My dad taught high school business law for 27 years. Included in his curriculum was a section on estate planning, such as drafting wills and powers of attorney. His reasoning was simple: “Talking about death or catastrophe isn’t going to make it happen.” I heard those words before I was in that class and I've heard the phrase many times since, and it’s an important aspect I hope my readers understand as well. Talking about death and where we want our things to go after we die is some pretty heavy stuff. What’s heavier, though, is leaving the burden of your estate to your children and grandchildren.
Creating an estate plan is one of the most important things you can do to protect your assets and ensure that your loved ones are taken care of after you pass away. In both my professional and personal capacity, I've seen how a well-crafted plan can make a world of difference for families during a difficult time. I’ve also seen how a poorly constructed estate plan, or the lack of an estate plan altogether, can tie-up assets for months, sometimes years, and wreak havoc on an already grieving family.
A sad reality is that even when people do take steps to protect their assets, many make common mistakes when creating their estate plans. This leads to unintended contractual consequences, disputes among family members, and sometimes outright litigation to fight over your estate. Here are six common mistakes to avoid when creating an estate plan and tips on how to avoid them.
Not Having an Estate Plan at All
Believe it or not, many don't have an estate plan in place. This is even more prevalent in the LGBTQ+ community, even though LGBTQ+ couples earn more, on average, than their heterosexual counterparts. Couples may think estate planning is only for the wealthy or elderly, but the truth is anyone and everyone can benefit from having a plan in place. Without an estate plan, your assets may be distributed according to state law, which may not align with your wishes. A comprehensive estate plan includes a will, powers of attorney (financial and medical durable), a living will, and other legal documents (such as trusts or pay-on-death accounts) outlining how you want your assets to be distributed after you pass away. Whether you are a newly married couple looking forward to a new future together, or a couple looking to best enjoy your retirement years, a comprehensive estate plan will ease the mental burden for you and your spouse, silencing the inevitable “what if’s” that come along with growing a family.
1. Failing to Update Your Estate Plan
Life is unpredictable and things can change quickly. That's why it's important to review and update your estate plan regularly. For example, if you've had a child (or adopted a child), moved, divorced, or remarried since your last estate plan was created, you'll need to update your plan to best reflect your current life and how you want to dispose of your assets. Failing to update your plan can lead to disputes among family members that can last years and cause irreparable harm to familial relationships.
2. Not Considering the Tax Implications of Your Estate Plan
Estate planning isn't just about distributing your assets. It's also about minimizing the tax burden on your heirs. Failing to consider the tax implications of your estate plan could result in your heirs having to pay more in taxes than necessary. A qualified estate planning attorney can help you navigate the complex tax laws and create a plan that minimizes taxes.
3. Choosing the Wrong Executor or Trustee
When creating an estate plan, one of the most important decisions you'll make is choosing the right executor or trustee. These are the people who will be responsible for managing your estate and ensuring that your assets are distributed according to your wishes. Choosing the wrong person for this role could result in delays, disputes, or even litigation. Here are a few things to consider when choosing an executor or trustee:
Trustworthiness: Your executor or trustee should be someone you trust completely. They will have access to all of your financial information and will be responsible for making important decisions about your assets. It's important to choose someone who has a track record of honesty and integrity.
Responsibility: Your executor or trustee should be someone who is responsible and organized. They will need to keep track of all of your assets, pay any outstanding debts or taxes, and distribute your assets to your heirs. It's important to choose someone who can handle these tasks efficiently and effectively.
Availability: Your executor or trustee should be someone who is available to carry out the duties of the role. They may need to be involved in the administration of your estate for several months or even years. It's important to choose someone who has the time and availability to manage these responsibilities.
Expertise: Depending on the complexity of your estate, you may need to choose an executor or trustee who has specific expertise. For example, if you own a business or have significant investments, you may need someone who has experience in these areas.
Relationship with your heirs: Your executor or trustee should have a good relationship with your heirs. They will be responsible for communicating with your heirs and ensuring that they receive their inheritance. It's important to choose someone who can handle these responsibilities diplomatically and sensitively.
Choosing the right executor or trustee is critical to the success of your estate plan. It's important to take the time to carefully consider your options and choose someone who is trustworthy, responsible, available, and has the necessary expertise to carry out the role. If you're unsure who to choose, an experienced estate planning attorney can provide guidance and help you make an informed decision.
5. Failure to Plan for All Your Wishes, Including Pets and Personal Items
While most people understand the importance of planning for their assets, many forget to plan for their pets and personal items. It's essential to include instructions for the care of your pets and distribution of personal items in your estate plan. This can prevent disputes and ensure that your wishes are carried out. Be sure to discuss these wishes with your attorney and include them in your estate plan. Look out for a blog post discussing this in more detail!
6. Failing to Communicate Your Wishes with Your Family
Your loved ones need to know what your wishes are so that they can be carried out after you pass away. Failing to communicate your wishes could result in confusion, disagreements, and even legal disputes. It's important to have an open and honest conversation with your family about your estate plan and what you hope to accomplish with it. One of the biggest mistakes people make when creating an estate plan is failing to communicate their wishes with their family.
It’s important to note that family members do not have a say in how personal assets are distributed. The distribution of assets is determined by the estate plan that the individual has put in place. When an individual creates an estate plan, they are able to specify who should receive their assets and how they should be distributed. This plan is legally binding and must be followed as closely as legally possible after the individual's death.
Family members may have opinions about how assets should be distributed. By creating a clear and comprehensive estate plan, individuals can help ensure that their wishes are carried out after their death and minimize the likelihood of disputes or disagreements among family members.
It's important to communicate your wishes to your family and loved ones to avoid any confusion or misunderstandings. However, it's also important to note that your estate plan is legally binding and should be followed according to your wishes, regardless of any objections or preferences that family members may have.
Creating an estate plan is a crucial step in protecting your assets and ensuring that your loved ones are taken care of after you pass away. By avoiding these six common mistakes, you can create a comprehensive estate plan that aligns with your wishes and minimizes the burden on your heirs. If you need help creating or updating your estate plan, don't hesitate to contact me today.