Not having an estate plan at all
You may have your reasons for procrastinating, but ultimately nobody escapes death. Thorough planning and thoughtful consideration can help you ensure that your affairs will be handled according to your wishes. Don’t leave your loved ones in an unfortunate predicament when you can take care of your estate planning today.
Not correctly handling paperwork
People often make the mistake of not updating the beneficiary designations on their retirement accounts and insurance policies to better align with their estate planning documents. Beneficiary designations listed on your accounts overrule instructions in a will or trust. So, it’s important to make sure all your accounts, policies, and estate planning documents coordinate with one another.
Not equalizing your estate with your spouse
It’s important to equalize your estate with your spouse. Commonly, one spouse may have more investment accounts or real estate to their name than the other. This can increase some taxes, and cost you your hard earned money. An experienced Attorney can help you decide what parts of the estate should be listed under each spouse’s name in order to reduce the likelihood of owing taxes after either of the spouses’ death.
Putting your children on title to your house
When you place any asset in co-ownership with your children, this can cause several issues. Firstly, putting your home in joint tenancy with your children qualifies as a taxable gift according to IRS regulations. Meaning, you would likely have to file a gift tax return for the year in which you made the transfer. Additionally, if in the future your child ever goes through a divorce, or goes through a lawsuit, creditors may actually obtain the rights to the fractional share of the house in question. In some cases, they can actually foreclose on the house in order to get your child’s monetary share. Also, large gifts may disqualify your child from certain scholarships/benefits. You should always consult an attorney when thinking about co-ownership, as good estate planning can save you not only money, but a lot of confusion.
Relying on a will instead of looking into creating a trust
You might think that that you don’t need a trust. However, there are many reasons to create a trust in order to protect your assets. A trust is a type of document that allows you to legally transfer your property to your loved ones upon your death. It protects your privacy by allowing you to avoid the complicated process of probate, thus also saving your loved ones’ time and energy. It also can help you give to charity, protect your minor children, avoid compulsory succession, and even help reduce your taxes. Don’t expect a will to cover all your bases; proper estate planning via a trust will ensure your finances are in order according to your will.
Not planning for the unexpected death of a beneficiary
If one of your two beneficiaries passes away, where does your allocated money go? Is it the living beneficiary, or the family of the one who died? This is a very serious issue, and can cause an accidental disinheritance. An attorney who is knowledgeable in estate planning can help by wording your intentions deliberately; they can help you leave your assets to “all lawful children equally – Per Stirpes” and thereby avoid this problem.
Not transferring your life insurance policies into a life insurance trust
When you inevitably die, your life insurance policy is subject to a substantial estate tax. This may result in a large part of the proceeds ending up with the IRS instead of the beneficiaries you intended. You can avoid this by setting up a life insurance trust at act as the “owner” of your life insurance policies. This way, you also spare your family and loved ones any unnecessary frustration and suffering by avoiding the wait for a pay-out of insurance proceeds which could take months.
Not updating your will/estate planning documents
Over the course of your life, many things are subject to changes. There may be births, deaths, divorces, new property acquisitions, new business ventures, etc. In order to ensure that the assets you leave behind truly are distributed as you had originally planned and intended, it’s important to periodically update your will and other estate planning documents when such changes take place. Just because the will you drafted was perfect at the time of its creation, doesn’t mean it’ll always reflect your desires and best interests.
Choosing the wrong person to handle your estate
Regardless of how well you think you know somebody, or how badly you want someone close to you to be the executor of your estate, your first choice may not always be best for the job. You may consider your child, sibling, or spouse to be most befitting to handle the affairs of your estate when you are gone. However, there may be someone who can handle the duties required of them in a more objective manner.
Not meeting with an experienced professional
You might be under the impression that because your assets aren’t too convoluted, that you can get away with drafting your own estate plan. However, this is a big mistake. Even if your assets aren’t especially complex, an experienced attorney can help you significantly. They can provide tax-planning strategies based on demands and needs particular to your estate. They can also connect you with financial and tax professionals who may be able to assist your further. If your estate is planned poorly, this can cause unnecessary complications and hardships for your loved ones down the line.
Estate planning can be a very rocky road if not approached properly. If you or a loved one are looking to draft an estate plan, we highly recommend that you seek out a professional estate attorney who can help you make sure your documents are drafted properly and in accordance with your wishes.