Common Mistakes in Estate Planning and How to Avoid Them
Estate planning is an essential part of every financial plan. All too often, however, many people delay it or make costly mistakes that can create unnecessary stress for their loved ones. Thoughtful estate planning can provide clarity and peace of mind, and common mistakes can lead to confusion and unintended consequences.
Let’s discuss some of the common estate planning missteps, and how to avoid them.
1. Not Having an Estate Plan at All
Whether they think they don’t have enough assets to justify estate planning, or just don’t want to have hard conversations, many people put off estate planning.
Establish an estate plan by starting with the basics. Create a will, establish power of attorney and healthcare directive. Even a simple plan is better than none at all. Establishing an estate plan ensures your wishes are respected.
2. Letting Your Documents Get Outdated
The next common mistake when it comes to estate planning occurs when life’s circumstances change, but your estate plan does not.
It is important to review your estate plan regularly (every 3-5 years or more often) and make appropriate updates when major life events, such as marriages, divorce, births, deaths, and relocations occur. Make sure your beneficiaries, executors, and guardians are still accurate when reviewing your estate plan.
3. Forgetting to Update Beneficiary Designations
It is common that when big life changes take place, beneficiaries are not changed to reflect these events.
To avoid this mistake, review all beneficiary designations annually. Be sure they align with your wishes and your broader estate plan.
4. Not Planning for Incapacity
Many plans focus only what happens after death, ignoring the possibility of mental or physical incapacity.
To avoid some of the stresses that can come with this, establish powers of attorney and healthcare proxies in advance. Consider a living trust to manage assets if you become unable to do so.
5. Assuming a Will Avoids Probate
Another common mistake is to assume that a will alone will keep your estate out of probate court.
Use tools like revocable living trusts, joint ownership, and transfer-on-death agreements to streamline the transfer of assets.
6. Failing to Communicate Your Plan
Keeping your estate plan a secret from loved ones and fiduciaries is a common pitfall.
Have open conversations with family members and others named in your plan. Let them know your intentions and where to find necessary documents. Keeping open communication helps make sure your wishes are caried out and eases some of the stress that comes with wealth transfer.
7. Not Working With Professionals
Creating an estate plan on your own may seem cost-effective, but important details are often overlooked.
Work with your financial advisor, an estate attorney, and a CPA to ensure your plan is thorough and tax efficient.
Estate planning is an ongoing process that changes as your life unfolds. By avoiding some of these common mistakes, and taking a proactive approach, you can help protect your legacy and provide clarity for the people you care about most. If you are unsure where to start or want to review your current plan, contact your financial advisor today.
The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC