As general advice, we’d say it’s always best to establish an estate plan early in life; that way, you can work out any wrinkles and avoid having any surprise estate planning mistakes down the road. Even these “early adopters” can face issues, however, sometimes due to perfectly innocent mistakes. It’s important to take care of these issues sooner rather than later, because in some cases they can cause you to lose money, or else leave your heirs and beneficiaries with a lot of headaches.
Here are a few of the most common estate planning mistakes to avoid.
You’ll need to name someone who actually carries out the instructions left in your estate plan. This person is known as the executor of your estate. This person can be anyone, but it’s usually best not to pick a family member.
There are several reasons for this. Sibling rivalry can complicate things. Some relatives may simply want a bigger piece of the pie. Denying assets to certain relatives, just out of spite, is sadly common. The bottom line: Choosing a family member as your executor can lead to a lot of tension.
Consider family dynamics before you pick an executor—and when you can, pick either a trusted friend or perhaps an estate administration lawyer. (There are many benefits to using a paid executor instead of someone you know personally.)
A common approach to estate planning is simply to put all your assets into one big pot and have them split into equal shares. This may sound fair and magnanimous on paper, but it can actually be problematic.
Generalizing assets and splitting them in equal but gross amounts leaves a lot of ambiguity about how even the assets should be divided. As such, we would recommend that you give as detailed an accounting of who inherits which assets as you can, helping to avoid the ambiguities of over-generalization.
The bottom line: Just because something is “fair,” that doesn’t mean it’s really a practical or manageable solution.
One of the biggest estate planning mistakes of all is allowing your plan to go stagnant.
Estate plans need changing up every time something significant happens, like marriages or death. You should also change assets any time a child is born or adopted into your family. Divorce can call for estate plan revisions, as can any changes to the estate itself—for example, purchasing or selling a home, coming into a lot of money, etc.
Consequences of a stagnant estate plan can include probate and even more taxes, not to mention more legal work for executors and inheritors because of outdated documents. As such, we would recommend meeting with your estate administration lawyer at least yearly to make sure your documents are all caught up.
Minors are generally not good with cash. Giving them a large amount of money before they reach adulthood could lead to them wasting it away on many things. It’s okay to want to be generous with minor children, grandchildren, nieces, or nephews, but you should temper that generosity with wise asset protection.
Consider establishing a trust to protect the money while ensuring it goes to the children properly later on. Trusts are important estate planning strategies, and provide a number of benefits—including protections against young people squandering their inheritance!
We said that trusts can be important tools for asset protection, but they can also come with some additional complications. For example, it’s obviously important that you keep your trusts fully funded.
Trusts need work on the part of the guarantor to remain funded. Money does not come into the trust automatically. The guarantor has to handle the transfer of assets to the trust using the schedule provided. Otherwise, it will remain empty and be worthless when the time comes.
This can seem complicated, and it definitely requires vigilance—so make sure you speak with your estate planning attorney at length about it.
Estate planning is a good step for the future but action must be taken to avoid loopholes. Remember the items listed in this article and learn other issues that can ruin an estate plan to avoid having problems in the future.
If you’d like assistance putting wise estate planning strategies in place, consider a call to Singh Law Firm. We can help answer any questions you may have about revocable trusts, gifting strategies, managing trusts, and more. And, we can help keep you free and clear of these common loopholes.
Reach out to Singh Law Firm today to ask us about estate planning.