I think by now, we have established that Estate Planning is extremely important but sometimes complicated and unique to each situation. You should always get a professional to help you. You might think you can plan for everything, but we are human, we forget and sometimes don’t consider the passing of time or slight changes, so it’s best to have someone who knows what they are doing assisting you with this process.
When making an Estate Plan, there are a few or more common mistakes that people can make. These mistakes can impact those you leave behind, making the dealing of your passing even worse. Nearly all of these mistakes can be avoided by having very clear communication with your Estate Planner, having things explained to you if you don’t understand, and always keeping your will or trust updated to reflect changes in your life and changes in your beneficiaries’ lives. Here are some common mistakes that can be made
- Beneficiary Mistakes
Failing to revise beneficiaries to reflect life changes such as birth, marriage, divorce, and death.
If your beneficiary passes before you, your assets could possibly pass into your estate, rather than your intended beneficiaries. If you have two beneficiaries and one dies, the estate will pass to the surviving beneficiary and their family. It would not pass to the children of the deceased beneficiary. You will have to determine how that person’s share should be distributed.
Divorce does not invalidate the beneficiaries to a life insurance plan or IRA. This is something that you have to change yourself, if you don’t these assets will pass to the ex, rather than your intended beneficiaries. If you re-marry, you might consider not putting your new spouse as the sole beneficiary, there is no guarantee that they will leave those assets to your children.
Naming a minor as a direct beneficiary without determining a guardian. A guardian must be appointed to hold the assets until they are 18, or an age that you pre-determined, as long as it’s over 18.
It is also best to name a contingent or back-up beneficiaries, for any unforeseen events you didn’t plan for.
- Not Considering Taxes
A life insurance policy IS subject to tax, so most of your proceeds will go to the IRS and not your intended beneficiaries. You can avoid this by putting your policies into a life insurance trust.
Failing to make gifts under your estate plan to lower estate taxes. You can gift up the $14,000 per year to a person, groups, or businesses, and that will be excluded from estate tax.
- Not Funding Your Trust
If you have a living trust fund it with your assets by transferring titles to your trust, like real property and vehicle titles. Also changing the owner of your financial institution accounts to your trust. If you don’t want to do that, you can name the trust as the beneficiary of your account.
- Putting Your Child’s Name On Your Deeds/Accounts
There are a couple of reasons why this is a BAD idea. First of all, by putting their name on your deeds or accounts, you are giving them partial control and access to everything. If they experience financial difficulties or perhaps get sued, creditors may be able to come after your accounts. You are also subjecting them to a gift tax return. This also can be difficult if you have multiple children and want to divide your assets equally, the account will just be passed to the joint account holder’s name, there is no guarantee they will split everything the way you intended.
- Not Planning For The Unexpected
You cannot predict what is going to happen to you. If you become incapacitated for any reason or have a long term disability, you should have a plan in place for who will make healthcare decisions for you, raise your children, and handle your finances. We already talked about POAs and how important this is to have.
If you want to avoid any of these mistakes, as always, talk to an Estate Planner. It is really tempting to try to accomplish making a living trust or will by yourself to save money but there are probably HUNDREDS of things that a planner will think of and you never would. This is your life and legacy, this is continuing care for your children or passing things down that means a great deal to you. Get an Estate Planner and have them go over details, ask questions if you have them (you should,) and leave behind an easy process for your loved ones. Your passing will be tough enough, having a detailed and thorough will or trust will help ease their burdens. Please contact Stephen or Fadi for your estate planning needs.