Pitfalls To Avoid When Creating Your Estate Plan

Pitfalls To Avoid When Creating Your Estate Plan

While you’re probably eager to plan your legacy, coordinating a wealth transfer is easier said than done, as the process comes with financial and legal considerations. Take a look at these pitfalls and strategies to help avoid them.

Pitfall #1: Deciding That Equal Distribution Is Always Fair

If you have multiple beneficiaries in mind, you may think the only logical thing to do is to divide all assets among them equally. While that is an option, it may not always be the best one, as each beneficiary is a unique person with their own needs and circumstances. For example, if one child works at the family business and is ready to take the reins, while the other works elsewhere, it could make sense to give your company to the former while providing the latter with other assets.

Pitfall #2: Thinking That a Will Is All You Need

You might assume that your assets will be divided based on your will. Keep in mind, though, that many assets, such as a 401(k), IRAs, life insurance benefits and annuities are an integral component of your estate plan, but they follow the beneficiary designations on them, rather than the provisions of your will. Failing to properly designate your beneficiaries for these types of assets, usually called non-probate assets, can result in making the distribution of your estate much more complex, since they may become subject to the probate process, which can prolong the time it takes for your asset to get where you intended. This delay can be stressful for your loved ones, who may need to access these funds for their needs and to fulfill your last wishes in accordance with what you’d want. Making sure to align your will and your beneficiaries can help ensure your wishes are carried out as you intended them to be distributed.

Pitfall #3: Not Addressing Lifetime Disability Planning

While a will covers many important items, including the passing of your assets on your death, your estate plan is equally important during your lifetime, and should included provisions for events that occur when you are still alive, such as If you become disabled. Your estate plan can name who you would prefer to manage your financial affairs and make decisions that impact your health and well-being. By creating powers of attorney, you can identify one or more agents to make choices for you about these important matters should you become unable to decide for yourself.

A financial power of attorney covers decisions that include how to deal with your taxes, the buying and selling of real and personal property and who should receive gifts of your property. A medical power of attorney covers decisions such as using life-sustaining measures in your care and may include instructions to provide treatment and care that align with your recorded values, religious/spiritual beliefs and wishes.

Pitfall #4: Having An Out-of-Date Estate Plan

Deciding who receives your wealth may seem clear as day right now, but kids grow up, laws change, people die and relationships shift, along with your situation. To prevent your will and other documents from becoming “old”, you should review your will with your attorney every few years to account for personal changes as well as changes in tax and other laws to help ensure your assets are going to the right people. If you experience a significant life event, such as the death of a loved one, a move, go through a divorce or remarriage, you have grandchildren, etc., it’s important to update your documents. Often a simple update can save your heirs from expensive headaches down the road.

Pitfall #5: Executing Your Wiil and Other Estate Plan Documents Without Talking To Friends And Family

While you don’t legally need input from others to construct your will, trust and other estate plan documents, having a conversation with heirs and those you plan to name in your will about what they can expect to receive, or be asked to do, may help relieve consternation, confusion, resentment or disagreement after you’re gone. Based on your conversation, you may decide to modify your distribution provisions or change personal representatives and trustees. Perhaps you assumed one individual wanted a particular asset, when in fact they didn't. You should set aside time in advance to discuss your estate plan with your spouse or anyone you’ve named to execute wishes to make certain they are comfortable with what you are asking them what to do after you die.

Pitfall #6: Choosing the Wrong Person to Handle Your Estate

It is often hard to know who will make the best personal representative for your will, the best trustee of a trust fund, or the best guardian for minor children. While a surviving spouse may seem like the obvious choice, they may be too overwhelmed to manage a complex probate process. There are also times when a spouse or child will not make a good fiduciary because they disagree with decisions you have made about beneficiaries and bequests. You might be concerned that as your personal representative will not fulfill the terms of your will. They may not fully be trusted to act responsibly as a trustee or a guardian. Remember, you do not have to name a family member for these critical roles.

If you would like to speak with one of our attorneys about getting your estate plan set up, don’t hesitate to contact our firm at (503) 227-0200 to set up your free consultation today.