Estate planning is a vital process, and it's worth getting right. Read on to learn about six common estate planning mistakes and how you can avoid them.
Nearly 60% of Americans say they do not have a will or living trust in place. Most people that have put off estate planning admit to doing so because they either haven’t taken the time to do it or because they don’t think they have enough money and assets to bother making a plan.
The truth is that estate planning is important and everyone should have an estate plan, no matter their age or level of income. But when you go through the estate planning process, you want to be careful to avoid some common estate planning mistakes.
Here are the five biggest mistakes people make when estate planning and how to avoid them.
The first and arguably largest mistake people can make is not preparing any plan at all. Some people might realize the importance of having an estate plan but procrastinate on actually making one. The biggest downfall to procrastinating is that they may only realize how crucial it is to plan once it is too late.
In the unfortunate circumstance that you pass before making an estate plan, your case will go to probate. Probate is a court-supervised process that ensures that the proper beneficiaries receive the appropriate assets from your estate. If you have a solid estate plan that clearly outlines all your assets and wishes, the process will be greatly simplified, or you could even avoid probate altogether.
If there is no documentation for your final wishes, it is up to the court to make those decisions for you and your loved ones. This process can take an inordinate amount of time. In a complicated case, the process can take several years, and in extreme cases, it can go on for up to decades. The most common issues that can complicate a case include the size of an estate, disgruntled beneficiaries, or complicated assets (like intellectual property rights or commercial interests).
While the time required to get affairs sorted after someone passes without a will can be irritating, probate can also be an expensive process. The following costs can be expected:
A straightforward way to avoid your loved ones spending unnecessary time and money is simply sitting down with an attorney and creating an estate plan.
When you break down the numbers and see that only 4 in 10 people between the ages of 18-52 (millennials and Generation X) have an estate plan, it's clear that most people put it off, thinking they have ample time to get to it. Indeed, as people age, the statistics change. Among the population of people aged 53-71, more than half have done some level of estate planning, and this number continues to climb as people get older.
Don't be fooled by the idea of having plenty of time, though. If you have any kind of income, debt, or dependents, you should be setting up an estate. Nobody likes to think about dying or having someone else raising their children, but this is something that needs to be done. Otherwise, in the case of any emergency, who would be legally empowered to manage your finances, pay your bills, take care of your children, or inherit your assets? If you don’t set out your wishes, a judge and state laws will decide these matters for you.
Estate planning is essential for all people, not just those with lots of money and property. If you have dependents, you should use your estate to spell out your wishes for them. Similarly, if you have investments or life insurance, you want to help your beneficiaries avoid the hassle of probate and spell out your wishes in a will or other document, no matter how much money is involved.
For those who have created a plan, one common estate planning mistake is failing to update it. Life is full of curveballs and surprises, so when you have a big life event of any kind, you should update your estate plan.
These significant life events that require updating your plan can include marriage, divorce, the birth (or adoption) of a child, or the passing of a beneficiary or trustee.
A more expansive list of life changes includes:
As you address estate planning, it makes sense to also plan for regular check-ins on the plan to ensure it's up to date.
Nobody looks forward to talking to their family about what will happen after they die. It can be an incredibly uncomfortable conversation to have, and for most people, one they'd like to avoid. Often that's the reason so many people put off estate planning to begin with.
Despite the potential discomfort, it is best to bite the bullet, make an estate plan, and keep it up to date. Your loved ones won't have to untangle financial issues and try to guess how you wanted your affairs handled during their time of grief.
When you have a clearly spelled out estate plan that designates how your assets will be handled, any arguing over who gets more money or ownership of property can be evaded. No one can guarantee that all family members will appreciate your decisions, but at least they will know the decisions are yours when you spell them out clearly.
In the same spirit, be careful about naming children as joint owners of assets. This can create family conflicts if they don't share the same vision. Additionally, you don't necessarily want your children listed as owners of your assets while you're still alive. A major reason for this is that if you name them as partial owners, their creditors can get your property in the case of financial troubles, a divorce, or if they have to file bankruptcy. Instead, name them as beneficiaries, spelling out how the potential asset should be divided.
DIY’s are useful for home renovation or holiday decor, but do-it-yourself online estate planning can be tricky. Many people search for forms and fill in the blanks assuming that is enough.
The truth is that this is one of the times where it is crucial to talk to an estate planning attorney who is familiar with the laws of your state.
Keep in mind that having any estate plan is better than no plan at all, so online tools do have a role. If you or your family can’t afford an attorney, or if your needs are straightforward, online tools make more sense than not making a plan at all.
But for many, it makes sense to hire an estate planning attorney. The reality is that if something goes wrong with your estate plan later, the consequences will more than undo any money you save in the short term.
Researching how much it costs to make a will can be a helpful first step in evaluating what's best for you.
There are several common estate planning mistakes that people make related to beneficiaries.
First, make sure all of your will, insurance policies, and investments all name beneficiaries wherever possible. Additionally, don’t be vague or leave anything up to interpretation when naming beneficiaries. It is not sufficient to say “leave XYZ to my children.” List the names, Social Security Number, and up-to-date contact information for all beneficiaries.
Second, make sure you have named at least a secondary and maybe even a tertiary beneficiary. For example, if your spouse is your first beneficiary but something happens to both of you, your estate plan will have to go through probate without a secondary beneficiary in place. Probate can be a long and arduous process, so it is best to avoid it if possible.
Also, like other updates to your estate plan, you want to make sure you update your beneficiaries as appropriate. Imagine the predicament if you get divorced and remarry, but your first spouse is still listed as your beneficiary because you never got around to updating. Or if you have another child and forget to add them to your estate plan altogether.
We live in a technology-driven world. Accordingly, more and more estate plans include a section for digital estate planning.
A good first step to this is to list all passwords to your accounts so that your loved ones will be able to access them. You can do this through password management websites such as 1Password and LastPass. If you put all your passwords in a digital wallet, your executor or beneficiary will only need one master password. If you don't feel safe storing all of your passwords electronically, you can also write them down in a notebook and tell a trusted person where the passwords are written or put the notebook in a safe deposit box.
Investment websites such as TD Ameritrade, Fidelity, Vanguard, or Charles Schwab have Transfer on Death (TOD) policies in place so that investors can name beneficiaries who will take over their accounts in the case of death. It is highly recommended to fill out the TOD agreement and list beneficiaries when first creating your account.
In the age of social media, many people’s entire lives are online. Anyone might know where you go on vacation, who your closest friends are, and when important anniversaries and birthdays are. What do you want to be done with all of this information once you have passed away? You can leave it all online, but there is a possibility that someone could hack your accounts and access loads of personal information without your loved ones' knowledge. This can be dangerous, so it is best to have these accounts closed after you pass or adjust them so that there is less personal information available.
Facebook and Instagram have the option to memorialize an account. This means that friends and family can still post on your timeline (Facebook), but they won’t receive birthday reminders (also Facebook), and you won’t show up as a suggested friend. Everything you have posted on your account will still be visible to your friends/followers. If you don’t want your account to be memorialized, you can state this in your estate plan and your family members can delete your account.
Pinterest, Twitter, and LinkedIn accounts can either be kept or deleted, so just make sure to write out what you want. All of these websites give the option of being deleted by a family member if provided proof of death.
Another new consideration when making an estate plan is cryptocurrency (and NFTs). Many people increasingly want to pass on their digital currency such as Bitcoin, Litecoin, or Ethereum. For something as new and complicated as cryptocurrency, it can be helpful to find an attorney who has experience dealing with cryptocurrencies so they can guide you and make sure all of your crypto assets are secure and inherited by the correct beneficiaries.
Your attorney should be able to help you clearly describe your cryptocurrency. It can be helpful to create a cryptocurrency guide so that your beneficiary knows exactly what you want to be done with your money. Many people are still unfamiliar with the world of crypto, so if you write out a simple guide on how to access your portfolio, exchange, and buy and sell crypto, you can ensure that your money is in good hands.
In the case that you don’t have any loved ones who are technologically savvy or nobody you know is willing to take charge of your cryptocurrency, you can choose an experienced executor to exchange your cryptocurrency investments for fiat (government-issued) currency.
The importance of creating an estate plan can't be overstated. Avoid these common estate planning mistakes as you create and maintain your estate.
If you're looking for legal help to establish an estate plan, evident can help. Get started today so we can connect you with the help you need.