Small estate-planning missteps can create major headaches for your heirs.
When it comes to estate planning, most people prefer not to think about it. Even for those who have, they sometimes make mistakes when they start taking action. The good news is that you have time to fix any past errors. By avoiding these five common mistakes, you can improve your legacy planning.
Estate-Planning Mistake 1: Not Doing Anything
Most people would rather avoid thinking about dying than make plans for when the inevitable happens. But not doing anything can hurt not only your heirs, but it can also hurt you. No planning means the court decides who makes decisions about your healthcare if you’re incapacitated. It also means your assets could be frozen after you’re gone—and even your spouse might have to wait months or years to get access. Also, the court, not you, decides who inherits your money and property.
If you don’t want that then you need to take action. A valid Will ensures that your assets will pass according to your wishes. Unfortunately, it won’t avoid probate, which is lengthy, expensive, and also open to public records. If you want your assets to go to people of your choosing and you want to avoid probate, you will need a Living Trust. And if you want to name a particular person to make medical decisions for you, you’ll need a Durable Power of Attorney for healthcare as well as a Financial Power of Attorney who can make financial decisions for you if you are incapacitated .
This seemingly daunting list might trigger avoidance, right?? Then just see an attorney. They know what you need and can easily walk you through the decision-making. Which leads us to…
Estate-Planning Mistake 2: Doing It Yourself
Who wants to spend $3,000 to $7,000 when there are online forms to do it yourself? Well, you know the saying: You get what you pay for. Trying to do it yourself could leave your loved ones in the same situation as if you’d done nothing. Your self-written Will may not be legally recognized. Even assuming it is, your heirs will still have to deal with probate.
Estate-Planning Mistake 3: Not Considering Tax Consequences of Bequests
Are you leaving money to charity? Are your kids beneficiaries of your IRAs? If you have minor children, they will inherit these accounts! A minor cannot legally take control of an inherited IRA or 401k, so the IRA/401k Custodian has to determine who has legal authority to act for the minor. If your kids inherit your IRA or 401k, they have to pay ordinary tax on any withdrawals from the account – and they have to take it all out within 10 years. If they inherit your stocks or your house? The tax basis gets “stepped up” to the date-of-death value, meaning your kids pay no tax if they sell right away. And there’s no requirement for them to sell —not within 10 years or ever. Sometimes people leave their IRA to charity and then the charity pays no taxes. Roth IRAs work a bit differently – although your kids still have to cash out the account within 10 years, there is no tax on the withdrawals.
Estate-Planning Mistake 4: Not Thinking About How Old Your Kids Will Be
You’ve been planning to leave money to your kids so that you can help them through difficult times. Maybe you’re 50 years old, and your kids are 25 and 27. There’s longevity in your family. You plan to live to 90-plus. In 40 years, your kids will be 65 and 67—likely already retired. If you want to make a difference in your kids’ lives when it will really matter, you could consider giving gifts during your lifetime. An inheritance after you’re gone might be better used by your grandchildren.
Estate-Planning Mistake 5: Being Afraid to Make Decisions
Maybe you’re not sure who you want to act as guardians for your children. Or you can’t decide how much to leave your nieces and nephews. Don’t let inertia win! The downside of doing nothing can be pretty extreme. Make the best decisions you can right now. Your documents can always be amended later.
Follow the famous ad slogan = “Just do it!” You’ll be glad to check this chore off your list, knowing you’ve protected your loved ones.
Questions about your own estate plan?
We’d be happy to review your financial situation and help develop an efficient strategy for you – including providing referrals to well qualified estate tax planners in your area.
You can schedule a strategy session to talk about your unique situation and how we might be able to help. If you are a current client, contact us for a personal review of your situation at info@astifinancial.com.