We’ve found that many people think that estate planning is only for the rich.
In reality, many people would benefit from having an estate plan. If you have at least one thing of value—a car, a house, a bank account, then an estate plan is a must. Such a plan allows you to make informed decisions to ensure that your assets are properly handled and maximizes the value of your estate for your beneficiaries.
The Meurer Law Offices in Denver specializes in protecting your lifetime of hard work, so today, we discuss the top 10 estate planning mistakes and how to avoid them.
1. Not Having an Estate Plan
One of the most common estate planning mistakes is to not have one at all. Often, people figure that an estate plan is something they either don’t need or can take care of later, and unfortunately, later never arrives.
A lack of estate planning leaves your loved ones to guess what your wishes would have been and often, your loved ones are forced to go through more hassle and bureaucratic hoops to get all the estate issues settled.
A proper estate plan ensures your wishes are followed appropriately and minimizes issues for your beneficiaries. Having one also saves your beneficiaries additional time, fees, and possible additional taxes.
2. Not Updating Your Will
A will can be an important part of your estate plan. So many changes take place so quickly in today’s world. Your will needs to be an evolving document reflecting births, deaths, divorce, new assets, and more. Your will should be changed as soon as such new events occur, to ensure that your most recent intentions are reflected.
3. Not Taking Advantage of the Federal Tax Exemption
Married couples can save a great deal on estate taxes by taking advantage of a substantial tax exemption for each spouse.
Using this exemption protects a portion of the estate under what is called an exemption trust. It is also known as a credit shelter trust. This is an important exemption to take advantage of to protect your spouse from additional taxes.
4. Putting your child’s name on the deed
If you place your child’s name on the deed to your home, you have just set your child up for a potentially hefty tax bill because it was a gift. The IRS considers such gifts to be taxable and the majority of homes well exceed the maximum exemption.
Passing your home via inheritance or perhaps an irrevocable trust prevents your child from the headache of having to pay a large and often unexpected tax bill.
Talking to an estate planning lawyer can help you determine what course of action would be best for your situation.
5. Not Planning for a Disability
Estate plans are important in death but are also necessary for other circumstances such as disability or accidents. In the event of a sudden or long-term disability, it is important to have plans for who will handle your finances, health care decisions, raise your children, and care for your assets. This sort of situation necessitates considerations such as power of attorney and living trusts to ensure that important decisions are made with your best interest in mind by someone you have predetermined.
6. Not Reducing Your Estate Tax
Failure to make gifts under your estate plan will cause the tax bill to be larger than it needs to be. Understanding how gifts can be done, what the maximum tax-free benefit is, and how to avoid more taxes is an important part of estate planning.
7. Not Transferring Life insurance to a Life Insurance Trust
People often don’t understand that the proceeds from a life insurance policy are subject to a large estate tax, which can result in most of the life insurance going to the IRS instead of your intended beneficiaries.
Setting up a life insurance trust is one way to avoid one of the more easily overlooked estate planning mistakes. By doing this, your beneficiaries act as the owner of your life insurance policies. Not only does this avoid the estate tax, but it also often avoids the lengthy waiting period for the payout of the insurance proceeds.
Waiting until later to take advantage of an estate plan is one of the worst estate planning mistakes that can happen.
Often, people wait until it is too late—an unexpected death or disability has already occurred and little can be done to put an estate plan in place. Meeting with an estate planning lawyer now to get your estate planning process started is the best course of corrective action. Avoid procrastination and save your loved ones more hassle and money, on top of future heartache.
9. Choosing the Wrong Person to Handle Your Estate
People often turn to close loved ones to handle their estate, but sometimes the best people to execute your affairs are those who are not as personally involved.
Sometimes, it is best to choose someone who has time to handle the duties (which can be surprisingly extensive) and execute your affairs objectively. Choosing the right person to be your executor, trustee, or guardian is an important part of making sure you’re your estate plan is executed well.
10. Trying to DIY Your Estate Plan
It can be tempting to do all your estate planning yourself. However, using professional legal, financial, and tax resources to put together your estate plan is one of the best things you can do because estate planning professionals bring expertise, knowledge, and extensive experience to the process.
A poorly planned estate can be just as much of a hassle as not having one. The right professionals can help you avoid potential pitfalls and tailor your plan to your specific needs. It can help you minimize taxes and sometimes avoid them entirely.
How to Avoid Estate Planning Mistakes
While this list provides the basics of how to avoid certain estate planning mistakes, you’re welcome to make an appointment to meet with an estate planning lawyer here at the Meurer Law Offices in Denver. We can help you avoid these missteps and many more, as well as give you and your loved ones a peace of mind by having a thorough and comprehensive estate plan in place.