Common Estate Planning Mistakes (Part 2)
Regardless of your financial position, making sure that your assets are transferred smoothly after your death is something that everyone should consider. How your estate planning documents are prepared will play a significant role when it comes to safeguarding your property and reducing taxes on your estate. Previously, we published an article that includes information on how to avoid estate planning mistakes such as waiting until the last minute to begin drafting such documents or not accounting for taxes. In continuation, this article contains more common mistakes that can be avoided when you are beginning to consider estate planning.
Planned For Yourself, But What About Your Beneficiaries?
The purpose of preparing estate planning documents is mainly to be able to distribute your assets to whomever you wish upon your death. The people which you choose are known as beneficiaries, and are usually children, spouses, other family members, or even friends. As horrible as it sounds, while you are preparing for your death, you should also consider planning for the death of your beneficiaries as well. Say you are in a situation where you have two beneficiaries that are designated to receive your property, since most people do not pass everything to one individual. If one of the two beneficiaries passes, you have two options. The first one is known as “per capita”, meaning that if one of your beneficiaries passes away unexpectedly, the remaining property will be transferred to the other beneficiaries immediately. The other option is “per stirpes”, meaning that the remaining property will be transferred to the family of the deceased beneficiary. It is best to have this thought through, as these are your assets and you want to make sure that they are distributed accordingly.
Giving Your Assets To a Minor
If you have children and plan on passing your assets to them, their age plays an important role. In the case that they are minors, there are certain steps that must be considered before appointing them as beneficiaries. To make sure that the assets are transferred smoothly, you need to appoint someone as a guardian that would be responsible for your assets until your child turns of legal age. This is done to essentially protect the child, since it is not beneficial for a young adult to suddenly receive a large lump sum of money. An alternative route would be to establish a trust for your child, which will allow you to limit the amount of money they would receive. With a trust, you can set terms that the beneficiary must abide by, who grants you more control over what they will receive.
Another common mistake that people make when it comes to estate planning is making a well-intended gift. Say for example, you are passing down a house in upstate New York to three of your children. You specify that the house cannot be sold unless each of your children owns a house in New York. However, you forgot that one of your sons permanently resides in California. Because of your specific instructions, your children would have to go through a long court process to have permission to sell the house. Throughout the process, your children will lose valuable money and time on something that could have been easily avoided if you would have considered all of these aspects before putting it in your will.
The stakes are high with estate planning and it’s in your (and your family’s) best interest to make sure that there are no errors in your estate plan. We highly recommend speaking with a professional estate planning attorney who will help make sure that all your estate planning documents are prepared properly and in full accordance with your wishes.