Avoid these four common estate planning mistakes
Putting together an estate plan is an important step towards financial security, and yet many people fail to have even a basic plan. One potential hurdle is a fear of putting together a poor plan. Having a basic understanding of these common mistakes can help you reduce your risk of making the same errors:
- Not putting together an estate plan. Arguably the most common mistake is simply failing to put any estate plan together. Without guidance, loved ones are left to guess what your intentions were. This can lead to discord and unnecessary arguments. The lack of an estate plan also means that your estate does not take advantage of any available tax savings. A variety of legal tools can help to better ensure your loved ones or preferred charitable organizations benefit from your estate, not the IRS.
- Not revisiting an estate plan. An estate plan should be revisited with any major life event. This includes births, deaths, marriages and divorces. It is also wise to review an estate plan on a regular basis even without these major changes. For example, the federal estate-tax laws can change on an annual basis, adjusting the amount of an estate that can be passed before estate taxes apply.
- Only using a will. A will is just one of many documents that can aid in the transfer of assets. A trust may also be beneficial. Trusts allow the trustor, or owner of the assets, to avoid probate. Probate is the court process that a will goes through before the assets are distributed. This process is public and can be an arduous and costly process. Trusts can be established to avoid this process and, depending on the language used to create the trust, can also take advantage of tax savings, shelter assets from creditors and allow the owner to have more control over how the assets are used.
- Neglecting beneficiary designations. Designations on life insurance policies, retirement plans and other beneficiary designations should be updated with any major life event. These documents generally are not governed by a will, trust or divorce degree. As a result, an unintended beneficiary, such as an ex-spouse, could remain a recipient.
These are a few of the more common mistakes that are made when putting together an estate plan. Those that are either in the initial stages of estate planning or looking to revise their plans are wise to seek the counsel of an experienced estate planning lawyer. This legal professional will be able to discuss the various tools that can help you meet your goals and can better ensure a plan is tailor fit to meet your needs.