Estate planning is an important step in securing part of a financial future for your loved ones. While the process may seem daunting, avoiding common mistakes can make it more manageable.
Part of this includes knowing pitfalls to steer clear of when creating your estate plan.
Neglecting regular updates
One common error is failing to update your estate plan regularly. Life is dynamic, and circumstances change over time.
Births, deaths and marriages can significantly impact your family structure and financial situation. It is important to review and update your plan periodically to ensure it reflects your current wishes.
Overlooking the importance of a will
You may believe that your assets will automatically pass on to your heirs without a will. However, intestacy laws can lead to unintended consequences.
Without a valid will, the state may distribute your assets according to a predetermined formula, neglecting your real intentions. Making a clear will ensures that people distribute your assets according to your true wishes.
Ignoring the significance of beneficiary designations
Another aspect often overlooked is updating beneficiary designations, especially since these beneficiaries are commonly children. Around 5 in 6 American adults age 55 or over have children as of 2018.
Failing to pick beneficiaries or neglecting to update them can result in your assets not reaching the intended recipients. Insurance policies, retirement accounts and other financial assets require up-to-date beneficiary designations to avoid complications.
Underestimating tax implications
A common oversight is underestimating the tax implications of your estate plan. Understanding the tax consequences of asset transfers and taking advantage of available exemptions can help reduce the tax burdens for your heirs. Talking with a financial advisor can provide valuable insights as well.
Neglecting to plan for incapacity
Estate planning is not just about distributing assets after death. It also involves planning for potential incapacity, like a coma. Failing to create documents like a durable power of attorney or a healthcare proxy can leave your affairs in limbo if you become unable to make decisions. Planning for incapacity ensures that someone you trust can manage your financial and healthcare matters on your behalf.
Avoiding these common mistakes can help you relax. This gives you a way to protect your assets and provide clarity for your family during this challenging time.