Let’s ask a question that seemingly has an obvious answer. Why is estate planning important?
First of all, when many hear the term “estate planning,” they quickly envision those who own mansions, various real estate holdings, large stock portfolios, expensive toys and priceless heirlooms.
Please, put that stereotype out of your mind. Everyone should have an estate plan or will.
There are several reasons, but let’s touch on the most important. Your wishes are carried out, and you can prevent or discourage fighting among potential heirs by spelling out what each beneficiary will receive.
Pretty straight forward. You decide—not a court, and thereby prevent the ugliness that could easily follow.
Many folks understand this, but common mistakes can surface, thwarting your intentions. And they can surface after it’s too late for you to do anything about it.
Before we jump into some of the common missteps, let’s acknowledge that estate planning can be complex. Much will depend on your estate and the assets you plan to gift to your heirs.
But mistakes, if not avoided, can lead to costly consequences that could have been circumvented with proper planning. That said, I’d be happy to entertain any questions you have or point you in the direction of an experienced estate planning attorney.
As always, feel free to consult with your attorney.
Here are seven common mistakes to avoid...
Not having any plan. Have you ever had a project you wanted to complete, but procrastination set in? Once completed, you feel a sense of satisfaction. It’s like checking off the box on your to-do list. So satisfying. What happens if you die without a will, which is known as dying intestate? For starters, you haven’t legally documented how you want to distribute your assets. If that happens, the courts will determine who gets what, and it will rarely coincide with your intentions. Besides, it can turn into a messy and expensive process if acrimony arises among potential heirs.
Set it and forget it. Creating an estate plan isn’t something you set up and forget about. You’re not on autopilot after signing the document. When major life events occur, you should revisit your plan. You may have had additions to your family, a divorce can change the familial equation, or your net worth or assets changes over time. Not to mention the every changing tax and estate laws. Have you moved to another state? State laws impact how wills are drawn up, and a new address may require an updated legal document.
DIY. Doing it yourself with a will won’t cost you much, and there are plenty of online options. But are you comfortable navigating unexpected complexities that may crop up? For example, does the online site fully take the laws of the state where you reside into account? I sometimes like to say, “You don’t know what you don’t know.” Another way to frame it: Do you know the right questions to ask? If not, your will might not have the proper language because it wasn’t written in the correct manner. Saving money on the front end could be costly to your estate if the will you initially prepared hits unintended hurdles.
Do account-specific beneficiaries contradict the written intentions in your will? I’ve discussed the need to update beneficiaries, if appropriate. But what happens if a bank or brokerage account lists one beneficiary or beneficiaries and your will names another? For example, let’s say an IRA account at a brokerage firm has your two sons listed as your beneficiaries split 50-50, but the will explicitly states your daughter as the heir of the account. In this case, your sons will win the battle. Please be sure the wishes in your will line up with the beneficiary forms that are held with your financial institution.
Did you forget to fund your trust? There are complexities in setting up a trust and we encourage you to seek a qualified professional, but let’s review one unfortunate mistake. While a living trust can ease the transfer of assets to beneficiaries without going through probate, it’s not enough to simply create a trust. You must transfer assets into the trust. Or, rename the accounts in the name of the trust. If you fail to fund the trust, the assets you intended to pass smoothly to your beneficiaries won’t pass smoothly at all. Instead, the situation will create headaches and needless legal fees for your heirs. In addition, your assets may not wind up in the hands of the intended beneficiaries, as you thought you had spelled out.
Making DIY changes. You know what changes you want. But adjustments executed improperly can lead to unwanted consequences that muddy your intentions. Once-valid legal documents may be inadvertently sullied by do-it-yourself changes that may only be straightened out in lengthy legal proceedings.
Planning for your minor children. This is my last point, but it’s definitely not the least important. A major reason for end-of-life planning is not only to properly bequeath your assets after you pass, but to be sure your minor children, if you have any, are taken care of. Be sure to have a guardian in place. Make sure you inform the guardian and receive consent and clearly spell out instructions regarding financial matters to that person.
Creating and implementing an estate plan will allow your wishes to be carried out when you are no longer here. However, don’t throw up roadblocks that can create complications, delays or even thwart your plans. If you have any thoughts, ideas or questions, I'm simply a phone call away