Here are big mistakes you want to avoid when you set aside wealth for future heirs:
- Procrastinating —Always arrange your estate plan as early as possible, and keep it updated. State law may intervene and create a plan of its own if you don’t complete yours in time.
- Having a do-it-yourself mentality — Although taking charge of your own plan can seem like a good idea — after all, you know what you want — it can lead to major problems later. Laypeople generally don’t know the hundreds of regulations that can derail you before you get started.
- Failing to see all angles — Don’t forget to look at the big picture, including what-if scenarios, so you can prepare for what might go wrong.
- Divorce — You may think you should place restrictions on money in trust from being distributed outside the family. But, you have to take into account the possibility of divorce and use a distribution standard that gives discretion to trustees — just in case.
- Missing the fine print — Make sure every “i” has been dotted and every “t” crossed. The fine print in estate planning documents can be the difference between retirement in the Bahamas or a trailer home. Avoid being manipulated by the fine print.
- Forgetting pets — You don’t want your pets becoming orphans when you die. Set up a pet trust to care for your animals!
- Failing to update all documents — Don’t erase any benefits estate planning documents might have to offer. Make sure you retitle the assets in the name of your trust; failure to update or title documents can erase beneficiary designations on retirement documents.
- Underestimating trusts — Trusts are NOT only for minor children. Trusts are asset protection vehicles for the entire family and can protect wealth from creditors’ claims.
- Failing to consider digital assets — Without access to passwords for digital assets, there’s value that cannot be gotten to. Make sure you have a list of all your online user names and passwords so that appropriate family members or trustees can get at the information.
Other Ways to Go Wrong
In addition, there are broad procedural issues that can trip you up:
Not letting your adult children know where you store your estate documents and, what’s worse, not letting them know the contents of the documents.
- Don’t make your adult children have to go through a lengthy and expensive legal process because no documents were ever created.
- Attorneys and financial advisers say that wills and trusts are legal minefields that can keep families in courtrooms and at each other’s throats for years if not administered properly. Try to avoid that for your family.
- Sibling rivalry is a thing, and almost all of us have gone through it. Relatives who fight over the estate and end up in worse financial shape often have to give their attorneys a chunk of their inheritance. Think about it this way, if your kids don’t get along while you’re alive, why should you think your death will help patch things up?
- Be sure that one adult child can’t say that you were pressured to give the other more money. How to avoid this? Discuss estate plans with your children before you die, and make sure everyone is included.
- Don’t let the estate be forced to sell bequeathed assets to cover estate tax, and don’t let your wife end up paying the tax on a gift you gave your girlfriend.
- If you have a child with someone out of wedlock, make provisions in the will for that child. It’s hard enough emotionally to find out that there’s another child in the family in the first place, and even worse if that child decides to sue the estate. Clean it up before the will is done.
- Don’t wait decades to update your will. Remember that son you disinherited? Maybe you don’t want to do that anymore.
Obviously thinking about death isn’t a pleasant time, but don’t let yourself fail to plan for when your time is up. Life changes every day, and it’s important to keep your will just as updated. Don’t let your estate plan fail to do what your heart intends.