In order of priority, this mistake really ranks #2 behind DIY Mistake #1: Not Having An Estate Plan, but I have already posted mistakes 2 through 6, so this is going to have to be #7.
Human beings tend to procrastinate when a task they KNOW they need to do seems overwhelming or too expensive or maybe not urgent enough yet or they think they do not have enough time, and the list goes on. Here are some of the reasons I hear, and my response to each of these rationales:
"I am OK with intestate succession and probate."
First, be sure you really understand what intestate succession means for you and understand that it changes over time as individual heirs pass away.
If you are married with grown children, and you live in a state in which a portion of the estate goes to children under the laws of intestate succession, with your surviving the spouse getting between one-third and one-half of your estate, is that really OK with your surviving spouse? Can she afford to live on a portion of your estate? Will the house have to be sold in order to satisfy the children's shares? If the children are young, won't she need ALL of your estate to raise them?
If you live in a state that automatically leaves everything to the surviving spouse, is that OK if you have children from a previous marriage? How do you think your children are going to feel about that? Yes, of course, inheritance is not a "right", but it can be very hurtful to be disinherited solely because Mom or Dad didn't think it all the way through.
Do you truly understand what the laws of intestate succession are in your state? They are not all the same.
Second, do at least investigate how arduous and expensive probate is in your state. In some states (such as California), probate is crazy expensive. In all states it is public (anybody can request a copy of your will). How time-consuming and arduous the process is also varies by state, estate size and asset mix.
Third, estate planning in not only about death planning. It is about disability planning, too. Who will manage your affairs if you become incapacitated? Many people assume that their spouse of child or other next of kin will automatically be able to take over their financial affairs. This is simply not true. If you have not already signed written authorizations, your spouse or next of kin or best friend will have to GO TO COURT to get appointed as your guardian and/or conservator. This is expensive, time-consuming and sometimes difficult. Can they afford it? Can you?
"Better late than never, right?"
Actually the answer is no, wrong. There IS such a thing as too late.
The obvious issue with this is getting the timing right. At least once every year I hear of a colleague who had an estate plan printed out and ready to sign, meeting scheduled and everything, and then the client dies without having signed anything. Ugh! It hasn't happened to any of my clients yet, and I hope it never does, but estate planning attorneys and life insurance salesmen do worry about this often.
I have received many a telephone call from someone whose spouse or parent was just admitted to an assisted living facility or nursing home and now, all of the sudden, they want to talk to an attorney about estate planning for both parents. By then it is usually too late to plan for the parent in the facility. Usually he is there due to cognitive decline and no longer has the capacity to create an estate plan. We will have to go to court to get a conservator appointed for him and then hope we can also convince the court to allow the conservator to create an estate plan. This adds considerably to the expense of estate planning and also creates a certain amount of uncertainty as to the limits on what we can achieve.
And it is sad to see an entire estate get wiped out by nursing home expenses, leaving the children with no inheritance, when that outcome could have been avoided with proper planning.
"I'll just do one of those deathbed declarations."
Very few states allow an "oral" will (called a "nuncupative" will). The states that allow this type of will have very specific requirements for when it is valid. For example, Tennessee only accepts an oral will if it is made by someone in imminent peril of death who then dies as a result of the peril. Two witnesses are required and one of them must reduced the will to writing soon after the declaration. Furthermore, an oral will in Tennessee can only be used to dispose of property valued at up to $1,000, so its utility is highly limited.
"OK, then I will hire an attorney to prepare my estate plan when I think the end is near."
The obvious problem with this strategy is you have to get the timing right and you must still have capacity when you finally decide to get started. Another problem is this strategy increases your estate's exposure to will contests. This is because any heir who thinks he or she should have received more will take advantage of the fact that the "end was near", i.e. you were in a diminished physical state and, therefore, so the argument goes, also a diminished mental state, and the claim will be that you did not have capacity to make a will and/or someone made you do it using undue influence. Do everyone you care about a favor and create your estate plan when you are at the top of your game so nobody will dare challenge what you decide.
"I don't have time."
It is true that estate planning takes time. First you need to sift through all of the attorneys in your area and try to choose one that seems to know what he or she is doing. Then you make contact. Then you will need to gather a lot of information for the attorney. Then there will usually be about a one to two hour initial consultation either by phone or at the attorney's office. Then you will respond to requests by phone or email for additional information. Then you will sign your documents. It's about the same amount of time you spend to refinance your home. If you have done that once or twice and didn't find the time commitment too terrible, then you probably have time do to an estate plan. Owning and refinancing a home is a sign of adulthood. So is estate planning.
"It is too expensive."
A good estate plan will cost some money. For most people, however, the cost is less than the amount you pay to your financial planner every year, only this expense does not repeat every year. And, for most people, the amount you save in probate expenses alone will far exceed the cost of the estate plan, not to mention income tax savings, estate tax savings and, should you choose to do Medicaid pre-planning, long-term care savings.
"I don't even know where to start, what is involved."
Ah, this is the easiest one to answer. All you have to do is make an appointment with us. The rest will take care of itself. We will ask you for the information we need. You do not have to guess what information to provide. We will ask you questions about your estate, your family, your priorities, and other things, in order to help guide you through the process. Whether your situation is common or uncommon, we have probably seen it before and can readily make recommendations. By the time you are done, you will be something of a lay expert on estate planning and you can educate your friends. We have seen many clients carry the estate planning torch after they have been through the process themselves!