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 insure 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, art work, 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 in to 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.