Estate planning is an essential piece of determining how your assets will be divvied up or turned over to the appropriate parties upon your passing. Ensuring that this is done correctly means the difference between your wishes being honored and your loved ones being tied up in probate court (which can sometimes take up to two years).
To set yourself up for success – and avoid any headaches – here’s a look at the 4 biggest mistakes made in estate planning and how to circumvent them.
1. Choosing The Wrong Executor
Most people will look to make their loved ones executor of their estate. It seems to be the most obvious solution. After all, why wouldn’t you choose the person closest to you to handle your estate? However, this may not always be the best solution when it comes to protecting your best interests.
The purpose of naming an executor is to ensure that your wishes get carried out upon your passing. This is pivotal for protecting your assets from sustaining unwanted losses, distributing among beneficiaries, or being subjected to avoidable taxes.
By partnering with a qualified estate planning lawyer, you’ll have someone by your side to guide you through the process and vet potential executors to ensure they’re equipped for the role. It’s not uncommon for a lawyer to suggest picking a third party executor. By doing so, all your wishes will be carried out as desired while ensuring other factors – such as emotion-related elements – don’t play a role in the equation.
Keep in mind that money can sometimes be a difficult, and even uncomfortable, topic of conversation, and choosing a third party may be a better decision than a loved one.
2. Failing to Properly Set up a Trust
Setting up a trust is an integral component of estate planning. When not established properly, it could wind up becoming a costly mistake. Let’s first comb over the purpose of a trust account to get a better understanding of how they function.
- A trust acts as protection of assets from creditors.
- Financial details, such as debts, assets, beneficiaries and more are kept private.
- A trust will distribute the estate properly during the specified timeframe.
People commonly forget to transition their assets into the appropriate trust. Assets include cash, stocks, mutual funds and even real estate. Clients can avoid long and tedious probate processes by properly moving their assets into a trust.
3. Having Children as Primary Beneficiaries
Designating children as beneficiaries may seem like an easy and obvious thing to do, but in reality, it actually complicates the estate planning process. This means that creditors will have access to any assets and savings that were allocated towards your kids. To avoid any unwanted messes, it’s recommended to not name children as beneficiaries as they may run into credit debt or financial problems as they grow up.
4. Excessive Gift-Giving
There are occasions where people opt to simply give away their assets without a second thought. Rather than navigating the estate planning process, they oftentimes believe it’s in their best interest to simply give all their assets away prior to passing.
Tax penalties are ever-changing regarding both gift giving and estate taxes. To help ensure your assets are not subject to excessive taxes, it’s important to consult with a financial advisor and estate planning attorney who have experience in determining the best ways to avoid large tax payouts and help keep inheritance in the hands of your family or beneficiaries.