Your estate and material wealth are a huge asset for your family and loved ones. It can be challenging to take on estate planning, mostly because it is an emotional and complicated topic. However, estate planning is an important part of a healthy financial profile. When your will and estate are properly prepared, you can relax knowing that your loved ones will be taken care of. Don’t fall into the common pitfalls of estate planning so that you can be sure to make the most of your assets.
Common mistakes of estate planning:
- Not creating a plan. This is the biggest and most common mistake. According to the AARP, 60% of American adults are lacking a will or estate plan. Trying to sort out an unprepared estate can be expensive. With numbers like that you can be sure a lot of money is being lost to taxes and legal fees. The biggest step you can take in protecting your assets for the future is creating a comprehensive estate plan now.
- Avoiding power of attorney. It’s important to plan for disability and medical care when you are estate planning. A power of attorney can help ensure any decisions are made appropriately. Consider appointing a financial and medical power of attorney and periodically reassessing your selection. Make sure this individual is willing and capable of executing the duties.
- Not being involved. Many clients rely on their estate planners to do the heavy lifting. This often means that they don’t really understand what is in the plan and just assume the expert knows best. This can be a big mistake. Estate plans are not one size fits all. It’s important to be involved in the process and at least understand the basics of your plan. Talk to your estate planner about the details of each portion and what actions need to be taken along the way. Nodding and smiling is not the right answer here. Don’t be afraid to ask detailed questions here, the most important part is that you understand what you are signing.
- Forgetting about gifts. Giving gifts to family and loved ones is one way to avoid hefty estate taxes after you are gone. The federal government allows for a certain amount to be gifted each year tax free. This is called the ‘gift exclusion.’ This year it has been raised to $15,000 per person. If you want to start moving some of your estate to your children, you might consider increasing their birthday checks for a while.
- Forgetting about beneficiaries. Your will and estate plan do not overrule beneficiary designations on certain assets. It’s important to pay attention to those designations and periodically update them to make sure they are in line with your current wishes. This pertains to retirement accounts, annuities and life insurance policies.
- Not revisiting. Having an estate plan is the first step, but this isn’t a one and done scenario. Circumstances change, and life happens. Revisit the plan every few years or when you have big life events. This way you can be sure you are getting the most out of your plan. At the very least, reassess your plan when there are births, deaths, divorces or major asset changes in your family.
Estate planning doesn’t have to be a big chore. A little planning ahead can make all the difference.