Common Estate Planning Mistakes to Avoid
One of the major problems that occurs with planning for one’s passing and financial distribution is that families frequently leave the matter to the very last minute and then make rushed decisions with bad information. Worse still, some families never make these decisions at all. No surprise, common mistakes occur that are oftentimes very avoidable with a bit of planning and thinking a bit earlier. You probably know these kinds of steps are important for your family, bit it can be difficult to get started.
"But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever." 1 Timothy 5:8 ESV
Assuming one can dedicate some time to planning and work a bit sooner than the very last minute, avoid major mistakes many estate plan packages often have:
1. Have a Plan
It’s an absolute train wreck for your family and estate not to have some kind of a plan in place at all. Even a simple will is far better than nothing at all. Ignoring the matter means that your entire estate will be decided by the government (probate court). And that means the judge involved could transfer your assets to just about anyone who makes a good argument in the required probate hearing. Do everyone a favor and at least prepare a basic will designating a default beneficiary for all your assets if nothing else. While many assume their spouse will take over everything, consider point two below, which is a common occurrence.
2. Think Beyond a Single Beneficiary
Don’t assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Life happens and doesn’t stay frozen in time just because an estate plan designates one specific person to be a key beneficiary. Go a second or third layer deeper as a contingency if the first person chosen is no longer available and choose one or two more. You will be making your executor’s task much easier to do getting your assets distributed properly.
3. Regularly Update Your Will, Estate Plan, or Trust
If you have a will, estate plan, or trust already, make sure it is regularly updated. Your financial situation and universe of beneficiaries is regularly changing and oftentimes growing. Big changes that should be adjusted for include new children joining a family, inheritance of assets from someone else, changing large assets such as homes and cars, and designating inheritance of new financial accounts (bank accounts, brokerage accounts, investments etc). It's also important to see if updates are needed if you move to a new state. Not updating regularly means that when the plan is needed, it may not match or apply at all to extra assets gained after the fact or new beneficiaries not previously identified being left out.
The Pros a Cons of a Do-it-Yourself Will
4. Think About Your Own Health
People don’t think about their health when they plan an estate. Very often a surviving spouse may need health support or your own condition may trigger a disability. These translate into costs that have to be addressed for medical services. Not having a clear path for power of attorney and health directives can be big issues if someone needs to make health decisions for you. Again, plan ahead and anticipate these challenges with solutions.
5. Name a Guardian for Your Children
Simply put, if you do not specify (in writing with the help of an attorney) what happens to your children in the event both spouses pass, the government will decide for you. No one wants that. To ensure your children are cared for by the person or persons of your choosing, it's important to put properly document your wishes and affirm the decision with the guardian(s) of your choice.
More: Picking a Guardian for Your Child
6. Choose an Executor
Choose an executor who is capable of handling the task of managing your estate, which includes a lot of paperwork and legalities. People frequently choose a sibling or a close relative to execute an estate. However, that doesn’t mean the person has the fortitude to do the job. Settling an estate, even a well organized one, takes significant work. Bear this in mind when you choose who will take this job. Choose someone with the maturity and backbone who is willing to deal with the challenges involved, including appearing at hearings and fending off relatives.
Thinking about estate issues may not be pleasant, but working on it ahead of time with your spouse can help avoid big estate planning mistakes. Remember, this is not for you. These preparations are for your loved ones. Make time for these safeguards now to take care of them in the event you, your spouse, or perhaps both of you leave this earth earlier than you expect.
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