Mostly people think that estate planning is meant for rich and wealthy people and thus assumes that they don’t need estate planning as their assets will get transferred to the family automatically. While the fact is that each and every individual has one or the other valuable asset like a home, car, saving account etc. and thus an estate plan is required so that their wishes get fulfilled as without it, the fate of your assets and family is decided by the state laws.
As estate planning is very difficult task, one should do the planning calmly and should not make a rush. Many people do mistakes while estates planning due to several reasons like evasion, scarcity of follow up etc. However, once you have decided to plan your estate, it is advised to discuss it with an estate planning lawyer.
Estate Planning Mistakes-
We have summarized some common mistakes that should be avoided while planning your estate as mentioned below:
1. Not having an estate plan: Having the thoughts like estate planning is for some rich or older, many people avoid the topic. However, irrespective of your age, wealth and marital status, you need to plan your estate. By stating your wishes of your assets distribution, you can save your family from stress, cost and confusion of dealing with this scenario while being ensured that your family and assets are being properly taken care of.
2. Failure to update your estate plan: Life is changing every moment and there are many life changing events that occur in one’s life like marriage, child, divorce, business, property acquisition, location etc. and hence you need to update your estate plan according to these changes to avoid any confusion or error later. Apart from this if there is change in state law or your estate planning goals led to review and update the plan. Hence, it is advised that one should review and update (if required) his/her estate plan on regular intervals and at the time of aforementioned events to ensure your wishes being fulfilled.
3. Not planning for incapability: Estate planning doesn’t mean to plan only for after death scenario, but it is also to plan for the unexpected like if you ever have to deal with long term disability due to severe illness or an accident maybe. Such circumstances have a massive impact not only on you but also to your personal and financial affairs. Hence, every estate planning must include your decisions regarding who will take care of your medical, personal and financial affairs on your behalf in case of your disability. There must be a durable power of attorney to take care of finance, a health care proxy to take care of your medical affairs and a living will to state your desire for extraordinary treatment or end-of-life in case you ever become incapacitated and unable to take these decisions by yourself.
4. Choosing a wrong or single person to handle the estate: There are such scenario when there is disagreement over the executor/ trustee/ guardian among the family members. Also there are such cases too that the executor/ trustee/ guardian appointed is unable or unwilling to serve the said duty assigned to him/her. To avoid such scenarios, it is advised to name alternate in your estate plan documents so that in case of aforementioned situation the alternates could serve the assigned duty. Also you should discuss with your family before designated anyone as the trustee/executor/guardian.
5. Not planning for minors or young adults: A minor child cannot be a direct beneficiary of your estate. Hence you need to appoint a guardian to take the responsibility of the child and manage the property till the child reaches the age of 18 or 21. Also you can make a trust and appoint a trustee to ensure payment for the child or young adult, according to age or set milestone as per your wish instead of giving whole property to them in one go. This can be done in case of spendthrift heirs too.
6. Not updating assets ownership: Some assets are jointly owned such as bank accounts or property etc. with your spouse, children etc. These should be reviewed in your estate plan as the change in personal circumstances and state laws might make these matters complex and costly in distribution after your demise.
7. Failure to fund Revocable trust: To avoid the time and expense of probate after your death and to avoid your assets and beneficiaries’ information to come in public record many people opt for revocable trust in their estate plan. In order to get the benefits, the trust needs to be funded during the lifetime. Also the assets titled in the name of revocable trust need to be transferred to the trust during your life. If you forget or avoid this, it can cost your family prevention from the benefits.
8. Not considering income tax: To reduce your estate tax, it is advised to make gifts under your estate planning which most people fails to do. Gifts made to individual, groups or business can be subjected to a certain amount of estate tax savings. This apart from reducing tax will also leave more money for distribution in your estate
9. Not transferring the life insurance policies to trust: A life insurance policy is subjected to huge estate tax after your death. To avoid this, it is advised to set up a life insurance trust as the owner of the policies which in turn will also save the beneficiary from facing any hardships in waiting for the insurance pay-out.
10. Not having a residuary clause: A will or a trust must have a residuary clause in addition to the inheritance. The clause encloses the things that you forgot to include in you will or things you are going to acquire before your death and the things that you are not aware you own. The clause not only handles such property, but also handles the property that nullify due to the death of the beneficiary.
It’s never too late to start so if you haven’t planned your estates, we would recommend you to start doing that with the guidance of the estate planning lawyers and avoid the aforementioned mistakes.