Estate planning is a topic most people prefer not to discuss. Often we find people are uncomfortable discussing death and plans for beneficiaries with loved ones. While it can be tempting to stick your head in the sand, your family can benefit greatly if you plan your estate while you are healthy. To simplify this process, below is a short list of mistakes to avoid while planning for your family’s legacy.
- Doing nothing
Because the process seems daunting and complex to many, it seems easier not to have discussions and make decisions for an estate plan. Leaving your family wondering what your wishes are is not a better option. Passing “intestate” means that the laws of the state in which you reside will determine how your estate is distributed. This includes residences, bank accounts, and investment accounts that could be passed to family you have no contact with or have never even met. If you do not want your family to be stressed about money after your death, and if you want to provide specifically for a surviving spouse or special-needs child, having an estate plan in place is in your family’s best interest.
- Using DIY forms
Many websites advertise that you can create estate documents online for a fraction of the cost of hiring an estate attorney. Completing these documents is better than nothing in most situations. However, should someone in your family dispute your wishes, an experienced attorney would be able to poke holes in online forms. Another benefit of using an estate attorney over the DIY approach is making sure you are planning with the appropriate tools. There are a variety of trusts and directives that make your intentions clear and using a professional will enable your plan to be executed in a more efficient manner.
- Naming the wrong trustee
One of the first steps of writing a trust is naming a trustee. A trustee is expected to act as a fiduciary for the trust, which means they are to act in the best interest of the trust beneficiaries. People regularly assume that it’s best to name a family member as trustee. However, if there are family disputes, logistical reasons (like living far from the trustee) or competence issues it may not be wise to name family. When choosing a trustee, it is important to determine if they can act impartially, maintain clear and accurate financial records, and invest the trust property per the trust document. While evaluating trustee options, you may come to realize that a professional trustee may be in your best interest and that of your family.
- Failing to review your plan regularly
Since the year 2000, the estate tax exemption has increased from $675,000/individual to over $11,000,000/individual in 2019. Your will and estate documents must be kept current. Changes to the tax code happen annually so be sure to review your personal plan with your attorney.
Aside from a trust, it is pertinent that your will and the beneficiaries listed on your monetary accounts match to reduce confusion when settling your estate. The beneficiaries that are listed on the accounts will supersede what is listed in your will.
Other reasons it’s important to review your estate plan can include changes to beneficiary designations, changes in desired distributions, children reaching the age of majority, etc. If it has been more than 5 years since your last estate plan review, it is time to review your documents again.
- Failing to fund your plan
The final mistake we see grantors make is going through the process of establishing an estate plan but then failing to fund it. Once a trust is created, the work is not done. Your assets must also move into the name of the trust. This means you will need to reregister your monetary accounts. Your financial advisor should be able to assist you with this matter. Should you pass prior to moving the assets to the name of the trust, your wishes in the trust may not be applied to these assets.
Losing a loved one is a painful and stressful time for family. Avoiding the above mistakes and having a plan in place can bring peace of mind for you knowing that your plans will be carried out. Your family will be grateful knowing they are honoring your legacy by following your estate plan.
Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed and the accuracy of the information should be independently verified. This material is intended for informational purposes only, and should not be construed or acted upon as individualized investment advice. Neither FSC Securities Corporation, nor its registered representatives, offer tax or legal advice. Federal tax laws are complex and subject to change. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.