An estate plan is a complex, essential set of legal documents that can offer a person a great deal of financial and emotional security. But, while the estate planning process is far less prolonged and painful than some people fear, there is, like any legal process, no shortage of ways in which someone can stumble when it comes to making their arrangements. Here are five of the most common (but by no means only) estate planning mistakes to avoid.
You don’t have an estate plan at all.
Approximately 60% of adults don’t have a Will or Estate Plan. Are you part of the majority? Perhaps you assume estate plans and Wills are only for the extremely wealthy. Perhaps you are in your 20s or 30s and feel that you don’t need one yet. Perhaps it overwhelms you so you’d rather keep bumping it to the bottom of your to-do list. Regardless of your reasons, every adult needs at least a simple Will.
A Will documents your wishes regarding your property and assets, and appoints a legal representative to oversee the process of distributing your estate to your beneficiaries. If you pass away without a Will (or die “intestate”), the state will appoint someone to decide how your property will be distributed. This could mean that your assets end up in the hands of people other than those you intended. Moreover, the important needs of loved ones that you’ve prioritized may not be addressed. Having a simple Will in place can prevent delay, expense, frustration, and even loss after you pass. More importantly, a well drafted Will provides security for those you leave behind.
You don’t talk to an attorney.
While it isn’t required that you use an attorney to prepare your Will and estate plan, I strongly recommend it, especially if you have significant assets, minor children or a blended family. Involving an attorney early in the process will ensure that your wishes will be carried out appropriately later down the road. If you opt to go the DIY route, consider having an estate lawyer review the will you created, just to be safe.
Estate planning attorneys have years of experience analyzing clients’ unique circumstances, explaining the ramifications of their decisions, and tailoring documents to address their unique needs and specific objectives. This experience means that you walk away with a comprehensive estate plan that you know will stand up in court even if it is contested. Many people find that this peace of mind alone makes it all worth it.
You don’t update your will.
Once they have finalized and signed their Will, many people file it away in a safe deposit box and forget about it. However, there are many reasons to regularly revise your Will and other estate planning documents after you’ve initially sorted it all out. Every major life change should be reflected in your estate plan. This includes a divorce, the death of one of your heirs, the birth of a potential new heir, a major change in your financial situation, and significant modifications to your investment portfolio.
You assume that you don’t need a trust.
Many people assume that trusts are reserved for those of extreme wealth, but the benefits that they can offer to someone with even moderate assets can be significant, depending on the individual’s circumstances. Wills only account for divisions of assets after your passing, but trusts govern the distribution of your assets for an extended period of time.
Since trusts enable restrictions on the timing of asset distribution and conditions for heirs to receive bequests, they can be useful tools to help to care for heirs who are unable to manage their finances, such as minor or special needs child. They can also be used to shelter certain assets from estate tax or to provide for a surviving spouse or a charity of the grantor’s choosing.
You name the wrong executor.
When crafting your estate plan, a crucial step includes selecting the person who will be responsible for administering your estate and carrying out the provisions of your will. This person, the executor, will help ensure the timely, accurate distribution of your estate. Picking the right executor is vital, even if your estate is not large.
Many people appoint a relative or old friend as their executor without much thought. These people usually know us best, so naming a significant other, adult child, or dear friend to fill this role seems like the most logical choice. And often, it probably is. But other factors should be considered as well. First and foremost, your executor should be someone that is likely to outlive you. Beyond that, they should have the time and willingness to handle the responsibilities of executorship. Ultimately, you want to pick someone who respects your wishes and won’t let their personal feelings about those you’ve named in your will get in the way of executing your estate plan as you’ve intended. Read more about selecting an executor here.
Estate planning is undoubtedly complex, but a properly prepared plan can save your loved ones a lot of grief and hassle.