How To Immediately Avoid These Top Estate-Planning Mistakes
Estate planning is an essential process that allows individuals to manage and distribute their assets upon their death. While this is important in making sure your finances and assets are passed along, unintentional mistakes can lead to legal battles, confusion, and financial losses. In this article, we will discuss some of the top mistakes made in estate planning and how to avoid them.
Not having a plan at all:
The most significant mistake is failing to have an estate plan in place. Without a plan, your state may determine how your assets are distributed. This could result in your assets being distributed in ways you didn't intend or to people you wouldn't have chosen. According to a 2023 survey by Caring.com, 2 of 3 Americans don't have any estate planning documents, such as a will or living trust.
The solution is to take action and create a plan by first, identifying your assets, deciding how you want them distributed, and choosing a plan that will help you achieve your goals. Your estate plan can include a will, trust, power of attorney, and other legal documents. To avoid further procrastination, set a deadline for yourself on your calendar so you can protect your assets and ensure they are distributed according to your wishes.
Not updating your plan:
Life is unpredictable, and your estate plan should reflect changes in your life. Many consider an estate plan to be "checked off the list" once it is signed but that's not always the case.
Update your plan after significant life events such as marriage, divorce, or the birth of a child. Even if these life events are not relevant to you it is a good idea to review your plan every other year to avoid unintended consequences.
Failing to consider your other documents:
Failing to consider your other documents, such as life insurance policies, retirement accounts, wills, and trusts, can be an estate planning mistake. These documents often have designated beneficiaries, and if they are not updated to reflect your current wishes, they can contradict one another.
Be sure to select the same person as the beneficiary for each asset on every document. This means that you should review all of your legal documents, such as your will, trust, and retirement accounts, to ensure that the beneficiary designations are consistent. This will help to avoid confusion and ensure that your assets are distributed as you intended.
Choosing the wrong executor:
An executor is responsible for managing your estate after your death. Choosing the wrong person can lead to conflicts and legal battles.
It's important to choose someone you trust and who is capable of managing your assets.
Not considering taxes:
It's important to keep in mind that estate taxes can be a considerable cost, and not taking them into account when planning your estate could potentially result in significant financial burdens for your loved ones.
By proactively addressing potential estate tax issues through careful planning, you can help ensure that your heirs are not burdened with unexpected expenses and can instead focus on their grieving process. It's important to note that as of 2020, only very large estates ($11.58M +) are subject to federal taxes, and not all states have an estate tax. It's important to understand the rules in your state and seek the advice of experts as needed.
Ignoring digital assets:
In today's digital age, many people have significant digital assets such as social media accounts, cryptocurrency, and online bank accounts. Failing to account for these assets in your estate plan can lead to confusion and potential losses.
GoodTrust includes a Digital Vault offering you the opportunity to secure and organize your online accounts as well as reference them in your estate plan so your loved ones know exactly how to find your digital assets and have instructions on how to manage them as you'd like.
Not communicating your plan:
It's essential to communicate your estate plan to your family and loved ones. Failing to do so can lead to confusion, conflicts, and hurt feelings.
Be sure your loved ones know that you have a plan in place, what role each individual plays in your plan, and where to find it. If you need some guidance on how to talk to your family about your wishes, click here.
Not funding your trust:
The problem with not funding your trust is that the trust will not be able to fulfill its intended purpose of managing and distributing assets. Funding a trust involves transferring assets from your individual ownership into the name of the trust. This is important because once the assets are in the trust, they are subject to the terms of the trust document, and the trustee has the authority to manage and distribute the assets according to your wishes.
To avoid this mistake, it's important to identify the assets that should be transferred to the trust and take the necessary steps to transfer ownership of those assets to the trust. Some of the steps involved in funding a trust may include retitling your assets such as your home, bank accounts, investment accounts, and other property you own. For more information, please see our funding guide.
In conclusion, estate planning is a crucial process that requires careful consideration and planning. Avoiding these common mistakes can help ensure that your assets are distributed according to your wishes and that your loved ones are taken care of after your death.
Now that you know the mistakes to avoid, you're ready to go! Get started planning for your future with GoodTrust, where our all-in-one estate plan allows you to create a Will, Trust, and directives and includes a Digital Vault at one low price.