Three Biggest Mistakes in Estate Planning

How to Avoid Estate Planning Errors

Three Biggest Mistakes in Estate Planning
March 13, 2016

Nobody wants to think about his or her own death, but you owe it to your loved ones to have a sound plan for your assets to avoid extra expense and aggravation when you pass away. Let's take a few minutes to review three of the biggest mistakes you can make in estate planning.

  1. No Plan at All – People pass away without having made a will, leaving their loved ones the expense and delays of the probate process, and potentially crippling cash flow and tax problems. With assets tied up in probate and increasing expenses, families can be left in dire circumstances.

    People ignore estate planning for many reasons – for example, discomfort thinking about death, unwillingness to make hard decisions on family assets, or thinking they are too young to need to do it. None of these are valid excuses if you have a family.

    You should decide upon a plan, whether it is a simple will or the creation of a living trust. Make sure that you have executors/trustees and beneficiaries named, and keep them informed of your plans. Do not forget to update your important documents regularly to account for births, marriages or divorces, changes in your assets, changes in the tax laws, or similar events that may affect your plan.

    Most importantly, keep your records in order and let at least one person, preferably your executor, know where they are. Otherwise, your executor is in for a much more difficult task. It is wise to keep the most important papers in a safe-deposit box and give your executor access.

    Finally, check into the laws in your state and county regarding inheritance taxes, estate taxes, and any other quirks of estate law that may need to be addressed in your will or living trust. Or better, use a local estate attorney who will keep you up-to-date on these things.

  2. Incorrect Use of a Trust – Trusts, especially revocable living trusts, need not be terribly complex. They are designed to avoid the probate process and pass assets to your beneficiaries, or shield them from estate taxes if you are establishing an irrevocable trust. However, if you forget to transfer assets and fund the trust, it has no value. It is surprising how people can go to the trouble of creating a revocable living trust and forget to fund it properly, but it happens more often than you would think.

    Other mistakes people make with trusts are forgetting to update the assets over time, omitting important assets, or forgetting to update the beneficiaries of things such as life insurance policies or retirement accounts. Be careful when naming a trust as a retirement account beneficiary, as this can be tricky. Again your local estate attorney can provide some guidance on this. The other large mistake people make with trusts is included in the next category.

  3. Poor Choice of Fiduciaries – You may choose family members as Executors, Trustees/Successor Trustees, or similar positions, without asking them if they are willing to do the job and will have time for it, or without considering if they are qualified. They may have been your closest family members, but they may know nothing about being an executor or trustee.

    Examples of other potentially poor choices are to name beneficiaries as executors, creating a conflict of interest; or choosing siblings as co-trustees, which often leads to family conflict. Only you know the best choice for your own family dynamic. Do not hesitate to use a professional if the family conflicts are likely to be too great.

In essence, you should have a plan and execute it, update it frequently, keep your paperwork updated, and choose an executor or trustee wisely. It is important that you think about these things now and act appropriately, because there will reach a point when you won’t be able to do anything about it. Finally, do not hesitate to seek advice from a respected estate planner or estate attorney. He or she can help you cut through the clutter to choose and implement the wisest plan for your family.

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