Estate planning involves coming up with a procedure to transfer your assets after your death. Rather than letting individuals sort out after the fact how your belongings are dispersed, you have the capability to prepare for the future and name whom you want to acquire the things you own after you die.
Often, estate plans involve wills, trusts, advanced health care directives, and other legal records that tell other individuals what needs to be accomplished in the event of your incapacity or death. While it’s essential to ensure that you have an estate plan in place, it’s also necessary to ensure that your plan is correctly put together. Errors in your estate plan can be expensive in the long run and may lead to legal troubles and confrontations in the future.
What Are the Most Typical Estate Planning Mistakes People Make?
Being mindful of some of the most everyday estate planning errors can help you take the right steps to avoid making them. Keep in mind that it is always a good idea to consult a professional when contemplating putting together your estate plan. Advice from an attorney or an accountant will go a long way.
Not Having an Estate Plan in Place
This might seem like a no-brainer, but many individuals don’t think about forming an estate plan at all. It may not seem necessary at the time, or they may put it off until “later.” However, it is imperative to have a reliable estate plan in place, one that shields all of your belongings and assets (your home, your automobile, your personal belongings, and your bank accounts).
That way, if something does happen to you, your estate will be handled the way you want it to be, instead of allowing the laws of intestacy to have control. Even if you think you don’t have a whole lot to your estate, having an estate plan in place is still helpful to you and your potential heirs.
Failing to Update Your Will
Even if individuals have taken the considerable measure of putting together an estate plan, they may not keep it up to date, and that includes their wills. Your will is the primary record of your estate plan, which describes your final wishes, including describing which individual receives each specific item or exact funds at your death. Your wishes concerning the allocation of your assets may vary several times throughout your lifetime. If you put a will in place early in life, your life events may also change several times.
For instance, if you have young kids, your will should dictate who may have custody of your kids should something happen to you. However, when your kids grow up and reach the age of adulthood, you may not need the provision concerning guardianship. In that circumstance, you will want to have a proper, updated will ready for the future. If you note any shifts in your life or your wishes regarding the distribution of your property, you should update your will.
Not Accounting for Disability
Estate planning is not for the present but a strategy for the future. While we are never sure what will transpire tomorrow, it is right to plan for every contingency. That means preparing not just for death but also for the event of disability or incapacitation.
In some circumstances, a severe illness or condition or a debilitating casualty can leave a person incapacitated and incompetent to make decisions. Your estate plan must include instructions for what to do if you become incapacitated, including designating an agent or power of attorney to handle decision-making on your behalf.
Not Understanding Tax Consequences
For every kind of motion, there is an equal and opposite reaction. That is true for physics and true for taxes; even the most innocent of actions can have profound tax implications.
For instance, it may seem like a wise option to add your kid to the deed of your house. Yet, this determination may have some weighty tax implications in the future, leaving your kid with a tremendous gift that they will have to pay taxes on down the road. Alternatively, you could have the title to your house pass to your kid through inheritance laws rather than gift laws. While this disparity may not make sense at the time, there are subtle differences between the two that you should be mindful of when putting together your estate plan. It is an excellent decision to work with a lawyer or an accountant who can notify you of the tax importance and help you prepare for these ahead of time.
Choosing the Wrong Executor
The executor is the individual you designate to manage the administration of your estate after your death or in the event of your disability or incapacitation.
While each state has distinct regulations concerning who you can and can’t choose as your executor, many individuals end up selecting a family member or close friend to manage their estate. However, fulfilling the responsibilities of an executor is a major commitment, so you’ll want to make sure you choose carefully when picking your executor. Make sure that the individual you choose is someone you trust and are acquainted with your estate. You’ll also want to make sure that the individual you select to be your executor knows what your preferences are when it comes to your estate so that they will aim to abide by your wishes.
Not Working With Professionals in the Planning Process
Making an estate plan is a big undertaking. It would help if you didn’t try to handle it all on your own, especially when you have helpful resources available to you. Consulting professionals, such as a lawyer and an accountant (and perhaps others), will help take the weight off your shoulders. While it can be overwhelming, recognize that the end goal of estate planning is to make things more straightforward for everyone. Having the estate plan legally and adequately set up will save you and your loved ones from chaos and anxiety.
Not Discussing with Family and Friends
Of course, there are exceptions to this rule, but if feasible, it’s usually a sound idea to have even a short discussion with your friends and family. Establishing expectations now, where there is an opportunity for conversation if needed, could reduce the likelihood of any conflict or dispute after your passing. If this isn’t a possibility, there’s language you can write into parts of your estate plan that specify anyone who contests anything could be written out.
Set aside time in advance to discuss your estate plan with your partner or anyone you’ve named executor or trustee, and think about telling specific people you name in your will or trust.
Do I Need a Lawyer to Avoid Estate Planning Mistakes?
If you are ready to get started on your estate plan (or edit your current one), it is in your best interests to seek the guidance of an experienced estate planning attorney. Your lawyer can prepare and inspect the documents for your estate plan, including your will. They can also provide:
- Valuable advice on issues like property distribution.
- Selecting a trustworthy executor.
- Reducing tax consequences for your estate and your heirs.
Your attorney can also represent you in court if there is a dispute over your estate.