When it comes to checking tasks off of your financial to-do list, estate planning is probably the last item you get to, and some people don't get to it at all.
It's really not your fault. After all, many people think it’s morbid to think about preparing for death, and others often don't know where to start, so they simply don't get started.
Case in point: According to the legal services site "Rocket Lawyer," 64% of Americans don't have a basic will. That is really amazing when you think about it.
But estate planning shouldn't fall to the wayside. Although it is nice to think that you can trust everyone to do the right thing after your death, the truth is that if you don't have your wishes formalized, there may be a debate over what “the right thing” actually is. There is also no lack of ways in which people can stumble when it comes to making their after-death arrangements. The following are some classic and common estate planning mistakes people make when planning for their estates:
Common Mistake: Assuming Estate Plans Are Meant Only for the Wealthy
Some of us have adopted the opinion that estate planning is reserved for rich people. The truth is, it's for anyone who wants to know what is going to happen to their end-of-life medical care, assets, children or general private affairs if they become incapacitated or die.
So, in other words, that's pretty much all of us.
Really, everyone 18 and older needs an estate plan, regardless of their net worth. We all should want to have control over our lives and drastically reduce the burden on our loved ones by establishing a legally documented estate plan.
In addition to determining what will happen to your money or property after you die, estate planning also includes tasks like setting up a living will, deciding on a guardian for your minor children or pre-planning funeral arrangements. If you are not clearly stating your directives in these areas, you may be leaving too much power in the hands of the courts or state.
Common Mistake: Thinking Your Finances Are Too Simple for an Estate Plan
Many people may assume that their financial or family situation is so straightforward that they don't need to draft formal documents. Or, they may assume that establishing joint tenancy (sharing ownership in personal property such as a home) or joint ownership over financial accounts is enough to protect their assets.
The reality is that no one's life is as simple as it seems – and even if it is, you should still consider putting protections in place to help ensure that your wishes are known. Take an example of a single mother who may have an adult daughter as a joint account holder, so that both of them have the authority to sign checks in order to pay bills. At the mother's death, the assets in the bank account will pass directly to her daughter, but her other children would not inherit anything. Or, if the daughter/joint owner has her own financial woes, these assets would be available to pay her own debts or creditors. That may not be the mother's intention.
Common Mistake: Putting Off Estate Planning for Too Long
According to a Rocket Lawyer poll, 57% of Americans say their excuse for not having a will is that they "just haven't gotten around to making one." The term "better late than never" doesn't apply to estate planning.
At the very least, think of estate planning as a way to reduce the stress when you are no longer in a position to make decisions. If, for instance, you become disabled and don't have powers of attorney in place appointing people to manage your financial affairs and healthcare decisions, your loved ones may need to engage in a court process to establish a guardian or conservator.
Instead of fighting a legal battle, your family should be focusing on you, your health and your future. For this reason, we suggest giving copies of your healthcare power of attorney, living will and instructions on how to handle your remains to your primary care provider, in addition to key family members, so your wishes are well-known in advance.
Common Mistake: Neglecting Your Digital Assets
Remember that your property isn't just confined to what you physically own. You have a whole online life to think about as well. Don't forget to tell your spouse, your partner or close family member about your "digital assets." This may include making arrangements to transfer passwords for Cloud-based bank accounts, as well as any digital copies of important documents you may be storing on your computer or online.
Then, there is the matter of your social media accounts. Think about what you would want to happen with your Facebook, Twitter and LinkedIn accounts after you die. Do you want them deleted? Would you prefer to have them stay up in memoriam? Check out whether any social sites you belong to have polices on accounts for deceased people. Facebook, for example, can delete a deceased person's account or memorialize their timeline.
Your social media, emails and digital purchases are real assets, and in most states, the agent under your power of attorney, a trustee or executor must have specific authority to manage those assets.
Common Mistake: Not Preparing for "What-If" Scenarios
Take a lesson from the Boy Scout motto "be prepared." While it would be nice to believe that marriages last forever and everyone stays healthy into old age, we all know that, in reality, not every story has a happy ending. Marriages end in divorce, loved ones suffer addictions or are challenged by health problems, businesses fail or go bankrupt and children move away. Your estate plan can protect for life's contingencies, both good and bad.
Issues can arise, particularly in second marriage scenarios. Oftentimes, disputes break out between second spouses and children from first marriages when there is no clear plan of who is entitled to which assets. Your estate plan can protect your children if you die first, so your second spouse doesn't leave them with nothing.
In the case of addiction, you should take into account whether a relative with a history of drug or alcohol abuse can properly manage an inheritance, or whether you want resources to be set aside specifically for treatment.
These types of circumstances are also a good reminder that your will is a living, breathing document, which means you can't just “set it and forget it.” Deaths, births, divorce, changes in your financial situation and changes in estate planning laws all may warrant rethinking your estate plan from time to time.
While you're at it, update beneficiaries for all of your life insurance policies and retirement accounts too, because these typically are not administered through a will or trust.
Common Mistake: Forgetting About Your Pet
He was your best friend for many years – so how could you forget about Spike? I have personally seen many pets sitting pitifully in cages at shelters because their owners are too ill to care for them or have died and there is nobody to provide care. If you don’t want your pet dumped at a shelter or euthanized, you must include your pet in your estate plan. It is best if you make arrangements directly with individuals who you name in your estate plan so they can agree in advance to take care of your pet and know that, in the event of your disability or death, that obligation will fall upon them.
Common Mistake: Not Putting Enough Thought Into Naming a Trustee
Selecting a person who will be in charge of your affairs is no small decision. You don't want to choose someone for an arbitrary reason like going with the oldest child simply because he/she is the first born.
Name the person who is most likely to be up to the task. People also fail to consider professional or corporate trustees as a potential alternative or backup because they assume it would be too expensive, but they can provide a lot of value.
Remember that a trustee will be managing your money as well as your family's well-being. Make sure that you have discussed what this responsibility entails so that all parties are on board and that you have contingencies in place if that person doesn’t live up to expectations.
There are several common mistakes that people can make when considering their estate planning needs. We strongly recommend that everyone think about their own estate planning needs and the situations in their personal lives, and how those circumstances would be impacted in the case of a disability or death. Remember, "planning in time" is not necessarily the same as "planning on time."
I would be happy to address any questions you may have regarding your own personal circumstances and your estate plan.