Estate planning is an important process for any adult who has accumulated some wealth or income, whether it be through traditional channels like earning a steady income and saving money, or through investment in real estate.
Although many people are aware of this necessity, many still make some pretty big mistakes when they attempt to protect and manage their assets. This article will provide an overview of some of the biggest missteps you should be aware of, including some possible solutions and important points to consider to avoid making these mistakes.
Not Getting Legal Help
While some estate planning can certainly be done by any individual with adequate knowledge of state and federal laws, there are several kinds of legal documents that require special expertise to ensure their validity, including trusts, powers of attorney, and even wills.
Just as you wouldn’t hire a handyman to fix your car’s engine, you should also leave the creation and implementation of certain legal documents to professionals who do this for a living. This not only helps to ensure that these documents are valid, but it also has the added benefit of saving you money down the line since they will likely advise you about tax breaks or other loopholes that might save you money. Hiring estate planning lawyers who work specifically in estate planning can also save you a lot of time and frustration. They can afford you insider knowledge on how to get your documents processed quickly so that you can avoid probate.
Not Having a Will (or Not Following it)
This is one of the biggest estate planning mistakes. Without a valid will, state laws determine how your assets are distributed. It might seem like common sense to write out what you want to do with all of your worldly possessions, but thinking about it and putting that into writing are two very different things. Most people simply don’t get around to executing wills or living trusts because they just never think about it until after it’s too late – when family members may be fighting over who gets what, which can only serve to cause more conflict than if no document was created in the first place.
However, remember that even the most well-drafted legal documents are meaningless if they aren’t followed. This mistake, unfortunately, is often the result of a common myth that a person’s estate automatically becomes part of his or her spouse’s estate if that person predeceases him or her, which is not always the case. Despite best efforts, even perfectly valid wills can be contested by loved ones. If you think about this possibility and make your intentions known in advance, you can potentially avoid some of this conflict.
Insufficient Estate Planning
Even if you have no assets or income, it is still necessary for adults to have a will laying out the disposition of any property they might have. If you don’t specify what should be done with this property, then state law dictates who gets it (if anyone). This means that if there isn’t anyone in your life whose life would be disrupted by the lack of this property, then nobody may receive it at all. This shouldn’t happen under any circumstances; not having an estate plan is like leaving money on the table because you didn’t bother taking advantage of one of the most basic tools available for managing your property.
Not Keeping Estate Planning Documents Current
Documents like wills and trusts aren’t set in stone. If you move to another state, get married or divorced, purchase real estate, have children, get divorced again, get remarried, purchase life insurance policies on each other or change the beneficiaries of retirement accounts, then you should update your will or trust to reflect these changes. Failure to do so may result in some unintended consequences since the contents of these documents are legally binding documents that control what happens with your assets when you become incapacitated.
Not Planning for Incapacity
Most adults don’t like thinking about their mortality, let alone what would happen to them if they were incapacitated by illness or injury and unable to make legal decisions for themselves. However, it is one of the most serious mistakes that you can make in your estate planning process since failure to consider this possibility can result in painful consequences for everyone involved, including friends and family members who are given authority over your wellbeing according to state law. You may not want anyone other than yourself to make decisions about your life, but if you can’t communicate this preference to others when you’re healthy and able, then the likelihood of a court appointing a guardian for your wellbeing that you don’t approve of is very high.
Not Drafting Trusts
Making a will is the first step everyone needs to take when they begin estate planning, but it’s not usually enough on its own. You also need to prepare for the possibility that one of your loved ones may become unable to handle his or her financial affairs due to an accident, injury, or mental illness. A trust is a legal arrangement through which you can designate someone else to make financial decisions for this person and it also ensures that the assets under their control are protected. Without trust, an incapacitated person can lose his or her property due to excessive fees and other charges taken by those who manage these funds.
Not Taking Advantage of Retirement Planning Tools
Employer-sponsored retirement plans like 401(k)s and IRAs provide valuable tax breaks that you should not ignore when developing your estate plan. You do need to find out if your plan will allow you to designate a beneficiary who can inherit your funds in the event of your death because not all plans offer this feature. Even if you don’t have access to an employer-sponsored plan, it’s still possible for you to open an IRA during your lifetime and name someone else as its beneficiary. Be careful when putting together these types of estate planning documents though. Making a mistake could result in losing valuable tax benefits or incurring penalties that would defeat the purpose of establishing one in the first place.
Estate planning isn’t the most fun activity you can do, but it’s well worth your time and attention if you want to make sure that your property goes where you want it to go, rather than winding up in probate court or with someone who might not have your best interests at heart. Make sure that your estate planning attorney fully understands what your needs are and can provide options to meet your circumstances. Only this way can you be sure to avoid all of these common estate planning mistakes.
