Thursday, March 13, 2014
3 Big Estate Planning Mistakes to Avoid
I’ve seen it happen too often. An estate planning mistake ends up actually causing harm to an heir or destroying a family relationship.
A parent’s ill-considered estate plan or failure to plan can mean that the wrong things go to the wrong people. Even worse, it can leave a legacy of distrust, resentment and loss amongst your children and other heirs.
Here are 3 common estate planning mistakes to avoid.
Failure to have an Updated Will. A Will can do a lot more than just say who gets what when you are gone. It allows you to name guardians and set up trusts that can protect young, unsophisticated, disabled or incapacitated heirs from losing their inheritance. And it can resolve potentially ugly family disputes in advance.
It is critically important that you keep your Will up to date.
Time changes things. People get married, have children, divorce, develop special needs, and die. The things that you own change, as does the nature of your relationships with your potential heirs. Legislators constantly fiddle with tax laws and the rules relating to Wills, trusts, powers of attorney and other estate planning tools.
You need to update your Will and other estate planning documents on a regular basis so that they will meet the changing circumstances that arise from the passing of time.
Naming the wrong Executor/Trustee. Many people name either their spouse or their oldest child to be the executor of their estate. These are easy default choices, but they may be a poor pick in your particular situation. Your oldest child may not be the most responsible, stable and trustworthy choice. But those are the qualities you need in your executor.
Your executor will have many complicated responsibilities. The executor will need to collect your assets and protect them, determine which claims are valid and pay them, prepare and file tax returns and pay taxes owed by you and your estate, liquidate your assets in a sensible way, deal with family conflicts, meet numerous legal requirements, and make ultimate distributions to your heirs. It's a big burden. Consider carefully who can best carry it.
You should be sure to name a backup in case your choice of executor or trustee cannot serve. You can choose more than one person to fulfill these duties by naming co-executors and co-trustees. If you choose this course, be sure to pick people who can work together. Their lives will be miserable if they cannot. And don’t shy away from choosing a bank or other professional trustee if that is appropriate for your family situation and estate.
Failing to Update Beneficiary Designations. Many people own assets that are not going to be distributed in accordance with the terms of their Will or Trust. Jointly owned property may be held with “right of survivorship” which means it will automatically pass to the surviving owner regardless of what your Will says.
And most of us own life insurance, IRAs, 401ks, savings bonds, annuities and other significant assets that will pass according to whatever beneficiary we named. Unfortunately, it is common to set up our beneficiary designations when we take out the policies or create the accounts, and then not look at them again.
Do you know who the beneficiaries are for your beneficiary accounts? If not, there is a good chance they will not pass in accordance with your current wishes. Do everyone a favor and update them.