Estate planning is about putting plans and structures in place to preserve your family’s wealth. One mistake here can trigger huge problems after death, such as slow probate and family fights, litigation, and high taxes.
The biggest estate planning mistakes can prove catastrophic and make life extremely stressful for your loved ones. In this blog, we’ve highlighted the five most severe and common mistakes so you can plan successfully:
Common Estate Planning Mistakes You Must Avoid!
1. Not Updating Your Beneficiaries
Imagine you create your estate plan today. You would select beneficiaries and assign them assets and belongings to inherit at the time of death. But over the years, your family is likely to change.
New marriages, divorces, children, grandchildren and falling-outs, can all cause your desired beneficiary selection to shift. You’re also likely to acquire new assets over time that need beneficiary designation.
If you don’t update your beneficiaries, an asset might go to someone you don’t want it to—for example, an ex-spouse. Or, someone may inadvertently become excluded from inheritance because they were born or married into the family after you’ve completed the initial forms.
And it’s not just all about the will. Many assets require separate beneficiary forms to be completed – such as annuities, retirement accounts and life insurance.
This is especially true for IRA beneficiaries following divorces. If you update your will but don’t update your IRA beneficiary, then children from another marriage could potentially inherit your funds.
As a general rule, you should update your beneficiaries in every form, every couple of years and when major changes happen in your families, such as a new birth, marriage, divorce and asset acquisition.
2. Leaving a Trust Unfunded
A living trust (also called a ‘revocable trust’) can help your family receive asset inheritance without waiting or probating. It can also help with disability planning.
A common estate planning mistake is forgetting to fund the trust. You may have signed all the trust agreement estate planning documents, but without the trust holding the legal title for assets, then it’s pointless.
Funding a trust is relatively simple but gets overlooked time and time again. If so, the assets don’t avoid probate, and all the trust benefits (such as control over distribution and conditions) become obsolete.
Don’t assume that because you’ve listed an asset in a trust schedule that you’ve actually transferred the asset. That merely lists your intention.
Instead, you must physically change the title of the assets to the name of the trust. For real estate, that would mean changing the deed. For bank accounts and life insurance policies, you must retitle them with the relevant financial institution.
If you are confused or need assistance, contact your estate planner or your estate planning attorney.
Read Related: Why Avoid Probate?
3. Leaving Your IRA to Your Estate
Never name your estate as the individual retirement account beneficiary. If you do, it will be subject to claims and creditors during probate, which could see your family lose significant wealth. And probate won’t be fast!
If you had significant debts, the entire IRA could be used up.
Instead, you should name a living person (such as a child or children). They will be able to receive the assets outside of probate and without the risk of losing wealth to hungry creditors.
4. Delaying or Never Making an Estate Plan
It may seem obvious, but not having an estate plan at all is the biggest mistake. 67% of Americans don’t have an estate plan.
We understand that thinking about mortality isn’t fun. It can feel like your tempting fate to make plans for your death when you hope to have decades left.
But regardless of age, it is an extremely dangerous game, especially if you have minor children! Don’t consider it part of your retirement plan.
Without an estate plan, you leave your wealth, children’s future and assets in the hands of the courts. That means your wishes will have no power.
If, for example, you and your spouse pass away in a car accident, what will happen to your children? Without a will, their future will be determined by the court. So they could end up living with someone you’d rather they didn’t. The same can be said for your pets.
Additionally, if you want to donate your estate to charity, or ensure a relative has no claim to your inheritance, then you must have a will. Without it, the courts can’t grant your wishes.
Finally, without an estate plan, you risk limiting how much wealth is kept in the family.
Don’t delay. Take the initiative now, and then you can move on (updating it at major life events, life insurance policy additions and asset acquisitions). Your family will be better off for it.
Read Related: What You Should Never Put in Your Will
5. Failure to Sign Health Care Directives
Health care directives are an equally important part of the estate planning process.
Creating a health-care directive can let your family, doctors and friends know what your medical care and end-of-life preferences are if you are incapacitated. For example, what are your surgical, organ donation and life-support wishes?
The big estate planning mistake here comes when you simply forget to write a health care directive or sign the document to make it valid. Things get more complicated when you remarry.
To avoid placing confusion and stress on your loved ones, ensure your health-care directives have been completed and appropriately signed with the assistance of an estate planning lawyer.
You should then keep a copy of the signed document in a safe (but accessible) location. Provide a copy to your attorney and trusted loved ones. Don’t put the document in a safe deposit box – banks are not allowed to release the contents of safe deposit boxes until after probate.
Similarly, if you have complex financial matters, then you should appoint a power of attorney who can act on your behalf.
Contact an Estate Planning Attorney Today
If you’re struggling to plan your estate or need any professional advice, then our experienced Florida estate planning attorneys can help.
We regularly help Florida residents with proper planning for wills and trusts that are water-tight, free from probate complications and in the best interests of their families. We can also help minimize the effect of federal estate taxes.
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Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will or trust.
