Estate planning can be a difficult topic, no matter your age. Most people do not care to think about the world continuing to spin when they are no longer on it. A recent study from Caring.com shows that two-thirds of Americans do not have an estate plan at all.
Without an estate plan, your assets have to go through probate, which is a court process which can be lengthy and expensive. Probate may cost anywhere between 3% to 10% of your estate, money that otherwise could have gone to your heirs.
Avoiding the subject
There are a couple of standard triggering events to creating an estate plan, including the purchase of a home, and family changes such as marriage or having children. Home ownership likely means that your asset base is over the minimum amount to trigger probate and familial changes require an update to your wishes.
Many people wait until their 50s or older to draw up a will but everyone should take the opportunity to set down in writing what they wish to happen after their death. An estate plan encompasses not just who inherits your assets, but also includes your wishes for burial, cremation, or other disposition of your body.
Neglecting this topic may result in a lot of extra work for those closest to you while they are grieving your loss. Although it may raise some uncomfortable feelings, it is important to think over your legacy well before “the time comes.”
Forgetting to name beneficiaries
Even if you have a trust, a will, and the other important documents, certain accounts require designated beneficiaries to pass to your heirs efficiently.
An IRA, Roth IRA, 401(k), or other retirement account without designated beneficiaries will usually pass to your estate or to your spouse. When a retirement account passes to your estate your heirs may lose certain tax benefits of an inherited account resulting in owing more taxes earlier.
A brokerage account can be held in the name of your trust which incorporates these assets into your estate plan. An account which is not held in the name of your trust and without designated beneficiaries would go through probate which can be a lengthy and expensive process.
Taking a few minutes to designate beneficiaries on these types of accounts can save your heirs time, headaches, and potential arguments after your death.
Not having the right documents
Most people would benefit from having more documents than just a will because a will does not protect your assets from probate. A revocable living trust can help your heirs avoid probate, which can be expensive and time-consuming. A trust can also contain more complex wishes such as specific bequests to friends or family members. Make sure to put any large assets in the name of your trust as soon as possible after the document is finalized.
A pour-over will essentially says that every asset you each own automatically goes into your trust upon death. This can pertain to bank accounts, personal possessions, and anything you may forget to title in the name of the trust.
An advanced health care directive names someone to make health care decisions if you are incapacitated. Naming one person and at least one backup is wise in case your first choice predeceases you. The directive can also be used to name life-saving measures you do or do not wish to be done on your behalf.
Similar to health care directives, a financial power of attorney names an individual (or individuals) to make financial decisions and control your assets if you are incapacitated. Naming one person and at least one backup is best.
If you have minor children, your estate plan should include your wishes for who should raise your children and who should have financial control of their assets. Make it clear if you want your children to receive their inheritance on their 18th birthday or later.
Not reviewing or updating
Reviewing your estate planning documents and your beneficiary designations regularly ensures that they continue to reflect your wishes. One of the worst mistakes to make is forgetting to include someone in your estate plans. You should review these at least every five years or after a major life event.
Leaving someone out of your estate plan could easily happen if you do not regularly review your situation. This could happen to people with children from different marriages or after a significant life event.
Charitable donations are a part of many estate plans and should also be reviewed regularly. Throughout your life, your asset mix will change so it is also important to consider the source of charitable bequests. Reviewing this part of your estate plan with one of our CERTIFIED FINANCIAL PLANNER™ professionals can help you structure this in a tax-efficient manner.
Keeping it secret (from family and/or friends)
We recommend that you share your wishes with the people closest to you, at a minimum disclosing that you have these documents and where you keep them. It is helpful to provide your executor and/or successor trustee with a copy of your documents to assist with the asset transfer process. Don’t forget to provide them with updated copies of any changes. Explaining your wishes to your heirs may also save them any unpleasant surprises during their grief.
Whatever your situation, having a thought-out and documented estate plan can make a significant difference in ensuring your wishes are honored and your assets are distributed according to your intentions. Engaging with a knowledgeable estate planning professional can further safeguard your plan and offer peace of mind, knowing that you’ve taken proactive steps to secure your legacy.
If you have questions about your estate plan or are looking for a referral to an estate planning attorney, please give our office a call.
