Mistake #1 – Failing to Make an Estate Plan
When it comes to basic estate planning, I’ve found that many people simply avoid it. The typical reasons include thinking you are too young to need an estate plan, fear of death, misperceived expensive costs, or complicated family situations. Suffice it to say that without an estate plan in place, you’ll be leaving your loved ones in the dark, and they’ll end up spending thousands of dollars that you thought you saved by not creating an estate plan figuring out what to do for you if you become disabled and what to do for themselves after you die. Begin your planning early, while you still have your wits about you, and then review and update your estate plan frequently to ensure that it will work the way you intended when it’s actually needed.
Mistake #2 – Forgetting About the Little Things
When it comes to basic estate planning, I’ve found that many people overlook making an estate plan for their personal effects, including jewelry, artwork, and collectibles. They simply assume that their loved ones will be able to agree on how to divide it all up. In my experience, these things are what people argue over the most. Don’t let this mistake happen to you and your loved ones. Ask what everyone wants and then make a simple but smart estate plan for your “stuff.”
Mistake #3 –Outright Bequests to Children
Far too often, I see simple wills where either young adults (18 years old) or even minors would receive large inheritances outright. Most 18-year-olds are simply not ready to handle substantial sums of money. At a minimum, a will should provide that, until a child either reaches a certain age or achieves something like graduating college, the child’s money should be held in trust. The trust can provide for the child’s college education, as well as anything else that the trustee determines is appropriate. A better alternative is to keep the child’s inheritance in trust for his/her lifetime. When properly drafted, the trust can protect their inheritance from a possible ex-spouse or creditors. A trust can also make sure that a financially irresponsible heir doesn’t spend the inheritance too quickly on frivolous things.
Mistake #4 – Incorrect Beneficiary Designations
Are your beneficiary designations up to date? Do you even know which accounts have beneficiaries and who you’ve designated?
When you designate a beneficiary for an account, that person inherits the assets in the account, regardless of what your will might say. That’s why updating your will periodically might not be enough. Typically, you’ll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities, and insurance policies.
Mistake #5 –Not Editing Your Plan Along the Way
Life is far from predictable, which means your estate plan, like any financial plan, should be updated as your financial and personal circumstances change. Changes such as a birth, marriage, divorce, job loss, health condition, etc. all warrant factoring into your estate plan. And beyond that, you’ll have to seriously keep an eye on the ever-changing laws in both the state where your estate plan was drawn up and the country as a whole.
Planning for Your Family
When it comes to good estate planning, having a working knowledge of future deadlines and timelines is important, whether you’re an author or a parent. If your children are under 18, for example, you should make sure there is clear guidance in place for how they will be taken care of in the case of your death. A will is required to name guardians for children, and a revocable living trust can be used to make sure children are provided for over time, rather than being handed a one-time chunk of money.
Planning for Your Business
You might not leave an iconic detective series behind, but what about a business you own? Estate planning is important here as well. Without establishing a clear path for what occurs after death, your business might become badly managed, or disband. In your will, you can include, for example, a “buy/sell” agreement, in which someone else has already agreed that, in the instance of your death, they will buy your business. This will assure that your heirs are provided for. You can also discuss with your estate planning attorney how taxes will be handled. Business laws dictate that death taxes can comprise a significant percentage of your business’s value. Certain IRS tax breaks, though, such as Section 303, can help to alleviate this tax burden if taken advantage of correctly.
You can also discuss the possibility of you and your partners establishing life insurance policies against each other. Many companies lack liquid assets that would allow them the capital to buy out the shares of a deceased partner; this capital, though, could come from life insurance.
Planning for Business AND Family
Running a family business can be tricky when it comes to dividing the business among heirs. If only some of your children will take over the business, do the others still receive an equal share? Do you want the involved children to buy out the ones who aren’t involved with the business? Work with an estate planning attorney to cement these details, so that there will be no confusion or arguments in the event of your passing.