Estate Plan Mistakes
Five Common Yet Avoidable Estate Plan Mistakes
What is an estate plan? In simple terms. The purpose of creating an estate plan is to protect you and your loved ones. Putting together an estate plan is nothing more than documenting your assets, large or small, and stating what happens to them upon your death or incapacitation.
Because estate planning can be a bit complicated, going it alone brings potential trouble for those without a background in law. Properly planning your estate, however, can be a great way to take care of yourself and your loved ones.
Despite the need for an estate plan, creating an estate plan makes people uncomfortable. Both death and losing loved ones is never something we enjoy thinking about, nor look forward to. Nonetheless, having an existing estate plan makes the inevitable a much easier and smoother transition.
Estate plans are one of the important things that we tend to set aside. It could be that we’re not comfortable planning for our death, or we don’t see death as something that could happen soon. Maybe, there are people who simply don’t see it as a priority. In such cases, several misconceptions about estate planning could be the culprit.
Being aware of these five common estate plan mistakes will help you feel secure enough to handle whatever the future may bring.
1. No estate plan in place
We can’t escape death and not preparing for it is the biggest estate plan mistake of all. Not having a plan makes you vulnerable in times of incapacity, and worse, it makes your family struggle with logistics at a time when they would rather focus on grieving.
You can easily avoid this with thoughtful planning. An estate plan ensures that your personal and financial affairs will be in good hands any time turn over is necessary. When you have accumulated assets, an estate plan becomes that much more necessary.
One misconception in estate planning is that only old folks need one. Some think they won’t need it anytime soon. While we all hope to live healthily to a ripe old age, the sad fact is we cannot predict what will happen to us, and old age and death is not the only time an estate plan is useful or necessary.
In any case of incapacity due to illness or accident, you would need an estate plan to insulate you financially. Being ready with an estate plan makes things convenient not only for you but also for your loved ones.
Starting the process is easily the hardest part. The good news is that once you convince yourself it’s a necessary step, with the help of a trusted lawyer, you’ll glide right through the rest of the process.
2. Being too narrow in your estate planning approach
Let’s say you already have made up your mind that you need an estate plan. The planning itself requires a mind broad enough to consider various possibilities in the future. It is not all about who gets what when you die. There is more to estate planning than what people commonly think of as creating a will.
Aside from the usual distribution of assets to heirs, estate planning should also consider your future medical condition in case of temporary or permanent incapacitation.
Your estate plan should outline how your finances will be managed in the event that you can no longer manage them yourself. You may include a living trust that allows you to transfer the control of your estate to a trustee. You may also consider incorporating a durable power of attorney, healthcare power of attorney, and advance health directive.
Think of any other decisions you would like honored if it ever happened that you could no longer communicate so. Examples might be who will take care of your pet.
Assuming that there is only one way to plan your estate is the typical misconception. Your estate plan is personal and customizable. It should be made of personal decisions on important matters that need control and management beyond your capacity or existence.
3. Failure to fund revocable trusts
If you have finally created an estate plan, there are things to be done so that you won’t spend unnecessary money on trust documents and fail to reap the other benefits of incorporating a trust in your estate plan.
A revocable trust is also called a living trust. Having one ensures that assets transferred to the trust can avoid probate and help with other issues like disability planning.
In many cases, the common estate plan mistakes in a living trust are caused by fast tracking and skipping a step. When an attorney prepares the agreement, all concerned parties will sign. After that, the trust requires “funding” for the legal title to assets to be transferred to the trust.
Some items like household and personal effects can be done easily. However, there are assets like real estate that require the deed to be changed to reflect that the trust is now “the owner” of the property. Other examples include automobile registrations and financial accounts.
The processes vary and you need to know what to prepare so that your estate plan can be properly executed. These are not expensive processes but are often neglected. A good estate planning attorney will be on top of this and remind you of the steps you need to take.
4. Forgetting to update your plan
Estate planning is not a one-time deal. You can’t make one and assume that it will always be relevant. Since it is a plan, it is open to updates especially if circumstances have changed throughout the years of your life.
Your financial situation will change and your estate plan should be updated to reflect these changes. Your needs will change and you should ensure that your estate plan can still satisfy them in the future.
Marriage, children, more children, new properties, and other life events that affect your estate plan should be considered as reasons for adjustments. Don’t forget to update your estate plan after divorce either, especially when your trustee is your former spouse.
Take time to review your estate plan on a regular basis to ensure that it is still applicable to present circumstances. If not, make the necessary changes as soon as possible. Check asset ownership, powers of attorney, beneficiaries, and other particulars that need further adjustments.
5. Not coordinating trusts and retirement plans
IRS regulations demand understanding of how you designate your living trust or other trust beneficiaries of your retirement plans. Not fully understanding the limitations and impact of decisions you’ll make for your estate plan can create problems with the IRS and may accelerate taxes. This is another reason why choosing a good estate planning attorney is a wise decision.
Your life insurance policies left uncoordinated to a life insurance trust can also cause problems. Since insurance policies are subjected to estate tax when you die, this can result in giving more of your assets to the IRS instead of giving them to your beneficiaries.
This is avoidable by setting up a life insurance trust to act as the owner of your life insurance policies.
For More Info About Estate Plan Mistakes, Call Andrea Aston
Andrea Aston is here to help you with all your estate plan needs. If you’re in search of a lawyer who will work with you to make the process easy and understandable, look no further.
All four main components of an estate plan, the living trust, power of attorney, will, and health care directive, are all services available at Trust and Estate Planning.
Call Andrea Aston and take advantage of a free, confidential consultation. Your estate plan will be fully taken care of and you can feel confident that you are not making any of the common estate plan mistakes.
Call Andrea Aston today at (760) 758-1565 for a consultation.
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