If you want to be able to have control over what happens to your assets once you die, it’s highly recommended that you create some sort of estate plan, which can be done with the help of an estate planning lawyer. While creating an estate plan can vary in complexity depending on your situation, there are a range of mistakes that you can easily make if you create one without the assistance of an attorney.
What Is Estate Planning?
Estate planning is the process of making plans for how your assets are going to be handled when you die. The estate that you have extends to every kind of property that you own. The types of property that can be a part of your estate include savings accounts, investments, cash, cars, clothes, homes, and retirement accounts. The main objectives of estate planning include making sure that the majority of your estate is given to your beneficiaries, that guardians are assigned for any minor children, and that you pay the lowest amount of taxes on the estate.
The main components of an estate plan include a will and a trust. A will is a type of legal document that details what happens to your property once you die. When creating a will, you can denote how your property is spread to your beneficiaries. For instance, if you have two children, you might consider transferring your home to your children in a 50/50 ownership split. A trust is a type of arrangement wherein a third-party trustee manages your estate on behalf of any beneficiaries.
1. Not Planning for Unexpected Events
The most common mistake that people make when creating an estate plan is forgetting to plan for the unexpected. Maybe there’s a sudden change to your assets or one of your children gets divorced. These big life changes may require you to make alterations to your estate plan. It’s important that you update your estate plan whenever these changes occur.
However, you might also want to consider placing your assets in a trust, which will allow you to control when your assets are distributed and to whom they are distributed to. You don’t have this level of control with a will. With a trust, you could set the ages at which your children receive assets from your estate. However, you could also deem that these assets aren’t provided to your children if they are a danger to themselves, which is a possibility that you need to take into account because of potential unseen issues such as drug addiction or other issues that you can’t fully plan for.
2. Not Planning for Potential Death of Beneficiary
It’s also important that you plan for the potential death of a beneficiary. Many people make the mistake of believing that their beneficiaries will ultimately live long enough to obtain the assets from their estate plans. If you have two beneficiaries and one of them dies, you might want to make a note of where the money will go. You could have the assets go to the immediate family of the deceased beneficiary or to the other beneficiary. If you don’t make a note of this in your estate plan, there will likely be complications that the remaining beneficiary will need to handle.
3. Other Beneficiary Problems
There are a range of additional beneficiary problems that you should keep in mind. If you don’t name a contingent beneficiary for your insurance policies and retirement accounts, your beneficiaries may not be able to benefit from a stretch IRA tax break. Some individuals also forget to remove an ex-spouse from an IRA once they become remarried, which can create an array of issues in the future. While your spouse will automatically become your beneficiary for a retirement account on the day that you’re married, this isn’t the case with an IRA.
4. Not Coordinating Retirement Plans and Trusts
Many individuals will place a living trust or other type of trust as the beneficiary of their various retirement plans. While this can be advantageous in many situations, placing certain types of trusts as beneficiaries of an IRA can actually increase taxes. A trust that is the beneficiary of your retirement account must have specific language in it that marks it as a see-through trust, which should get rid of any tax issues.
5. Not Updating Your Powers of Attorney
A power of attorney is a kind of document that denotes another individual as being able to act on your behalf when you’re no longer able to do so. The actions that a POA takes care of include handling your assets as well as a wide range of other personal, business, and financial matters.
It’s recommended to name a power of attorney for your financial decisions and a separate power of attorney for your medical decisions. Many people forget to update their powers of attorney, which can lead to numerous complications if you unexpectedly fall ill or are no longer able to make your own decisions.
If there’s an issue with your estate plan or you’re having difficulties understanding an aspect of your will, contact Wilson Ratledge today so that we can provide you with the legal assistance that you need.