Estate planning provides you peace of mind and ensures that your assets, loved ones, and interests are protected after death. But most people end up making many costly mistakes.
Be it due to bad planning or lack of knowledge; estate planning mistakes can greatly reduce the financial benefits and undermine your intent. These mistakes can also create problems for your beneficiaries while they mourn your death. Let us go through some of the most common mistakes.
1. Not talking to your friends and family
In the majority of cases, it is a good idea to discuss your estate plan with your loved ones and friends. Discussing the estate plan with your friends and family lessens the likelihood of a disagreement and contention after you pass away.
You can also add to your estate plan that any specific person who contests anything can be written out. In order to avoid any future misunderstanding, you should take out time to discuss the estate plan with your family and anyone you have named Trustee or Executor, and also notify all the people you have added as your beneficiaries.
2. Improper planning
The biggest mistake you can make is not giving your estate plan thought and time. Failing to properly plan your Estate plan means you are putting your future financial legacy, future of your estate, and loved ones at risk.
If you have not started planning or if it has been more than four years since you updated, it is time for you to sit down and start planning.
3. Not naming a power of attorney
Naming a power of Attorney is very important because healthcare representatives and attorneys are the people who step in to make decisions if you become incapacitated. Make sure you keep standalone documents that appoint a trusted person to make decisions on your behalf.
4. Not planning for disability
Most people think that the risk for disability before retirement is only 2%. But in reality, that is not true. According to statistics, one out of seven workers become disabled before they reach their retirement age. A comprehensive estate plan can help you reduce the effects of unexpected disability.
If you are not able to make decisions by yourself, then you can give a trusted person a power of attorney to make decisions on your behalf. There is also an option of assigning short-term temporary power of attorney for a specific period of time.
5. Choosing the wrong executor
It is difficult to decide who will make the perfect executor for your estate, the best guardian to your children, or the best trustee. While your spouse might seem like the best choice, they may be too overwhelmed to function and manage such complex procedures after your death.
They might not have enough knowledge about finances, taxes, laws, and investments to manage a large estate. There are many cases where the remaining spouse or children are not a good choice to make the executor of your estate because they disagree with your decisions.
So you might be concerned that as the executor of your estate, they might not fulfill your terms. It is not important to name your family member as an executor. You should consult a skilled and experienced state planning lawyer such as those working at https://easlerlaw.com/estate-planning so that they can help you select the right option.
6. Not planning for a nursing home
Some people might require a nursing home as a retirement option. However, most people who require nursing homes end up using Medicare insurance, but they can only do that when they have spent a large sum of their savings.
This creates financial hurdles and difficulties for their loved ones at home. Planning for a nursing home beforehand can help you make a better decision. It can protect the spouse remaining at home while ensuring that the spouse requiring medical needs qualifies for medicare.
7. Adding only one beneficiary
It is always a good idea to add more than one beneficiary for each of your assets. In cases where the beneficiary passes away before you do, you will want to have a contingent beneficiary.
A contingent beneficiary is one who would get your estate or assets if your primary beneficiary passes away. For each asset, you should list a primary beneficiary and then two or more contingent beneficiaries.
8. Putting your child’s name on the deed
Some people use their child’s name on the deed of their house in order to protect their house from creditors. They might also do that because they think that is the safest way to transfer property. However, with this one mistake, a lot can go wrong.
By writing your child’s name on the deed, you are giving them ownership of the house. As a result, they can easily throw you out of your house. They can also sell the house and keep the profit without sharing it with you or other beneficiaries. By putting your child’s name on the deed, you are simply losing control over your asset.
The only benefit of doing so is that by putting their name on the deed, you are giving them a taxable gift. However, it is not necessary as there are many other estate planning documents that you can pass to your children tax-free.
9. Failing to transfer your life insurance policies to a life insurance trust
A major component of estate planning is tax planning which can reduce the impact of estate taxes. Everything you own at the time of your death is a part of your estate. If you transfer your life insurance policy to a life insurance trust, the estate tax is not charged. In addition to that, it also saves your spouse and children from waiting for a payout of the insurance money.
In a nutshell
Estate planning is a great way to take care of your loved ones after your death. Many people go for it but make crucial mistakes that result in their loved ones suffering instead of reaping the benefits of your estate plan. The above-mentioned nine mistakes are very common and should be avoided at all costs.
If you are facing difficulty forming the right estate plan, then you should consult a skilled and experienced attorney who will help you make the right decisions. Once a proper estate plan is in place, you can rest assured that your family and loved ones will be taken care of once you pass away.