Estate planning is essential to ensuring your assets make it to the right people, yet many people neglect this important step. In fact, 60% of Americans have not yet completed an estate plan.
It’s understandable that people don’t like discussing this subject. People don’t like thinking about their deaths. If you don’t plan though, you can leave plenty of trouble for your loved ones after you’re gone.
Even people that complete an estate plan make mistakes that can cause trouble. These mistakes are easily avoidable though. There are 10 common mistakes you want to watch out for.
What Is Estate Planning?
Estate planning involves protecting your assets for your loved ones. An estate plan includes legal documentation to ensure that your property will get handled the way you want.
Your estate plan leaves full instructions for how your property and other assets get divided between your beneficiaries. These documents include wills, trusts, and charitable gifts.
Estate Planning Mistakes
Estate and trust planning works for everyone, no matter the value of your assets. While the process doesn’t prove complicated in itself, it’s easy to make mistakes if you’re not careful.
You want to make sure you know what you’re doing before you get started with an estate plan. It’s especially important to avoid the most common mistakes.
1. Not Creating an Estate Plan at All
The biggest mistake you can make involves avoiding the estate plan altogether. This mistake occurs for the majority of Americans.
Even celebrities neglect this important process. Notable celebrities such as Aretha Franklin and Prince are known to have died without any type of will in place.
Without a proper plan in place, you leave confusion and complications for those you leave behind. Without clear instructions, people can bicker and fight, or even sell important family heirlooms. The official plan cuts down on these issues.
2. Not Working with a Professional
To save money, many people attempt to complete their estate planning on their own. They wade through the documentation attempting to make sense of it all on their own.
This leaves the estate plan open to missed or wrong information. A professional, such as an estate or tax attorney, can help you make sense of everything involved. They can help you understand all estate and tax laws to ensure you don’t miss anything.
3. Not Paying Attention to the Details
It’s easy to let an estate planner handle all the documents and just sign on the line. This will prove a mistake. You want to check to make sure you understand everything involved.
You also want to ensure there are no mistakes with the completed plan. You want to understand how it works and how to implement the plan. Make sure you ask questions about anything you don’t understand.
4. Failure to Officially Add Assets
When you set up a trust, many assets, such as personal items, are easy to transfer with simple listing. Other items need more official documentation to add them.
- Financial records
These and other items require you to add the trust as an owner to make it official. This ensures the assets can get transferred without issue.
5. Not Understanding Ownership
Personal items are easy to establish ownership with. Other assets, including assets with dual ownership, become trickier when it comes time to transfer ownership.
It’s important to review the ownership of all assets in your name. Make sure you understand how access to these assets works. Update your estate plan if changes to laws or changes to your situation occur.
6. Failure to Understand Retirement Plans
Tax laws can make retirement plans tricky. Many people don’t understand how these tax laws work and end up leaving loved ones paying hefty fees to access the money.
If you add a retirement plan to a trust, you need to understand the tax laws that affect this. You need to word the plan to ensure excess taxes aren’t taken out. You might even consider naming individuals instead of the trust if necessary.
7. Forgetting Gift-Giving
Wills and trusts still get taxed before everything gets transferred completely. People often look at leaving as much as possible without considering how much money their loved-ones lose due to taxes. Giving gifts through the trust can reduce taxes on the estate though.
You can make gifts to individuals for up to $14,000 per year. You can also make gifts to businesses and charities through the trust. Charitable gifts give you the opportunity to reduce taxes while helping others.
8. Ignoring Power of Attorney
Many people forget to add someone to ensure everything gets completed correctly. Ignoring the power of attorney can lead to more confusion.
You need people to act as power of attorney for your estate plan. These people ensure your financial and medical plans get carried out. You also need to make sure this information stays up-to-date and easy to find.
9. Not Updating Beneficiaries
Things happen, and beneficiaries can change. Births, deaths, divorce, a change of mind, all these situations can lead to changes to the people you want to leave assets to.
It’s important to review your documentation and make sure everything stays up-to-date and any changes get made. Make sure your assets get to the right people.
10. Not Taking New Situations Into Consideration
Every major family and life event needs consideration for an estate plan. You might not think of this right away, but you really need to review the plans to ensure nothing gets missed.
When your situation changes, check your plan and make sure life events don’t require changes to the trust. Changes can include assets, property, or even work status.
Finding Help for Estate Planning
If you understand the common estate planning mistakes, it’s easier to ensure your plans get completed correctly. It’s always best to get help from professionals to ensure your assets get divided correctly.
An estate planning attorney can help you manage everything. For more information, contact us to discuss your needs.