Proper estate planning goes beyond allocating money or other assets. Individuals commonly make estate planning mistakes without even realizing the implications of their decisions. These mistakes can be avoided by arming yourself with adequate knowledge about estate planning. Here are a few common mistakes made by individuals in estate planning:
Procrastination. If you do not create an estate plan, your state legislature will create a plan of its own. The state’s plan, called the laws of intestacy, dictates who will get your assets and how they will get them. Also, many individuals do not realize that estate planning also includes the preparation of documents such as Durable Powers of Attorney for Finance, Health Care Powers of Attorney and Living Wills. Failure to prepare these documents does not ensure a person’s wishes are clearly documented. Regardless of the size of the estate, preparing an estate plan can help prevent quarreling among family members who believe they know what’s best for an individual’s care and how the estate should be handled after death.
Property Transfers Based on Non-Will Provisions. Most people think their Will controls who will get what when they die. However, many assets, such as bank accounts, certificates of deposit, retirement plans, annuities, life insurance policies and real estate are often not controlled by Wills. In the case of jointly-owned assets, the surviving joint owner often becomes the sole owner of the assets. Retirement plans, annuities and life insurance proceeds transfer to named beneficiaries, not necessarily to the people named in a Will. Why does this matter? Assets can flow to the wrong people due to old, wrong and/or out-of-date designations, often with unintended estate and income tax implications.
Online or Do-It-Yourself Rather Than Professionals. There has been a noticeable rise in the number of people who will look to the Internet to prepare their own Wills and Trusts. There are dozens of websites that will profess to offer you just the right discounted estate planning documents. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster. Estate planning documents should represent the culmination of a well thought out financial and estate plan. Internet sites can provide you with documents, but no actual advice that fits in the context of your specific financial and personal life.
Leaving Assets Outright to Adult Children. There has been a growing opinion for families that assets should remain in trust, even for adult children, for as long as possible for asset protection and other benefits that a trust can offer. The bigger questions become who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses? Whether or not to leave assets in trust for adult children depends on many factors; not the least of which is personal preference.
You Have the Wrong Guardian Listed for Your Children. A Will is a mechanism to give instructions as to who you choose as guardians to care for your children. If you do not have a Will, your state decides who will care for them at a hearing. Check to see if your original guardian is still valid. A judge is required to act in the best interest of the child, so also consider writing a letter of explanation as to why you chose this guardian.