I may get an idea what they want to do, but I generally discard them,” he said.

Estate planning is not a one-shot deal. Plans should be reviewed and updated every few years — some recommend every three-to-five years, others every five-to-seven — to take into account changes in laws, assets, beneficiaries, births, deaths, wishes or anything else that could affect the estate.

Dramatic life changes, such as divorce, a move to another state, the death of a beneficiary or the birth of another beneficiary (a child, for example), require immediate changes in your estate planning.

“I tell people estate planning is the same as upkeep and maintenance for your car or house, it’s just on life,” said Greg Smith, a certified financial planner with the Reston, Va.-based Wise Investor Group. “It’s one of the costs of living.’

Other common mistakes and problems, and how to avoid them:

* Incorrect titling on your documents. Make sure the right name is on the asset, whether it’s a house, IRA, life insurance policy or anything else. “You can have the best documents in the world,” Byers said, “but if they’re not titled correctly, there really is no plan at all.

* Failing to update beneficiary designations. Sounds basic, but this is one of the biggest problems faced with estate planning, according to Horne.

* Sloppy drafting that can slow down the process, such as misspelled names and percentages that don’t add up to 100.

Fortunately, none of these problems are insoluble. “All it takes is a little bit of pre-planning and forethought, and so many mistakes could be avoided,” said the Wise Investor Group’s Smith.

Think of it as a favor to your family, he said.

“Most people think estate planning is to protect and preserve your assets,” Smith said. “It’s not really. It’s to protect and preserve your family. … Once you know your family is protected, then everyone gets to sleep a lot better at night.”