Estate planning involves coming up with a plan for the transfer of your assets after your death. Rather than letting people sort out after the fact how your belongings are distributed, you have the power to plan for the future and name whom you want to receive the things you own after you die.
Often, estate plans involve wills, trusts, advanced health care directives, and other legal documents that tell other people what needs to be done in the event of your incapacity or death. While it’s important to make sure that you have an estate plan in place, it’s also important to make sure that your plan is put together correctly. Mistakes in your estate plan can be costly in the long run, and may also lead to legal problems and conflict in the future.
- What are the Most Common Estate Planning Mistakes People Make?
- Not Having an Estate Plan in Place
- Failing to Update Your Will
- Not Accounting for Disability
- Not Understanding Tax Consequences
- Choosing the Wrong Executor
- Not Working With Professionals in the Planning Process
- Do I Need a Lawyer to Avoid Estate Planning Mistakes?
Being aware of some of the most common estate planning mistakes can help you take the proper steps to avoid making them. Keep in mind that it is always a good idea to consult a professional when you are considering putting together your estate plan. Guidance from an attorney or an accountant will go a long way.
This might seem like a no-brainer, but many people don’t think about creating an estate plan at all. It may not seem important at the time, or they may put it off until “later.” However, it is very important to have a solid estate plan in place, one that covers all of your belongings and assets (your house, your car, your personal belongings and bank accounts).
That way, if something does happen to you, your estate will be handled the way you really want it to be, instead of allowing the laws of intestacy have control. Even if you believe you don’t have a whole lot to your estate, having an estate plan in place is still beneficial to you and your potential heirs.
Even if people have taken the big step of putting together an estate plan, they may not keep it up to date, and that includes their wills. Your will is the main document of your estate plan, which details your final wishes, including explaining exactly which person receive each specific item or specific funds at your death. Your wishes regarding the distribution of your assets may change several times throughout your lifetime. If you put a will in place early on in life, your life circumstances may also change several times.
For example, if you have young children, your will should dictate who may have guardianship of your children should something happen to you. However, when your children grow up and reach the age of adulthood, you may not require the provision regarding guardianship. In that case, you will want to have a valid, updated will ready for the future. If you note any changes in your life or your desires regarding distribution of your property, you should update your will as soon as you can.
Estate planning is not for the present, but a plan for the future. While we are never sure what will happen tomorrow, it is a good idea to plan for every contingency. That means planning not just for death, but also for the event of disability or incapacitation. In some cases, a serious illness or condition, or a debilitating accident can leave a person incapacitated and unable to make decisions. It is important that your estate plan include instructions for what to do in the event that you become incapacitated, including appointing an agent or power of attorney to handle decision making on your behalf.
For every type of action, there is an equal and opposite reaction. That is true for physics, but also true for taxes; even the most innocent of actions can have serious tax implications.
For example, it may seem like a smart choice to add your child to the deed of your home. However, this decision may have some hefty tax implications in the future, leaving your child with a very large gift that they will have to pay taxes on down the road. Alternatively, you could have title to your home pass to your child through inheritance laws rather than gift laws. While this distinction may not make sense at the time, there are subtle distinctions between the two that you should be aware of when putting together your estate plan. It is a good decision to work with a lawyer and/or an accountant who can advise you of the tax implications and help you plan for these ahead of time.
The executor is the person you appoint to handle the administration of your estate after your death or in the event of your disability or incapacitation.
While each state has specific rules regarding who you can and can’t select as your executor, many people end up choosing a family member or close friend to handle their estate. However, performing the duties of an executor is a big responsibility, so you’ll want to make sure you choose carefully when selecting your executor. Make sure that the person you select is someone you trust, and who is familiar with your estate. You’ll also want to make sure that the person you choose to be your executor knows what your intentions are when it comes to your estate, so that they will strive to abide by your wishes.
Creating an estate plan is a big undertaking. You shouldn’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 to take the weight off your shoulders. While it can be overwhelming, remember that the end goal of estate planning is to make things easier for everyone. Having the estate plan properly and legally set up will save you and your loved ones from confusion and stress.
If you are ready to get started on your estate plan (or update your current one), it is in your best interests to seek the advice of an experienced estate planning attorney. Your attorney can draft and review the documents for your estate plan, including your will. They can also provide valuable advice on issues like property distribution, selecting a trustworthy executor, and reducing tax consequences for your estate and your heirs. Your lawyer can also represent you in court if there is a dispute over your estate.