Most people approach estate planning in the same way they approach a root canal: they put it off until the agony becomes unbearable.
Additionally, those with a low income or net worth assume that estate planning is irrelevant to them. However, estate planning encompasses much more than the distribution of cash, real estate, and other assets.
There are many additional factors to consider. In estate planning, there are a number of common mistakes. Half the challenge is avoiding these pitfalls.
1. Avoid the following errors for a good estate plan: Procrastination. When it comes to estate planning, it’s comparable to filing a tax return. Nobody wants to do it. But you must overcome your apprehension and complete the task!
2. Not paying attention to potential conflicts among your beneficiaries and estate plan. For example, if your will specifies that your husband will receive your retirement account, but your former husband’s name remains on the beneficiary list, this could be a difficult situation.
3. Not taking advantage of unified credit. This only applies to persons with a substantial net worth, although it is a common error. Assets usually transfer to the surviving spouse. Currently, tax exemptions of up to $12.06 million are possible. However, if this isn’t managed correctly, the surviving spouse will only be able to exercise their exclusion when passing assets on to their heirs.
There are techniques to potentially protect this money from future taxation. A credit shelter trust is one option.
4. Having insufficient life insurance. For the wealthy, life insurance can be a valuable estate planning tool, but it is also essential for individuals with limited incomes. Consider how your family would cope financially if either you or your spouse died suddenly. If you have a lot of money, you might choose to combine life insurance with an irrevocable trust for tax purposes.
An estate planning attorney can provide advice and clarify the nuances based on your specific situation.
5. Making a plan that isn’t flexible. Leaving some wiggle room in your estate plan will allow your heirs to take advantage of any changing legislation and make the most use of the assets.
6. Not transferring assets. A gift tax exemption of up to $16,000 per beneficiary per year is available. This can be an excellent approach to reduce the taxes owed on your estate after you pass away. You might also assess how successfully your beneficiaries will manage your assets. You also have the benefit of being able to observe someone enjoying themselves. You won’t be able to do that once you’re no longer here!
Although estate planning isn’t the most pleasurable task, it is one of the most significant things you can do for your family. Everyone should have a basic estate plan in place that outlines their intentions. Even if there are no children or assets, this is critical.
Unless your estate is relatively basic, an attorney can be quite useful. Even so, the $100 or more it will cost to have an attorney review your documents will be money well spent.