There are myths and misconceptions about estate planning. Here are the top common mistakes to avoid and help your family save thousands of dollars in unnecessary taxes and probate fees:
- Beneficiary omissions — Not naming contingent beneficiaries or failing to review beneficiaries often enough. This may subject your estate to probate, creditors and delays.
- No stretch IRA — No contingent beneficiary on an IRA may mean there is no stretch IRA, a valuable tax break that enables someone who inherits an IRA to draw out distributions over his or her life expectancy if the original beneficiary has died.
- Forgetting to change an ex-spouse on an IRA — Your new spouse becomes your beneficiary the day you get married, but not in an IRA. This can have disastrous consequences for your new spouse and family.
- Leaving assets directly to a minor without dealing with guardianship issues — Who will handle their inheritance? The phrase “for their benefit” welcomes a whole host of potentially abusive interpretations.
- Ownership mistakes and imbalances — If too many assets are in one spouse’s name, it could wreak havoc with tax planning. One spouse may have a much larger IRA and own a vacation house in his or her name only. By shifting the house or investment to the other spouse, the estate becomes more equalized, possibly reducing taxes.
- Not having a residuary clause — A residuary clause covers items not named in a will or included in a trust. These can include items you don’t yet own but will before your death. Sometimes there are things you might not even know you own.
- Not planning for the unexpected — There are a multitude of things that could happen, such as a sudden decline in your spouse’s health or a change in your assets. You can address this by having assets go to a trust. You can control how, to whom and when money gets distributed.
- Not dealing with your own mortality — Don’t leave your family ruined because you don’t want to admit to yourself that you are going to die someday. Don’t make matters worse by failing to plan.
- Not updating your will — Many changes take place within a family or business structure. Ensure the assets you leave behind are given to the people you intended to have them.
- Not planning for disability — An unexpected long-term disability can affect your personal and financial affairs in myriad ways. Decisions such as who will handle your finances, raise your children or make health care decisions on your behalf are essential. It may be necessary to appoint a power of attorney or create a living trust to work on your behalf if you’re unable to do it for yourself.
You can benefit from having an estate plan. Not only can it help maximize the actual value of the estate you pass on to your heirs and beneficiaries, but you’ll also have an opportunity to make informed decisions concerning how your assets should be handled while you are still alive.©