If you were to ask people whether they have a will or an estate plan, 35% would say they have yet to get around it while 30% would say they have nothing to leave anyone. This is not very encouraging, and we cannot stress enough how important an estate plan is.
You don’t have to be a millionaire to make plans about distributing your possessions. Even more important than that, when you decide to get one, you need to be careful of the estate planning mistakes you could make.
Most estate planning mistakes vary depending on wealth being distributed. However, most of these mistakes are avoidable. It’s a given that estate planning is a complicated process, which makes it advisable to consult with a professional planner so you can avoid some or all the mistakes below.
1. Not Understanding the Plan
Perhaps the biggest estate planning mistake you could make is not understanding your plan. This is almost as bad as not having a plan at all. If you were to pass away without any estate management tool, such as a will or trust, or if it were to get contested, your assets would go probate.
This means that the court decides how your properties and possessions are to be divided. The thing is, the court makes decisions based on state laws, which almost always complicates the process. Beyond that, it’s time-consuming, expensive, and it’ll not just eat away at the inheritance, but it could leave your loved ones without access to the funds for months or years.
Even worse than this is not understanding the plan, and you’d be surprised at the number of people who don’t. Even wealthy people tend to get passive since they have an estate planner, and they leave everything to them. You need to understand how your plan works, what needs to be done to implement it, and how it’ll work for your beneficiaries.
2. Having Outdated Designated Beneficiaries
This can easily turn into a horror story, so you need to keep in mind that what the will states doesn’t necessarily affect the people that inherit certain assets. For instance, assets such as annuities, retirement accounts, and life insurance have separate designation forms that will specify the people that inherit them.
You need to review and update asset ownership and your beneficiaries every couple of years, so everything can go to the people intended. Maybe you divorced from your ex-wife and no longer want her to benefit, or left money to someone who passed away. These cases are quite common, and too often the wrong people get what they shouldn’t.
3. Taking the DIY Route
Taking the DIY route is one of the worst estate planning mistakes you could potentially make. This will save you initial costs, but you’re likely to make serious mistakes that leave your family with major problems and cost more in the long run. You may not have the legal strategies or an understanding of the laws required to plan your estate.
Between this and missing crucial deadlines, it could lead to a probate court where other people will decide how your assets and possessions will be divided. Understand that estate planning involves businesses, multiple bank accounts, retirement accounts, and insurance policies, among other possessions.
If you have assets in multiple states or countries, it’s going to be even more complicated. This means that having a professional estate planner work with you on implementing a plan is vital.
4. Choosing the Wrong Executor
This an unfortunate estate planning mistake that a lot of people make, and you need to be careful when making this decision.
An executor will have more responsibility than just dispersing your assets. Estate executors pay liabilities, notify creditors, alert government agencies, submit your death certificate, and more.
An executor will have so much power over your estate that if you make the mistake of handing it to the wrong person, your heirs might not get anything. An unscrupulous person could steal from your real estate in the name of managing it.
In this regard, you not only need to pick a person you completely trust to carry out your wishes, but you need to consider their health, age, and other important factors that may prevent them from doing so accordingly.
5. Not Planning for Incapacitation or Long Term Health Care
When most people think about a will or a trust, they think about passing away, but not long term care or incapacitation. This is a possibility that could happen to anyone, and what would happen to your estate in this scenario? Who would make your medical and financial decisions when you can’t?
It would be a very lengthy court process for you to get court permission for action, so instead, you should appoint a trustee who would step up in case you were not in a position to make decisions. You can get a limited power of attorney or health care power of attorney, but you need to be wary of the person you hand over power to.
6. Not Considering the Impact on Your Business
If you wish to include a business in the estate, then you need to understand that it requires careful management. Even when you’re not around, the business will still have bills, taxes, payrolls, and operations that can’t afford to stop. The probate process will leave your business in limbo until all decisions can be made, during which time it’ll be at risk of collapsing.
If the business is considered a part of the estate, it could have a negative impact because it’ll be subjected to high estate taxes or leaving confusion about who’s managing the business. In this case, some assets may need to be liquidated, and the business may have to be sold to meet those payment requirements.
7. Not Including a Residuary Clause
This is one of the most common estate planning mistakes because most people never think of it. The residuary clause is a component in a will that’s included to act as a backup for assets not included at the time of passing away.
It’s possible for you to accumulate more assets after the last time you updated your will. In that case, this clause will ensure it does not end up on probate or intestacy law.
Avoid These Estate Planning Mistakes
No one likes the end of life planning, but when you consider the fact that it’ll help your loved ones, you’ll get to it and avoid these estate planning mistakes.
Not having a plan means you’ll leave major problems for them, but the wrong plan can cause just as many issues. Hiring a professional estate planner is the best course of action so that every element of the estate is handled in the way you intend.
For estate planning assistance, please get in touch with us to schedule a consultation today.