Estate planning is one of the most neglected aspects of the average American’s financial strategy. Obviously, accepting one’s mortality is one of the biggest obstacles to estate planning. No one looks forward to planning for the future of their assets after they pass. In addition, an unfortunate number of people postpone estate planning, believing they have plenty of time to prepare, but postponement can significantly impact their options. Between dread and misconception, it is little wonder that half of Americans lack a will and even fewer have an estate plan at all. We’ve selected some common estate planning mistakes to avoid in order to best provide for those you leave behind.
Wishes Not Documented
Estate planning goes beyond the allocation of assets, the creation of a will is vital to ensuring a person’s wishes are clearly documented and enforceable. A will not only protects survivors from the possibility of probate, but clearly defines beneficiaries, helping to eliminate possible bitterness and uncertainty. Aside from financial considerations, a will is also vital to account for the care of any surviving children. Anyone not wishing to leave these decisions up to the state should consider having a will written up.
Life Insurance Coverage
Having an adequate life insurance policy is vital to the financial future of all families. Lower income families should at least pursue term insurance coverage to replace lost wages in the event of a death. More wealthy families may need the proceeds from insurance to provide liquidity upon the death of the insured.
While a life insurance policy cannot fill the void of losing a loved one, a lack of insurance can make an unthinkable situation impossible to recover from.
Neglecting an Estate Plan
Over the course of time there are several factors that can directly impact the need and scope of an estate plan. Wills should be edited as soon as reasonably possible to account for major life events such as a birth, divorce or a newly blended family. A testator of a will should also remain sensitive to any major factors in the lives of guardians, beneficiaries, or executors that may alter the roles within the will. It’s also extremely important to make sure that beneficiaries named in a will match any trusts left to those parties.
Changing tax laws can also have a dramatic impact on a family’s estate plan. Though estate planning has received some much needed stability in recent years, tax law is still subject to the whim of legislators, and can change from year to year. Due to the complexity of these laws, we encourage you to partner with a professional estate planner to revisit or establish an up to date tax strategy.
Not Gifting Assets Before Death
People looking to reduce their taxable estate should consider gifting assets to family and friends each year, as long as they do so within the gift tax exclusion limit. This is not only an excellent way to reduce the tax burden of your estate after passing, it also helps to establish your beneficiaries’ financial responsibility.
No one looks forward to addressing what happens when they pass, but it’s an issue we all must face. Due to the complexity of estate planning, we encourage you to partner with an estate planning advisor to avoid some costly mistakes.