Our last blog was about the most important estate planning documents that everyone should have. This week, we want to talk about some of the very common mistakes we see when dealing with new clients regarding their estate plans. One of the most common problems that occur with planning for one's passing and ultimately the distribution of their financials, is that people frequently leave the matter to the very last minute and then make rushed decisions on incomplete or even bad information.
It should be no surprise these mistakes happen which are often avoidable with a bit of planning and thinking ahead. Any financial advisor worth their salt will be quick to say a good financial portfolio includes planning for one’s estate distribution after they pass, unfortunately, it often sounds like a foreign language to those of us who are not as familiar with estate planning.
If you are able to, consider dedicating some time now to planning and working on your legacy plan. Here are a few ways in which you can better avoid some of the major estate planning mistakes.
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 basic will is far better than nothing. Ignoring the matter means that your entire estate will be decided by a probate court. What does that mean? That means a judge could transfer your assets to just about anyone who makes a good argument in front of the court.1 Our advice is to 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
It is easy to say "I want my spouse to get everything" and that's a great start but we cant assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Life happens and is most certainly not frozen in time just because an estate plan designates one specific person to be a key beneficiary. We have to go deeper to second and third-layer beneficiaries as a contingency just in case the first person chosen is no longer available; Choose one or two more. You will be making your executor’s task of getting your assets distributed properly, much easier.
3. Regularly Update Your Will, Estate Plan, or Trust
If you have a will, estate plan, or trust already, make sure it is regularly reviewed and updated. The entire world is constantly changing - your financial situation and beneficiaries are no different.1 Big changes that should require an immediate adjustment include new children joining the family, inheritance of assets from someone else, changing of current assets such as homes and cars, and new financial accounts (bank accounts, brokerage accounts, investments, etc.).
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 even worse, new beneficiaries who were not previously identified - being left out.
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. Consider Transferring Assets as a Gift
Giving gifts is an easy way to transfer assets early without taxes, but people hardly use it while alive. Any individual can transfer up to $16,000 without taxes on the amount or value annually to any other individual.2 For a married couple, you could give away $32,000 per year, per beneficiary and there are all kinds of tax planning opportunities that come along with this idea.
This is an easy, simple way to liquidate parts of an estate early without the transfer having to go through the estate distribution process after a person passes away. Even better, you are entirely in control of the asset and transfer as opposed to relying on an executor.
If you would like to discuss your current situation schedule a free 20-minute call with the link below.