10 Dec Common Estate Planning Pitfalls
Thinking that estate planning is just for the wealthy.
Estate planning applies to everyone, not just wealthy people. It doesn’t matter how much you have in your accounts or how many valuables you own. You want to be sure that whatever you do have goes to the person of your choice.
Believing that you are too young to worry about estate planning.
Unfortunately, we are all painfully aware that life can change on a dime. The truth is, it doesn’t matter how old we are or how much of an estate we have to take care of, putting a plan in action as soon as possible is the best thing you can do for yourself and your loved ones. We hear far too often of college students being in accidents and because of HIPPA laws their parents are unable to obtain medical status information easily. Part of the estate plan is having healthcare and financial power of attorney documents in place.
Thinking that since you are married everything will go to your spouse.
Yes, this is a true statement but as we know things are never black and white. While being married does make dividing your assets seem a bit easier, there are a lot of things that can change that. What if your spouse remarries or if you and your spouse pass together? What if there are certain things that you’d like to go to your children? What if someone besides your spouse is listed as the beneficiary of an account? These situations come up frequently, and without an estate plan where you can specify your exact wishes, this can leave your finances in disarray.
Believing that family will “do the right thing.”
While the hope is that our families will honor our wishes and do the right thing, the best thing that you can do is write them down to mitigate any potential issues. By making your wishes explicitly clear, you can trust that your family will take care of things the way you would have wanted. This can also mitigate any possible quarreling because all parties have concrete proof that what is being carried out is indeed, your plans.
Failing to coordinate retirement accounts or insurance policies.
While it may seem obvious that your 401(k) and life insurance are part of your estate, they should still be included when planning your beneficiaries and asset divisions. Remember, the person that you designate to receive the money on the actual accounts should match the person listed in your estate plan.
Ignoring potential scenarios.
Estate planning is all about planning for the unforeseen. It is not enough to designate a beneficiary and leave it at that. You need to take into consideration all possible scenarios. What if you prefer the person you chose to receive your assets passes? Or what if that person is no longer capable of making his/her own decisions? Be sure to have alternate plans for your assets in case circumstances change.
Lack of communication.
When planning your estate, be sure to speak with your heirs and loved ones about your plans. Situations play out every day when a loved one dies and his/her children automatically start dividing up personal possessions, closing bank accounts, and much more without bothering to read any estate documents. Insurance policies, stocks and properties can go unclaimed without any communication. Let your loved ones know what you’re planning and what steps you’d like them to take after you’re gone.
Trying to make everyone happy.
There’s a saying that goes “you can please some people some of the time, but you can’t please all the people all of the time.” This is true for estate planning too. You will create a will, divide your assets, and have everything written out exactly you want, and still, someone will not be happy. Remember, it’s your estate, and ultimately your choice.
Planning it all on your own.
No, just no! Estate planning is not a do-it-yourself project. You will really want to speak to a professional- an estate planning attorney that knows the ins and outs of the law when it comes to taxes, trusts and wills. This is the best way to ensure your goals for planning are being fulfilled.
Failing to update documents.
Estate planning should not be looked at as “set it and forget it.” It requires maintenance. You are going to need to make updates and changes at least once or you’ll be missing a lot of pieces to your financial puzzle. Assets will go completely unnoticed, accounts may not be considered, and investments you’ve worked so hard for can amount to nothing. We suggest a review after major life changes such as the birth of a child, death of a loved one etc. and every 5 years if life has mostly remained the same.
Failing to pay attention to combined assets.
If you and your spouse have combined your assets to create a large estate for you children and/or loved ones, you don’t want to ignore the potential effects of federal estate tax. Leaving all of your estate to a spouse is tax free, but should you both pass, the laws are different. Speak with an estate planning lawyer or financial advisor to determine the best way to designate a beneficiary in order to avoid large taxes on your estate.
Not considering gifting some assets before your passing. If you have several assets and want to avoid the possibility of estate taxes, you might want to evaluate some of them and think about gifting them to your loved ones before you pass. In 2019, the federal gift tax exclusion allows you to gift up to $15,000.
It is important to understand the facts behind estate planning and to never assume that your circumstances aren’t outside the box that would warrant you to make these crucial life decisions. Speaking to an attorney is easy and they can help guide you along the process so that you feel empowered to make the best choice possible for your family.