Planning how your assets are going to be distributed and for your health care needs is an important tool all adults, not just elders should utilize. However, over 60% of Americans have not made a basic will. There are many misconceptions about estate planning and the reasons for it, which has led many Americans to shy away from the process.
Common Mistakes & Misconceptions
- Estate planning is for the elderly or the wealthy. Determining how you want your property distributed or what you would like to happen to you in the event you can no longer speak for yourself are tasks everyone needs to think about. Even the most simple finances can become complicated when there are multiple parties involved.
- Thinking your family will sort everything out without issue when you are gone. While everyone would like to think family will get along and easily sort through who gets what assets of the deceased person, however these situations quickly and frequently turn into heated debates that lead to legal battles as well as family divides. Sibling rivalry commonly comes back if mom or dad have passed and one child feels the other is receiving more.
- Only considering your physical possessions in distribution and management. Today, we use online accounts not only to communicate with others, but to pay bills, manage accounts, and change information. It is important to either write into your will who will manage these accounts or inform someone you trust of the passwords used.
- Failing to amend the will after certain relationships have changed. While divorce will automatically disinherit the former spouse in most states, everyone should check their state law to make sure that the former spouse cannot still claim inheritance upon death. There are also other documents such as life insurance policies that will require the testator to physically go and have the name changed.
- Not taking advantage of the various ways you can reduce estate taxes. The testator can make gifts up to a certain monetary threshold each year that will be excluded from the estate taxes and end up leaving more money to be distributed among the heirs. This also applies to transferring life insurance policies to life insurance trusts; transferring to a trust avoids the large estate tax and enables your spouse to receive the funds more quickly.
- Failing to address all the relevant issues. Many people create these documents in a reactive way due to a life event that has changed their thinking, however, all future situations need to be planned for. Thus, if you name a durable power of attorney for your health care because you recently found out you have a health condition, it is still important to name a durable power of attorney for your property and financial matter as well as making a living will if you want all your wishes to be followed upon death.