6 ESTATE PLANNING MISTAKES YOU SHOULD AVOID
You want peace of mind knowing that your loved ones are taken care of after your death. While it may be difficult to think about, preparing a will and revisiting and updating existing estate plans that may have been made years ago are the best way to prevent needless mistakes in the future, many of which could cost your family thousands of dollars.
Attorneys that are experienced in this area can help their clients avoid making these six disastrous estate planning mistakes:
1. Not Having an Estate Plan in the First Place
No estate plan? You can bet there will be some confusion on how your assets should be distributed after your death. The law will decide which family members get your assets, but it does not provide a clear path for how to divide things like real property, interests in a business, or other things that your heirs could be forced to sell in order to divide. Also, the cost of getting through the probate process can eat up 3% to 8% of the value of your estate, which in turn takes that money out of the pockets of the people you mean to take care of with your estate planning.
Even if you have a will, it may not be enough. For example, most people think that all they need is a will, but many assets are typically not named in a will, such as IRA accounts and life insurance. Those assets will pass to whomever you have named as a beneficiary, no matter what your will says. And for a lot of people, these assets can represent most of what you have to distribute to your loved ones. You don't even need a lawyer for this part- you just need to check and make sure that your designations are up to date and accurately reflect who you mean to receive those funds.
2. Not Having Your Estate Plan Examined by a Professional
Do-it-yourself (DIY) wills that you create online might save you a few bucks, but it can cost your family thousands of dollars if it lacks in-depth tax planning strategy. That’s not even counting the costs of hiring a lawyer to mitigate the damage after the fact! In the worst case scenario, the probate court may not admit the DIY will at all. In this situation, assets will pass to those who would receive it, as dictated by state law, which may not be what you intended and may create confusion and stress for your family.
In the age of the internet, it is easy to be misinformed, and it is important to know what your state (meaning the state of your primary residence) requires. For example, there are states that recognize "holographic wills"- a handwritten will signed by the person making it, and you may read about this online. Massachusetts does not recognize any will, handwritten or not, unless it meets the specific signature requirements under state law.
3. Trusting Your Children with More Than They Can Handle at Their Age
Every parent wants to believe their children are fit to responsibly manage and benefit from their inheritance as soon as they turn 18, but that isn’t usually the reality. Most young adults typically aren’t experienced enough to manage large sums of money efficiently. When you add to that the fact that they will be receiving an inheritance at the same time that they are grieving and processing a parent's passing, and you have a potential recipe for poor choices that are hard to undo later. Setting up a trust with provisions regarding when your children can receive their inheritance and what kinds of things a trustee can authorize expenditures for in the meantime can not only protect your children, but also give them a structure and a person they can turn to as the learn how to manage their own affairs.
4. Depending on Family Members to “Do the Right Thing”
Rule of thumb: it’s better to establish a trust than to simply trust. Don’t rely on the goodwill of others to use your assets for the good of another, such as to take care of someone in your family. Anyone, including a family member, can opt to change their mind and oppose how you intended to use your assets after your passing. People's lives also change- the spouse you entrust with managing your assets for the benefit of your children may remarry and have other children competing for the same resources.
5. Not Realizing the Impact Taxes Can Have
Gift, income, and estate taxes all impact the sum passed to your descendants. For example, if you leave life insurance to one child and your Individual Retirement Account (IRA) to another, the child with the IRA will have to pay income taxes, while the one who received the life insurance will not. While you intended was to split your assets between them equally, the final amount they receive will differ. Also remember that in Massachusetts if your estate is worth $1 million or more (counting your life insurance, retirement savings, and real property like your home), your entire estate will be taxed. At $1 million exactly, your approximate tax liability will be $36,000. That is well more than the cost of a little planning ahead of time to avoid or minimize that tax burden.
6. Not Understanding That Specifics Matter
Let’s say you decided to write a will that leaves all of your assets to your “surviving children.” If one of your children passes before you, would you like for your assets to pass to only your remaining children, or for your deceased child’s portion to pass to his/her children? It’s important to be specific when properly drafting an estate plan, factoring any and all worst case scenarios that might arise.
Hiring an attorney will not only save you from making unexpected estate planning mistakes, but also will give you access to immediate legal advice and guidance when revisiting estate planning decisions. Our experienced attorneys at SLN Law will help you create the best plan for you and your family and make sure you receive exceptional legal guidance. When you’re ready to prepare for your family’s future, we are one call away.
1/27/2021 04:45:04 pm
It really helped when you said it's important for a professional to examine your estate plan. A few weeks ago, a friend of my parents passed away, and we went all into shock because we didn't see it coming at all. And now my parents are worried about their estate planning. I think that the best option for them will be to hire a professional to check what they have done and guide them. I'll be sure to share your article with them. Thanks for the information about what to avoid when you're estate planning.
2/16/2022 01:05:49 am
It got me interested when you said that we must have a professional help us in estate planning to ensure assets will pass to the beneficiaries smoothly. This is really helpful because my husband and I are planning ahead to secure our three kids' futures. We will look for a reliable estate planning lawyer on Friday morning to help us handle all our assets and properties to avoid conflicts and confusion among our loved ones in case of an untimely event.
7/6/2022 10:58:01 am
I want to make sure that I get my estate planned properly. It makes sense that having the help of a professional would be a good idea. They would be able to ensure that the state plan makes sense and ends up being carried out properly.
I like that you talked about setting up a trust with provisions to ensure that our children will receive their inheritance or that a trustee can protect the assets and our children. I will talk to a trust attorney to learn more about this before this year ends. It would be a huge relief for me if I can be sure that my house and my savings would be benefitting my son, especially when I am a single parent.
9/8/2022 03:12:07 am
I love that you talked about the importance of having a will to ensure that your assets would be acknowledge. I remember when my brother told me that he was planning to start living wills planning for his future retirement plan, and he asked if I had any idea what would be the best option to do. You did a great job explaining the importance of planning, I'll be sure to consult law offices as they can help with the living will documentation process.
1/24/2023 07:03:50 pm
It's great that this article talked that experience provides comfort in choosing the best options for your estate planning. The other day, one of my parent's friends told us their family was hoping to find an estate planning advisor to help them prioritize their sibling's estate plan with special needs. I love this helpful article, I'll tell him they can consult an estate planning advisor for more information about the process.
3/21/2023 05:27:08 pm
I love how you point out that if a will is not at least examined by a professional it can cost your family thousands after you pass. My dad has been wanting to have a more detailed plan since he's getting older. We've been looking into getting an attorney to come help him ensure everything that needs to be in his will and estate plan is so that probate is a much easier process when he's gone.
4/18/2023 09:43:03 am
These are all important considerations when it comes to estate planning. It's essential to have an estate plan in place to ensure your assets are distributed according to your wishes and to avoid confusion and potential conflict among family members. Seeking professional advice can help you avoid costly mistakes and ensure your plan is comprehensive and effective. It's also important to consider the tax implications of your estate plan and to be specific when drafting your will to account for any potential scenarios that may arise.
4/19/2023 06:12:55 am
I like that you talked about having a trust setup that will detail when my children can receive their inheritance and what authority they have regarding them will be for their own protection and to help them manage the affairs well. I will share this information with my husband if we want to work on this as early as now, because we never know if we both pass away suddenly which leaves the kids to fend for themselves. It would be a good idea to talk to an estate planning lawyer to learn more about these things, especially when I have no idea regarding the law of inheritance and all.
5/3/2023 04:18:29 pm
It's good to know that professionals can help you have an in-depth tax planning strategy. My parents were at my house yesterday afternoon for lunch, and they talked about how they want to start working on their estate plan this month. I'll pass this information along to them so they can look into hiring an estate planning professional to help them.
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