Not surprisingly, most people loathe reviewing their estate plan because it can be both confusing and daunting. Others do not want to think about death and avoid the topic altogether. If you already have put an estate plan together, you are ahead of the curve as many people do not have one. If you do not yet have an estate plan, there is no better time than now to sit down and get one in place. In either scenario, below are five common estate planning mistakes and how to fix them so that you are fully protecting your family.
1. You Have Not Updated Your Plan
Many people consider estate planning a “one and done” proposition. This could not be further from the truth. Life happens. This may include adding new beneficiaries due to the birth of children or grandchildren, or removing beneficiaries due to a change in circumstances. Your family’s needs will almost certainly have changed over the years since you first created your estate plan. Likewise, your executor – the person who will be in charge of your assets in the event of your untimely death – may have passed away or may no longer be able to serve. For these reasons, it is key to keep your beneficiaries and successor executors current.
2. Your Plan is Missing Key Components
While you may already have an estate plan in place, it may not be comprehensive enough to fully protect your loved ones after you have passed. At a minimum everyone should have a last will and testament, a financial power of attorney, and a health care directive. These documents should have been reviewed by a knowledgeable estate plan attorney within the last 5 years and immediately after any major life event, such as a marriage, divorce, birth or death of a child, receiving an inheritance, or significant increase or decrease in assets. With these life changes, the level of protection you need may have also changed. Relying on an old strategy may leave you and your loved ones vulnerable.
3. You Have Not Kept Up with Changes in Tax Laws
In the past twenty years, the estate tax exemption has increased by fifteen times. If you have significant wealth you need to make sure your estate plan takes advantage of unique planning opportunities under current law. This is because an outdated estate plan structure that has not kept up with current tax law can actually do more harm than good for your loved ones, since it may needlessly cause taxes to be paid. Accordingly, a qualified estate planning attorney who fully understands your circumstances should review your documents and make any necessary adjustments.
4. You Moved Without Updating Your Estate Documents
It is important to understand that each state has different laws that governs estate planning. For this reason, if you move from one state to another it is vital that you have a local estate planning attorney review and revise your documents. You want to make certain your plan is compliant with the laws in the state in which you primarily reside. This also applies to medical powers of attorney or advance directives that may be valid in your old state but ruled invalid in your new state, depending on the local law.
5. You Failed to Focus on Life Insurance and Retirement Accounts
One common mistake is for individuals to fail to review life insurance policies after they were originally issued. Neglected policies may not be properly funded, resulting in a lapse in coverage and requiring hefty premiums to keep the policy in force. Likewise, it is important to take advantage of listing beneficiaries on retirement accounts rather than leaving them to your estate. When a beneficiary is listed, these assets avoid probate – the long and expensive legal process of distributing your assets upon your death through court supervision – and allows beneficiaries to keep the majority of these funds in tax-advantaged accounts.
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Without proper maintenance and administration, your carefully put together estate plan may not work as you intend. Instead of allowing this to happen, give us a call today, so we can begin reviewing your estate plan to make sure all of your bases are covered and any needed changes are made.
I like that you mentioned that each state has different laws on estate planning. My grandpa mentioned he needs to talk to an estate lawyer. I think he should read this article to make the best choice.
Yes, that’s completely correct. Laws differ between states which is why so many articles on Estate Planning are overviews instead of giving specifics. You can try to google “Estate Planning Texas” for example and try to find articles that are specific to your state which may help. Or, just keep that fact in mind when looking at information before speaking to an attorney. Once you meet with a firm, they’ll always let you know what’s possible and what’s not given your region.
I like what you said about updating your estate plan if your executor passes away. My brother has been telling me about how he wants to make sure that his affairs are handled properly when he dies. I’ll share this information with him so that he can look into his options for professionals who can help him with estate planning in the future.
The sooner you plan the better in case of unforeseen accidents etc. It can also help that you involve at least one family member in your wishes. They don’t necessarily have to go to attorney meetings but sharing your wishes with them once the documents are prepared so that in the event of their passing they have a spokesperson.