You shouldn’t abandon your estate plan document after creating it. Estate planning documents such as wills and trusts are always subject to state laws and these laws are often amended from time to time. Also, these laws vary across states and you would have to amend your will or trust if you move to a state where the estate laws are different. When a baby is newly born into your family or a beneficiary dies before you, you consequently would have to update your estate plan to address the change.
Here are five estate planning disasters you’ll want to avoid
Not having a will (or one that can be found)
The leading mistake is simply not having a will in the first place. Estate planning is critically important to protect an individual, their family, and their hard-earned assets, during their lifetime, during any period of incapacity and upon their deaths. Everyone needs estate planning documents, regardless of the amount of assets they have. Waiting for a ‘more appropriate time’ to put together your will is a mistake. Everybody should have a will. It should be written when you are young and updated throughout your life as your circumstances change.
Overlooking the importance of powers of attorney for kids over 18 years old
While you may think that your kids are your kids, if they are adults in the eyes of the law and something happens to them, you may be left without power – literally, if an 18-year-old becomes ill or has an accident, a doctor will not speak to a parent if a power of attorney for health care is not in place. Similarly, unless a power of attorney for property is in place, a parent may not be able to take care of bills, make investment decisions and pay taxes without the child’s signature. This could be very difficult when a child is in college, especially if they are out of the country.” It is imperative that when your child turns 18 that you get those powers of attorney put into place.
Failing to plan for incapacity and long-term care
Not making plans to address sudden mental or physical disability may be detrimental to your finances. When estate planning, you should consider creating a living trust or power of attorney in order to name a person who would act on your behalf in the event you fall into illness or involve in a fatal accident. No estate plan is complete without planning for long-term care, as a huge percentage of American senior citizens would need long-term care before they die.
Improper ownership of property
There may be oversights during estate planning which may be brought to light after death. Some assets may be in the name of a partner instead of being jointly owned by the couple. Having joint ownership would ease asset protection and transfer at the death or incapacitation of one partner. Improper ownership could also result when a person gives their own name to their business, transfer retirement accounts into a trust, or putting a child’s name on the deed.
Neglecting to choose and update appropriate beneficiaries
When you have an asset that has a beneficiary designation that will supersede anything written in a will. The most grievous example [of a beneficiary issue] is when a married couple divorces, then remarries without changing the beneficiary to the new spouse. In this all-too-common and completely avoidable scenario, the ex-spouse is legally entitled to the assets, and a lengthy legal battle ensues on behalf of the new spouse and/or the children to claim the assets.”
There are financial implications to think through as well, without a proper beneficiary designation, income tax on retirement accounts may have to be paid sooner, which may lead to a larger than necessary income tax liability, and the designation of a beneficiary on a life insurance policy can impact whether the proceeds are subject to claims of creditors.
When you make this mistake, you likely would make several of the above mistakes as you may lack proper knowledge on how to create a perfect estate plan that addresses all possible issues which you or your survivors may have in the future. A tax professional would provide you with tax-planning strategies, and an experienced estate planning attorney would assist you in creating a personalized estate plan based on the peculiarity of your estate.
Do not procrastinate any further. Protect your financial future and that of your family today. Contact an estate planning attorney now.