As much as we’d like to avoid the thought of death, it is inevitable for all of us. And once you are gone, your assets will need to be divided among your heirs.
Second marriages, missing beneficiaries and incomplete paperwork can all wreak havoc on this process though, and that’s why it’s essential to plan properly long before you say your final goodbyes.
Don’t make the following estate planning mistakes, or it could prove costly to your loved ones — in time, money and grief.
Mistake No. 1: Thinking you will live forever
The most basic estate planning mistake is failing to plan, period.
“It’s essential to get an estate plan,” says Richard Ricciardi, estate planning attorney and partner with Powell, Jackman, Stevens & Ricciardi in Fort Myers, Florida. He tells Money Talks News that some people seem to think they will live forever and neglect pulling together the necessary paperwork.
Unfortunately, this can lead to stressful fighting among family members as potential heirs all jockey for the biggest piece of the pie. Do everyone a favor by getting your wishes down in writing, sooner rather than later.
Mistake No. 2: Drafting a will yourself
We live in a DIY society, but according to Ricciardi, drafting your own will is a mistake. “I’m not saying it’s rocket science,” he says, “[but] it’s probably worse than not having one.”
Over the course of his career, Ricciardi has seen multiple instances in which self-made wills are drafted incorrectly. That seems to invite litigation by potential heirs who see an opening to go to court and make a case for more money.
Talk to an estate planning professional to avoid causing your loved ones an expensive legal battle and potential heartbreak. If you insist on doing it yourself, at least use a template like Rocket Lawyer's — but be aware that if you change your mind later, as the company points out, “some lawyers may not even agree to review your document if they weren’t the person who worked on it.”
Mistake No. 3: Overlooking the value of a trust
People often think about wills when discussing estate planning, but trusts can usually achieve the same goals as a will. Plus, they provide you with a greater say over how your money is spent after you’re gone.
“You need a bucket that controls everything, and that bucket is a revocable trust,” says Patrick Simasko, elder law attorney and wealth preservation specialist with Simasko Law in Mount Clements, Michigan.
Trusts can be created with provisions that stipulate who gets what and when, which can make them an appealing option. However, it will cost more to establish and administer a trust than to create a will so they may not be right for everyone.
Mistake No. 4: Assuming your spouse will take care of your kids
Simasko tells Money Talks News that second marriages can often cost children their inheritance if a parent is not careful. “You can’t trust the surviving spouse to follow your wishes,” Simasko says.
For instance, a parent may leave everything to their husband or wife with the understanding that upon that person’s death, all assets will be split between surviving children. However, there is nothing to prevent the surviving spouse from changing beneficiaries on accounts so all the money goes to their children or chosen heirs.
A trust can address this concern, but not if it’s jointly owned by the couple. In that case, there is again nothing preventing a surviving spouse from changing the trust terms to lock out the children of the deceased spouse.
If you want to ensure your children will be provided for after your death, an estate planning professional can help evaluate your options.
Mistake No. 5: Failing to name beneficiaries
Beneficiaries can be added to many financial accounts, such as retirement plans and life insurance policies. Other accounts can be set up with “payable on death” or “transfer on death” provisions. All three options allow assets to be transferred without the need to go to probate court.
Ricciardi notes that estate planning attorneys often charge a fee equal to a percentage of the estate value. By pulling assets out of the estate and transferring them via a beneficiary, you can save your heirs money.
However, make your beneficiary choices wisely. Don’t list one child as a beneficiary or joint owner of an account and trust that they will split the proceeds with their siblings. Legally, they can keep everything for themselves.
Mistake No. 6: Leaving a timeshare to children
If you have a timeshare, death may be the best time to unload it.
“Timeshares are a nightmare,” Simasko says. “Don’t put the kids’ name on it.” Likewise, don’t include it as an asset in a trust.
That way, children may be able to walk away from the timeshare rather than try to sell it or be saddled with maintenance fees for perpetuity.