My job here in Fort Collins is to help my estate planning clients avoid making big mistakes in their estate plans. The following is a list of some of the biggest mistakes that may be made:
1. For parents of minor children, the biggest mistake they can make is not designating a guardian to care for their minor children if both parents died or became totally incapacitated before their children become adults. If this mistake is made then a judge makes all the choices concerning who cares for your children and what happens to their money if they are orphaned.
This mistake can be avoided by contacting the person or persons that you would want to care for your children. Asking them if they would be willing to do that for your if you and their other parent were unable to care for them. And finally, that person and at least one back up, after both have a agreed to help if needed, must be named by you in a properly written designation. That designation can be part of a will or a separate document. The potential guardians should have a copy of that document after it has been signed, witnesses and notarized.
2. The second biggest mistake that parents of minor children can make is to fail to designate who will care for their children's finances if both parents die before their minor children become adults. Again if this mistake is made it falls to a judge to decide who controls those assets.
In many states appointing a guardian as per paragraph one takes care of both. In Colorado the appointment of a guardian is insufficient. In Colorado a conservator also needs to be appointed using the same procedure as set out above for selecting and nominating a guardian. For many if not most a better approach to arranging for the financial protection of minor children may be the use of a trust. The reason a trust is often the best way is that it gives you the opportunity to state your preferences regarding education, religious training, when the children should receive their money, etc.
3. The biggest mistake that divorced or widowed people with children can make is not having a prenuptial agreement in place before they remarry. If this mistake is made your assets may not end up with your children or other heirs. It is likely that many or most of your assets may end up going to the person that you marry and his/her family. Take care of your children and get the prenuptial agreement. You may also want to consider an irrevocable trust with an independent trustee to protect your children.
4. A common mistake is not reviewing beneficiary designations on a regular basis. We all think that we did it correctly even if it was done decades ago. If you were smart and lucky enough to have had extra money, hopefully you have had IRAs, 401Ks or similar investments for decades. Unfortunately, many people do not review the beneficiary designations regularly, So, if there have been after born children or other changes in the last few decades, those changes may not have been made to the beneficiary designations, even though you are positive that you took care of it at the time. Rather than relying on memory, get a fresh copy of each designation every few years to be sure they are all up to date. Upon death you do not want your assets to not be fairly divided with your younger children, or go to your parents, or a former spouse. Check those designations.
5. Some have a spouse or children with physical, mental or emotional disabilities that impair their ability to manage their money and other aspects of their lives. In those situations, establishing a trust or other viable plan could be a huge benefit to those family members. It would certainly be a mistake to neglect to plan for them.
The potential problems created by a failure to plan as noted above is not limited to the rich. Each of these problems can be devastating to families with only modest assets. Therefore lets take action to protect our spouses and children.