The Most Common Estate Planning Mistakes
Your estate plan will be a central part of the legacy that you leave to the world. A well thought out estate plan will allow you to pass your assets to named loved ones in an efficient manner and with minimal tax consequences. A poor estate plan, or a complete lack of an estate plan altogether, could leave your assets subject to taxation and forced distribution by the court. As you set out on the journey of estate planning, review the most common estate planning mistakes below so that you can avoid an estate planning disaster.
1. Not Having an Estate Plan
Perhaps the most egregious estate planning error you can make is failing to make an estate plan altogether. A recent study conducted by Caring.com revealed only 42 percent of adults in the United States has a basic estate plan. The idea of planning for the end of your life is morbid. Understandably, many Americans put off delving into the arena of estate planning for this reason. However, the reality is that delaying creating an estate plan could cost you and your family greatly.
If you pass away without an estate plan in place, your assets will be divided among your closest relatives through the court. The probate process can be quite lengthy and expensive. Not only could your assets go to heirs you would not have selected, but your assets will be diminished through taxation and court costs.
2. DIY Estate Planning
Websites like LegalZoom and Rocket Lawyer have become increasingly popular in recent years. It may be tempting to use a low cost service to make your own will online, but a do-it-yourself estate plan could cost you far more than legal fees in the long run. Every state has its own unique laws and requirements when it comes to creation of an enforceable will. If your DIY will fails to conform to your state’s laws, it will likely not be valid in court. Your assets will be distributed as if you did not have an estate plan.
Even DIY wills that are upheld often have shortcomings. A will made without the assistance of an attorney may leave off vital clauses that protect you and your heirs. Further, with just a self-made will, you could miss out on the many other important estate planning tools available to you. An estate planning attorney will help you do far more than make a simple will. Your lawyer will guide you in drafting a comprehensive estate plan that adequately protects your family no matter what the future holds.
3. Stopping with a Will
Making a will is often the first step you will take as you build an estate plan. Wills are an important part of any estate plan, but a will alone should not comprise your entire estate plan. Your will dictates who will receive what assets, but with just a will your estate will still need to go through probate. Probate can cost your estate in taxes and court fees, while also forcing your loved ones to wait to receive your assets.
Along with a will, many estate plans will benefit from the creation of one or more trusts. Trusts allow the assets within them to pass to named beneficiaries without the need for probate. Assets within the trust are better protected from creditors, and use of a trust will usually reduce estate taxes. Further, a trust allows you better control over who will receive your assets under what conditions. For example, you can spread out distribution of your assets as your children grow older.
Even further, a will by itself may protect your heirs, but it entirely fails to protect you. Many people forget that estate planning is not just about protecting your loved ones, but also about planning for your future. A thorough estate plan needs to include one or more powers of attorney so that a trusted individual can make financial and medical decisions on your behalf if you become incapacitated. It should also incorporate an advance medical directive so that you have a say in what steps will be taken at the end of your life.
4. Forgetting to Update Your Estate Plan
Once you have an estate plan in place, it is critical that you remember to update your estate plan if you experience a life change. Your estate plan must be updated following a divorce, significant change in assets, family feuds, and the like. Along with updating your will, trust, and powers of attorney, you will want to amend your beneficiary designations on items like your retirement fund and life insurance policy.
Your road to a comprehensive estate plan begins with contacting an experienced estate planning lawyer in your region. No matter your age or wealth, building an estate plan is critical to the preservation of your hard earned assets and vital towards ensuring your last wishes are honored. Take action today to develop your legacy with the creation of an estate plan.
About the Author
Elga Goodman, J.D., LLM, concentrates her practice on elder law, business and personal taxation issues, including domestic and international estate planning, the administration of trusts and estates, and closely held business planning. Elga advises clients on estate planning techniques aimed at ensuring that assets pass to the intended beneficiaries, while minimizing the state and federal tax burdens. Additionally, Elga guides clients through the complicated area of Medicaid planning, wealth preservation, and avoidance of spousal impoverishment through specialized gifting and trust techniques. www.eagoodmanlaw.com