Here are some of the most common estate planning mistakes we see in the business.
Estate planning may be a difficult topic to discuss, but it’s vital. How you will distribute assets after death or plan for incapacitation is an important component of every financial plan.
The Financial Planning Association recently published a helpful article on common estate planning mistakes by Caroline Demirs Calio, J.D. Here are some of the most common estate planning mistakes we see in the business.
Mistake #1: Not developing an estate plan.
If you don’t direct how your assets will be distributed at your death, your state will decide. Formalizing your wishes may also save your family some heartache after you are gone and could help prevent inter-family arguments, which could cost more in legal fees.
Mistake #2: Failing to create a complete list of assets and keep good records.
A complete list of your assets and an approximation of their value will aid in crafting an appropriate estate plan that takes into account potential estate tax exposure and other issues that arise in estates of your size.
Mistake #3: Failing to update beneficiary designations.
Life insurance proceeds and retirement plans can comprise a large portion of a person’s wealth. Life insurance, IRAs, pensions, and other employee benefits do not pass under your will or trust but are governed by beneficiary designation. Update all your beneficiary designations to make sure they match your current wishes and are consistent with your other estate planning documents.
Mistake #4: Failing to name appropriate fiduciaries.
Acting as a fiduciary is oftentimes consuming and complex. As your life and circumstances change, your views of who would be best in each capacity may change. An essential aspect of creating and updating your estate plan is regularly reviewing the individuals and institutions you have appointed in fiduciary roles to take on these responsibilities after you are gone.
Mistake #5: Failing to correctly title assets.
Incorrect or haphazard titling of your assets can have unintentional consequences. For example, certain ownership arrangements (such as trusts) will avoid probate on your assets at your death. In addition, as part of the estate planning process, your assets can be titled to take advantage of any state estate tax exemptions and federal estate tax exemptions that are available.
Mistake # 6: Failing to consider incapacity.
When most people consider estate planning, they automatically think of death. However, in addition to covering the distribution of your assets, your estate plan should set forth who will make decisions for you if you are incapable of making them yourself. Things to consider: durable power of attorney, medical power of attorney, and living will.
Mistake #7: Failing to structure gifts and inheritances appropriately.
Estate plans are not one-size-fits-all. Your estate plan should not be cookie-cutter, but rather designed for the state in which you live and to consider your beneficiaries’ needs and circumstances. For example, minor children’s assets may be managed in a trust or a special needs beneficiary may need special consideration. Make your estate planning fit your family structure.
Mistake #8: Failing to properly administer an irrevocable life insurance trust.
Life insurance proceeds will be includable in your estate if you own the policy at the time of your death. If the value of your estate (including the life insurance proceeds) exceeds the applicable estate tax exemption amounts, it may be prudent to create an irrevocable life insurance trust to hold the policy, thereby sheltering the proceeds from estate taxes at your death.
Mistake #9: Failing to consider gifting techniques during life.
It is not uncommon for an older person to ask for estate planning advice. Although some techniques can be employed at older ages, in most cases better results (for example, lower estate taxes) could have been achieved through an earlier gifting program. Properly implemented, this technique can save tens of thousands in taxes later.
Mistake #10: Failing to review and update your estate plan.
It is tempting to prepare an estate plan and put it on a shelf and forget about it. However, because of various changes, estate plans should be reviewed after significant changes in federal or state estate tax laws, when life events occur (marriage, divorce, birth of children and/or grandchildren). And, in any event, every three to five years.
If you have any questions about the above or need specific advice regarding estate planning, we recommend speaking to a board certified estate planning attorney. If you need a referral to one, our team at Republic Wealth Advisors is happy to help you find someone who can meet your needs.
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