Estate planning certainly isn’t one of the sexiest ways to spend your day.
The idea of deciding how you’d like to die and who you’ll leave your assets to can be overwhelming.
That’s why we like the idea of approaching estate planning like you would building a new home. Start with a solid foundation early enough in life, and then build it up one piece at a time. Once the roof is up and you’ve passed inspection, it’s just a matter of trimming the hedges, changing a few light bulbs and renovating every once in a while.
“There is no perfect estate plan,” says CFP Nancy Anderson. “We can’t plan for every contingency, but if we take some time to think about the major things, plan for them and double check that the right people are on the right documents, it can go a very long way in the end.”
Here are 5 common estate planning mistakes to avoid:
Thinking you’re too young to make one. So, you’re 33, fit as a fiddle and far too busy at your 9-to-5 to worry about something as dry as your estate plan — right? Don’t kid yourself. You may not have many physical assets to your name yet, but a lot goes into estate planning besides deciding which of your siblings get first dibs on your vintage record collection. If you wind up in the hospital with no way to communicate, you’ll wish you had designated a Power of Attorney to decide on treatment or at least jotted down how you’d prefer to be cared for at the end of your life.
Keeping your will a secret. Your life is not a Hollywood film. The idea that your family will pile into your attorney’s office an hour after your funeral for the dramatic unveiling of your will is far from normal — or wise. In most cases, estate planners recommend telling your family exactly what they can expect before you pass away. Even if that means playing referee while your kids squabble over who gets your antique china set, it’s worth dealing with the disagreements before it’s too late for you to have a say. “It’s a double-edged sword; people don’t want to communicate what property is going to be given because it could cause animosity,” attorney Senen Garcia, founder of SG Law Group in Coconut Grove, Fla. told Bankrate.com. “It may cause animosity now, but you can deal with it. Later on, you have no control of it because you are gone.”
Leaving too much cash to the wrong people. We’d all love to dump a pile of cash on our loved ones’ laps after we pass away, but in some cases that’s the worst possible way to leave a legacy. The key is to dole out money in a way that will improve their lives for the long-run. Using a trust fund can be a smart way to leave money to relatives, since it is administered by a trustee who must dole out the cash exactly how and when you tell them to.
Forgetting about the blow from taxes. If you have considerable assets to leave behind, you’ll need to carefully consider the estate taxes that will be levied against them. One way experts recommend getting around hefty estate taxes is to carefully plan ahead which assets you’ll leave to certain family members and friends. You can “gift” them assets up to $13,000 per year while you’re still alive under IRS guidelines before gift taxes kick in.
Not editing your plan along the way. Life is far from predictable, which means your estate plan, like any financial plan, should be updated as your financial and personal circumstances change. Changes such as a birth, marriage, divorce, job loss, health condition, etc. all warrant factoring in to your estate plan. And beyond that, you’ll have to seriously keep an eye on the ever-changing laws in both the state where your estate plan was drawn up and the country as a whole.
What are you waiting for? We recommend seeking a professional to help draft and review your estate plan. But don’t just rely on one — both your financial advisor and your attorney (sometimes even in collaboration with each other) should be able to cover all the issues involved, making sure you’ve remembered to cross your T’s and dot your I’s.