Planning for death can be both physically and emotionally challenging so its understandable that mistakes are made. Luckily, any mistakes can be fixed so long as you are alive. This guide explains some of the most prominent mistakes which are commonly made in Estate Planning.
- Not having a plan at all. Regardless of your age or financial situation, it is beneficial to engage in estate planning. Being prepared before you pass can help avoid probate, save on taxes, and distribute your assets as you wish, but that’s not all. It is planning for important non-financial decisions like who will care for your children and pets, and who would make decisions for you if you are to become incapacitated. If you do not take steps to formalize your wishes, state law will govern disposition of your assets.
- Not updating estate plan. Life happens, and things change; it’s crucial that your estate plan keep up. No matter how well designed your estate plan is, if changes haven’t been accounted for then things can go awry. If you’ve acquired or lost assets or somebody in your plan has gone through a divorce, these events and more call for reevaluation. This can be especially crucial when you have minor children who will be cared for by a relative when you are gone. We recommend that clients sit down and go over everything every three to five years to catch anything that has happened.
- Not consulting with an attorney. Depending on your situation, it’s possible you may be able to organize some of your affairs on your own. However, estate law is complex and ever changing so it is always beneficial to have an attorney who is knowledgeable in estate planning matters discuss your situation and at least look over your documents. Too often the legal effect of “do-it yourself’ estate planning is what was intended.
- Lack of communication with family. Your estate plan can be as private as you wish, and you have no obligation to share with family; however, it can useful to let the people named in your plan know what is going on while they have time to ask questions. If one child is receiving a different portion of your estate than another, then explaining why while you are alive may avoid future costly disputes. If nothing else, it is important to let your future heirs know where to find the proper documents after your passing so that they can abide by your plan.
- Expecting your family members to divvy things up fairly. Even the most responsible, well intentioned child or spouse is likely to have a different view of what is fair than you do. Having your wishes properly documented can alleviate this issue. If your situation is likely to be riddled with dispute, then it may be both financially and emotionally beneficial to hire a corporate trustee to divide your assets instead of designated a family member.
- Not properly funding your trust. So, you’ve set up a revocable family trust, now what? It’s crucial that all your assets are transferred into your trust at the right time so that they can be protected from creditors and distributed as per your wishes upon your death without going to probate. Life insurance policies, bank accounts, real estate, and all need to be transferred out of your name and into the trust’s name while you are living. Retirement accounts should have proper beneficiary designations in place as well. This requires proper planning and probably a few in person visits to the bank.
- Forgetting to match up beneficiaries with estate plan. Your wishes may be clearly laid out in your will or trust, but if your assets are not designated to the right person or trust then those wishes may not be followed. If you name one person as the designee or beneficiary on bank accounts, retirement plans, and insurance policies, then it will be transferred to such beneficiary upon your rather than dived among your heirs as you intended.
- Not giving gifts while you are alive. There is a tendency to believe that we should wait until death to pass our belongings on to our loved ones and the charities we support, however there can be benefits to giving gifts while we are still alive. Annual exclusion gifts of up to $15,000 per person per year to as many individuals as you want and donating to charities could have more income tax benefits for your estate while you are alive. Gifting also gives you the opportunity to see the benefit your gift has and enjoy the recipient’s appreciation.