People work their entire lives to pay off a mortgage, accumulate savings, fund a retirement plan, and to create a financial legacy for their children. Unfortunately, many fail to create a proper Last Will and Testament, leaving children and surviving spouses with mounds of paperwork to sort through after a death. This leaves the courts to decide on how to distribute your assets, which may or may not reflect your wishes. Worse, people often create their Will, but neglect to include exact details on how they wish their estate to be divvied up after their death.
A poorly planned estate can leave some of your beneficiaries out in the cold, despite your best wishes. A divorce can further complicate matters. If you don’t wish your greedy ex to inherit your estate, you’re going to need to update your Will, and avoid any costly mistakes for your heirs.
To avoid estate planning pitfalls it’s best to carefully document your Will, and ensure that a qualified lawyer vets and notarizes it. As you enter your twilight years it’s worth checking every year or so, to ensure it’s up-to-date.
What is Estate Planning?
Estate planning is a process where you connect your assets to the people you love, in the event of your death. Assets may include a house, property, vehicles, jewelry, furs, collectibles, fine art, coins, savings accounts, retirement savings, bonds, and more.
Estate planning is usually done with a Will and/or trust accounts. You can designate to whom your assets will go after you die.
Estate planning is done for your piece of mind, and to properly provide for children in the event of your death.
Here are the top 9 estate planning mistakes people make before they die.
1. Neglecting to make an official Last Will and Testament.
Depending on which state you live, a Will found in a shoebox in the closet may or may not be a valid document in the event of your death. Even worse is having no Will at all. Failure to create a Will will place your successors in a bad position. Your estate could be tied up in the courts for years, or worse, your beneficiaries may not get what you want them to inherit. If you have young children they may be left without the support they need, while the courts decide how to divvy up your assets.
There are many books and software programs to help you get started with writing your Will. You simply type in your wishes and print out the document. This document needs to be taken to a lawyer to be vetted and then signed, and notarized. A notarized Will is considered an official document. A lawyer can assist you with wording and ensure that your chosen beneficiaries inherit exactly what you wish. You may not wish to rely entirely on a tax package, particularly if you feel that your estate planning might be complicated.
One copy of your Will should be kept with your lawyer, one with an Executor, and one in a safety deposit box. This will prevent any disputes in the event that one of them goes missing, and a relative tries to pass off an older Will as the most recent.
2. Failing to designate a Power of Attorney.
Whether you fail to designate a Power of Attorney, or you choose the wrong person, you’re failing to have a trusted person at hand who will handle your finances, and manage your accounts if you become disabled. It doesn’t matter whether it’s a mental or a physical disability–as you get older you may need help managing your affairs. Unfortunately, too often an unscrupulous relative can offer their services, and before you know it, the money is gone.
Many people may wonder what designating a Power of Attorney has to do with them in the event of death. If you fail to choose the right person, there may be no estate left to manage upon your death. In the event you become disabled, you need a capable and trustworthy person to manage your finances. This means designating a trusted Power of Attorney in advance, before you lose your mental faculties. A trusted Power of Attorney will ensure your bills are paid, ensure you have the care you need, and that your lodging is secured.
3. Leaving your individual retirement account to your estate.
If you choose to leave an IRA to your estate it will be subject to probate, along with your house, assets, and any other types of savings. If there’s any money left in the IRA after debtors have been paid, it will go to your heirs. Many people think that it doesn’t matter after they’re gone, but if you’re leaving survivors behind, possibly a spouse or young children, ensuring that they can make the most of your assets in their time of need is paramount.
To get maximum funds from an IRA, it should have a designated beneficiary set up in advance. In the event of your death funds are immediately transferred to your beneficiary, and will not have to go through probate. This can potentially save a lot of money.
4. Not updating beneficiaries.
If you set up your Will several years ago, your beneficiaries may not be current. In the event of divorce or death in the family, past beneficiaries should be removed from your IRA or Will. This is also applicable to new births in the family. Keep your documents up to date to avoid disappointment or disputes within the family. You’ll also want your children to be adequately provided for, should something happen to you.
The best time to review your Will is at tax time. Consider whether you have new family members, including foster or adoptive children you wish to include.
5. Not following through with trusts.
A trust can enable you to transfer some of your assets to a family member. but it’s a two-step process. You need to actually fund it. If you merely set up the trust, but don’t fund it, in the event of your death, your beneficiary may receive nothing. As soon as you set up a trust, you need to set up funding as well. Your assets will need to be retitled under the name of the trust. Don’t assume it’s done by merely listing assets that should be going to each family member.
6. Liquidating assets that are in the Will.
If you’ve decided to sell your house, or prized coin collection, but neglect to remove these assets from your Will, you’ve going to create turmoil during the probate of your estate. Many state laws will require the Executor of the Will to replace possessions designated to a beneficiary in the Will, unless the beneficiary is in agreement that they receive nothing. Property assets that no longer exist can tie up probate for several months while this matter is investigated.
In order to avoid disputes upon your death, your Will should be regularly updated. Assets that no longer exist should be removed from the Will. You may also wish to add assets if you have made any valuable acquisitions in the past year or so, such as property, vehicles, collectibles, time share plans, jewelry, etc.
7. Failure to note beneficiary specifics.
If you’re hoping that one child receives all your jewelry, while another receives your antique furniture, and for both of them to be in agreement, don’t. Family squabbles frequently happen after a mother or father has died. Parents just assume that children will get along, and be able to divvy up belongings like adults, forgetting that they may act like children where possessions, or money, is concerned.
If you have your heart set on leaving one child all your jewelry, or fine art, vehicles, or any other types of financial assets, be sure their name is clearly spelled out in the Will. Your other child cannot dispute what is part of a legal document. When your wishes are set out in a notarized legal document your children must obey your wishes. Having clear designated beneficiaries is also applicable to life insurance plans, retirement savings, and any other type of account where you can designate a beneficiary.
8. Using ambiguous legal phrasing.
Many people write certain ambiguous phrases into their wills such as “assets to be divided equally among survivors”, or “left to the discretion of the executor”. These phrases are open to misinterpretation, and may not even pass probate. It can leave your family open to disputes and squabbles that can lead to court battles. It can be baffling why a lawyer would endorse ambiguous wording, but the power is in the estate planner’s hands. An executor will do their best to follow their wishes. A will gives an executor the power to use their discretion. It takes a criminal act to displace an executor. Good-faith acts will never displace them. If your executor is someone you trust implicitly, it’s worth being more specific in your Will.
9. Not communicating your wishes to family.
Many people are uncomfortable discussing their Will with the family. But there is nothing wrong with giving them a heads up about your assets. If your only child is going to inherit the family home, that may give them the security of knowing that it’s going to stay in the family.
Other reasons to communicate with your family may involve records and papers for certain assets. You may wish your family to know where to find the deed to the house, or information about a life insurance plan. Perhaps you have a large collection of valuable coins hidden in your home. Notify a trusted member of your family, so that these valuables can be found in the event of your death.
After someone dies, it can be chaotic for family members to sort the house, go through their parent’s stuff, and toss or donate items. Often many valuables are overlooked. You don’t want your son to discover after the fact that there was an insurance policy, but now it’s too late for them to collect. Or perhaps the deed to the house is needed for a property transfer. Hunting down records will slow down the probate process. It can still be done, but more slowly. Other items to make your family aware of are safety deposit boxes and keys, vehicle registrations, and out of state property.
Prevent disaster by informing your loved ones about where your important documents are kept. Further advice about avoiding estate planning pitfalls may be obtained from your lawyer. Anything to do with passing down houses, property and vehicle transfers, investments, and other asset distribution can vary state by state. State laws can vary widely, so don’t assume that one state will follow the laws of the state you came from. If your heart is adamant on who inherits what in your family, and you wish to prevent disputes, the more care and detail you place into your estate planning is only going to benefit your family.
You may wish to create a current list of your assets, and update it once a year. This will enable the executor of your estate to find everything they need to manage your estate. Notify your lawyer or executor where this list may be found, in safety box, or otherwise.
Start Your Estate Planning Today
Create your Last Will and Testament sooner, rather than later. Ensuring that your family will have the support and financial care they need upon the event of your death will be one last checkmark to make on your bucket list. And once it’s done you can breath a huge sigh of relief. It’s done, and all you have to do is have a once-a-year review of your estate.