There are a lot of prevalent mistakes people make when they are creating their estate plans. You may be making these mistakes without even realizing it. Unfortunately, it’s too easy to create an estate plan that won’t bring about the results you want, so people must avoid these five common errors in their estate planning.
1. Not Updating Coming Changes
Your estate plan will likely need to be amended sometime down the road, especially if there are significant changes in your life, for instance, if you get married or divorced, if your children grow up and need different types of benefits, or if there is a significant change in your assets. It would help if you get advice when creating your estate plan. People are different, and everyone has different needs, so getting sound advice from a professional with the proper education and experience is essential to help you identify what you need.
2. Ineffective Communication
One of the most common mistakes in estate planning is not communicating the plan with the appropriate people. If you want someone to carry out your wishes after you’re gone, you need to tell that person about them and ensure they know how to carry them out. If you set up a trust and don’t tell anyone about it, your loved ones will try to decipher your cryptic writing and may be unable to determine what you want.
3. Not Planning for Estate Tax Liability
Another common mistake is not planning for the estate tax liability. There are strategies you can use to reduce or eliminate this tax burden. Sometimes you can even eliminate the tax, but many factors affect how much your estate will be taxed, and it’s essential to get sound advice to make the right decisions. Taxes on estates can be complicated, and they aren’t always predictable.
4. Assets in Trust Without a Durable Power of Attorney
A durable power of attorney allows you to name someone who will make financial decisions for you if you are incapacitated. This document is so important that it should be combined with trust since the person named as your trustee will need this power if they manage your assets. Who would make those financial decisions if you have assets inside of a trust that only has a health care directive? It’s easy to overlook this issue mistakenly.
5. Trusts With Too Many Trustees
One of the most common mistakes people make is creating a trust when they should use a revocable living trust instead. Another mistake people make is using too many trustees and named beneficiaries. This can lead to confusion and unnecessary tax troubles. It’s best to have only one trustee while specifying that certain assets can be transferred only to other trustees. You should also only have one named beneficiary. For instance, if you have a trust for your children and grandchildren, you may not need to have both of them as beneficiaries.
Cutting corners and saving money can be tempting, but it is not a good idea. The value of your estate could be negatively impacted if you make any of these common mistakes. Invest in a sound legal strategy that will help ensure that your estate planning meets your goals and does not cause harm to you or those you love.