A complete estate plan is the only sure-fire way to know that your assets will be distributed according to your wishes after you pass away. But it’s important to remember that simply having a will doesn’t equate to a comprehensive estate plan. A small mistake or an incomplete plan can have major repercussions for your loved ones to deal with after you’re gone.
Below are some of the most common estate planning missteps that can derail your intentions.
1 – Having an incomplete plan (or none at all)
The worst possible misstep is to simply have nothing in place at all. Without a will or any final directives, you leave everything up to the probate court and your state’s laws to decide who gets what.
Maybe you already have a will, but when was the last time you updated it? Marriages, divorces, deaths, births, and changes in assets and relationships can all necessitate updating your estate documents. You should periodically verify that your estate documents are up to date on any beneficiary designations, and that includes documents beyond your will. Forgetting to change a beneficiary on a retirement account, for example, could result in an asset going to an individual you no longer would want as a beneficiary.
If you have children, you should revisit guardianship designations to make sure they’re still adequate and fall in line with your wishes.
In addition, it’s important to consider who you would want making financial and medical decisions for you if you can no longer manage your own affairs. Powers of attorney and medical directives are an important part of your estate plan that should not be overlooked.
Remember that an estate plan is more than just a will. It’s an entire protocol of documents and directives that comprehensively cover all of your assets, beneficiaries, and decisionmakers.
2 – Not Having Backup Beneficiaries
In addition to ensuring your primary beneficiaries are up to date, you should also consider naming backup (or contingent) beneficiaries and keep them consistent across your documents and assets. A backup beneficiary is another individual who can receive the assets if the primary beneficiary has died. Without a backup beneficiary, the assets could wind up back in probate despite your efforts to avoid it.
3 – Failing to Recognize and Contend for “Problem Assets” and Sensitive Beneficiaries
When choosing your beneficiaries, it’s important to also consider their ability to handle inherited assets. Minor children, for example, will need an appointed trustee to manage their funds. In some situations, adult children may also need someone to oversee the money. You’ll want to consider each beneficiary’s capabilities so that their inheritance is a helpful asset, not a burden.
Another example is leaving a family home for your beneficiaries to live in or sell. Will the home need significant repairs to make it sellable? Or will the beneficiaries need to sell at a loss just to offload it? What would happen if one beneficiary wants to keep the home and another beneficiary wants to sell it? Or suppose you want to leave a collection of valuable hunting rifles to a minor beneficiary. Who will be appointed to safeguard and manage the weapons until the beneficiary is of age?
4 – Creating Tax Issues Due to Unequal Asset Ownership Between Spouses
Married couples don’t always have equal shared ownership of their assets. More assets in one spouse’s name could result in a larger future tax bill. Maybe one spouse has a larger IRA or other investment account. Equalizing asset ownership could save on taxes later and ensure the surviving spouse isn’t penalized with a higher tax bill.
5 – Beneficiary Conflicts
Bank accounts, investments, insurance policies, etc. should all list your up to date beneficiaries. It’s not unusual for someone to forget about a retirement account and fail to update their beneficiaries. For example, say an IRA lists your ex-wife but not your current wife. The account would be paid out to your ex-wife as specified, with no course of action for your current wife or any other beneficiaries you might name.
When you are updating your estate plan, be sure to do a thorough audit of all of your financial accounts, insurance policies, real property, etc. so that you don’t accidentally disinherit someone or leave an asset to an estranged family member.
6 – Not Talking to Your Loved Ones
Finally, make sure you talk with your loved ones about your assets and your estate plan so that they know what to do if you pass away or become incapacitated. Make sure they understand what and where your documents are, and who to contact. It’s also a good idea to leave a list of digital assets and how to access them, so that your loved ones can quickly and efficiently take action.
7 – Not Working With a Professional Estate Planner
While many people choose to save money in the short term by creating a DIY estate plan, the reality is that there are complexities and nuances that are easy to miss. A professional estate planner can ensure that your plan adequately and comprehensively protects you, your beneficiaries, and your assets.
Wills & Wellness Estate Planning is solely devoted to strategizing with you to create an estate plan that meets your needs. We consider ourselves your “attorney for life,” in that we work with you as you move through life stages and evolve your estate plan to grow with you. Contact us today for a free consultation.