Many people think that “estate planning” is something meant for just the “rich.” This is an unfortunate misconception that all too often leads to miscommunication, hurt feelings, and unhappy surprises. Here are seven common mistakes people often make and how you can avoid them:
1. Failing to Plan
Estate planning is about making sure your wishes are carried out. It’s making sure that the people and/or organizations you wish to receive your assets do so. Working with a team that includes a financial planner, tax professional, and estate planning attorney can help put you on course.
2. Not Documenting Your Wishes
It’s important to work with your attorney to create:
- A Trust and/or Will– one that clearly spells out what you want to have happen to your assets and possessions at your death or disability. Without a trust and/or will, the state may decide where your things are going to go and charge you plenty to get them there.
- A Durable Health Power of Attorney – to appoint the person that you want to make health decisions for you if you can’t, avoiding the catastrophe faced by the family of Terry Shiavo.
- A Durable Financial Power of Attorney – to assign the person who will make financial decisions if you are unable (the bills do not go away when this happens), and
- A Living Will – to provide clear instructions as to what extent of health care treatment you do and do not want if you are unable to speak for yourself.
3. Not Properly Setting up Guardianship for Children
If you do not name a guardian to care for your children, a judge will appoint one, and it may not be the one you would have chosen. Talk to the person ahead of time. And, remember that the person that you are naming as guardian doesn’t necessarily have to be the person that manages the money that is left for your child’s benefit. You can name a couple as co-guardians, but that may not be advisable because, should the couple divorce, custody will come into question and your children may not end up with the person you originally would have chosen.
4. Not Taking Advantage of Trusts
The reason to set up a trust is to give you additional control. Think of a trust as a container designed to hold money for your heirs. You decide what you are going to put into the trust, who gets what is in the trust, and how it is distributed. So, a properly structured trust can help ensure that your plan is executed exactly the way you intended it to be. A trust should be drafted by an attorney with experience dealing with estate planning and trusts.
5. Disregarding Federal Estate Taxes
If your estate is subject to federal estate taxes, keep in mind that they are due within nine months of death – in cash. This may be a concern if much of your estate is not actually in cash. That will mean selling assets, such as a house, for instance, that you may have meant to leave to an heir. Federal estate taxes also can eat away at the assets you meant for your heirs to enjoy – not Uncle Sam. You can work with a financial planner, tax professional, and estate planning attorney to determine which strategies may best help you minimize or otherwise entirely avoid this.
6. Subjecting all Assets to Probate
Simply put, probate is the use of the court to facilitate the transfer of your assets to your loved ones, It can be slow, very costly and isn’t private – it’s all a matter of public record. In addition, you have essentially lost control of your assets beyond your initial gift, and have done nothing to protect your assets from creditors and predators.
7. Not Being Prepared for Long-term Care
Suppose you or your partner needs long term care. Such care can be quite costly and can eat away at assets. Assets that you had originally earmarked for your heirs. The good news is that you can properly prepare for the possible need of long term care while preserving your hard-earned assets for your family. A financial professional can show you your options.
Working with your team, including your financial planner, tax professional and estate planning attorney, you can create a plan that will help you avoid these and other mistakes so you can ensure that the people who you want to receive your assets do so, when you want and in the amount you want. You keep control.