The Most Common Estate Planning Mistakes
When discussing common estate planning mistakes, the first one you have to deal with is the elephant in the room; the most common mistake people are prone to make with regard to estate planning, and that is the failure to even create one.
Create an Estate Plan
This is the biggest mistake anyone can make and, unfortunately a majority of people will make this one. Why is this the case, given that the one certainty about our lives is that someday we're going to die? Reasons are varied, of course; as individual as each person. Some people feel intimidated by the very prospect which makes it difficult to broach the subject. Who wants to talk about death, especially with a spouse, or parents, or the children. What if you decide you want to leave some children more, based on what they need? For example, Susie may have a husband and five kids and they're struggling to get by on his salary, while Walter lives alone and has a million dollars in the bank. Will Walter object if Susie gets more from the estate? How do you discuss that without ruffling a lot of feathers?
Regardless of income and wealth, everyone should plan for the end. Not doing so is a huge mistake, because if you don't decide where everything goes.
Update Your Plan
Another very common mistake many people make with regard to an estate plan is taking the completed plan and putting it somewhere and never dealing with it again.
It's not fun to create a plan. It's a lot of hard work. And when it's over and done with, the person who completed the task is extremely relieved.
There's just one problem.
Unless you got word from your doctor that you have weeks to live, it's not actually over. As long as you keep living and working and growing, and your future heirs keep living and growing, the plan you crafted is in danger of becoming obsolete. And obsolete plans can be trouble for your heirs.
Some people use the excuse that they're waiting until their life stops changing to put off creating an estate plan in the first place. They want to wait until they're settled into the life they envision for themselves before they venture into that territory. However, once the plan is crafted, many apparently assume that life will never again change, and they leave it at that.
Unfortunately, life changes, but so do the laws and the rules. Consider the fact that the estate tax exemption has nearly quadrupled I the last 10 years, and is now indexed to inflation, so it could very well double or more in another 10. How much of your wealth will you be denying your loved ones if your plan is based on the $1.5 million exemption effective in 2005, rather than the $5.43 million exemption in effect now, or the $10 million exemption that might be in effect a decade or so from now?
You could also find your estate thrown into turmoil if you die, and it turns out someone you named to administer your estate dies or becomes incapacitated in the interim period. If you wrote your estate plan when the kids were small, and made them beneficiaries with equal shares, that's great. But now, they may be adults with families of their own, which changes things. And if one of your children dies before you, and has children of their own, you could be disinheriting some grandchildren, even if you don't mean to.
And if you move to a different state, not bringing your estate into line with the new state's laws could complicate probate for your heirs.
Update Retirement Beneficiaries
Many people make the mistake of thinking their will takes care of disposition of their retirement plans. However they aren't. Instead, they are passed to whatever beneficiary you have designated.
Therefore, many people with an estate plan operate based on this mistaken assumption, and fail to keep updating the beneficiary forms on file with the financial institution that holds their retirement accounts. Quite often, the money is designated to go to someone who has already died, or even an ex-spouse.
They should also update and re-file their beneficiary form whenever their financial institution has been taken over by another institution. This is because there are times when the old forms don't carry over properly and it's better to be safe than sorry when dealing with such things, to avoid problems at a time when your loved ones have enough to worry about.
