The majority of estate planning errors typically fit into one of several categories. Every estate plan has different aspects, but the same issues and errors keep happening. The value of an estate or other factors rarely affects many errors. Every common error can be prevented. All you need is some time with estate planning and understanding how estate planning does not work.
Not being able to understand the strategy of estate planning.
Even the affluent and sophisticated tend to become docile around estate planners. They depend on the planner to ensure everything has been done correctly and according to the plan. It’s common for someone to sign the papers and then tell the lawyer, “I don’t know what I signed.” A survey conducted years ago for estate planning lawyers has revealed that they thought many of their plans weren’t implemented. The main reason was that the clients didn’t comprehend the plans or what they do after leaving the office.
The estate planner’s role involves ensuring you understand the basics of the plan’s operation, how you must implement or maintain the plan, and how it affects you and your beneficiaries. Your responsibility also includes being aware of those things. You don’t need to be familiar with all the legal implications and the rationale behind the terminology, but you do need to comprehend the basics.
This can sometimes entail demanding that the planner takes the time to walk you through the plan and the supporting documents. Making notes at each stage of the planning process is a good additional step. For example, people frequently make decisions following a conversation with the estate planner.
The planner has discussed the choices and their justifications with them, so they are fully aware at the time. The specifics, however, are fuzzy days, weeks, or months later. Make notes about your important choices and the rationale behind them so you can refer to them later.
Outdated designations of beneficiaries
This has been the subject of numerous cases and decisions, and every estate planner has at least one terrifying tale. Remember that not all your assets will be distributed according to your will. Who inherits these assets is determined by separate beneficiary designation forms. These resources include life insurance, annuities, and retirement accounts.
Because you originally listed your parents or siblings as beneficiaries on the form when you opened the account years ago, failing to update beneficiary designations could result in an asset going to them. The asset may occasionally be distributed to an ex-spouse, a decedent’s estate, or other unintended beneficiaries. Other times, a person is unintentionally left off the list because they were added to the family through marriage or birth after the form was submitted.
Review your beneficiary designations every few years and after any significant life changes in your family.
Unaware of Recent Changes to Tax Laws
The estate tax exemption has significantly increased over the last 20 years. If you possess substantial wealth, you must ensure that your estate plan uses special planning opportunities available under current law. Because it may unnecessarily result in avoidable taxation, an outdated estate plan structure that hasn’t kept up with modern tax law may do more harm than good for your loved ones. A competent estate planning lawyer who is fully aware of your circumstances should review your documents and make any necessary modifications.
Maintaining outdated powers of attorney.
Every estate plan should contain powers of attorney. There is a requirement of a minimum of 2, one for financial matters and the other for medical care (often called an advance medical directive). Before you require a will and the rest of your estate plan, you will likely become disabled and require these documents.
Unfortunately, many people don’t have either of these documents, and some people who do have them haven’t thought about the details or kept them current. So ensure that you have these records and that there has been a recent review.
Failing to update the plan
Other components of the plan may occasionally need modification. For example, any time there is a significant life change in your family, such as a birth, death, divorce, or marriage. So, you should get in touch with your estate planner. Additionally, you should review your plan whenever your net worth changes, your estate changes, your employment status, your residence, etc. Of course, if your objectives or the law change, you should schedule a meeting with your planner.
Not Keeping Your Estate Plan Secure
Even the best estate plan in the world won’t help your heirs if they can’t locate it. So consider your options carefully before storing your plan in a safe deposit box. As accessing it after your passing can be difficult for your loved ones. However, you should keep all of your estate planning documents in one secure location.
One of the kindest things you can do for your family and loved ones is to make an estate plan. But don’t let any of these unintentional estate planning errors cause your good intentions to fail.