Estate planning is sometimes the last thing on your mind, but taking time to consider what will happen to you and your assets in the event of your disability or death is essential. The following is a list of common mistakes that people make regarding their estate plan:
- Failing to make a plan: Not having an estate plan can be disastrous for your family and may result in your assets being given to individuals that you never intended to inherit your estate. Without the proper estate planning tools, like a will or a trust, you don’t get to control the division of your property. Additionally, having no plan can exacerbate family disputes.
- Thinking that an estate plan is only useful after you are dead: An estate plan consists of two components, disability planning and death planning. Disability planning includes the execution of a power of attorney and an advanced medical directive which allows you to name an individual to make financial and medical decisions on your behalf during your incapacity. Your total net worth makes no difference when drafting a power of attorney and an advanced medical directive. Whether you have one dollar or twenty million dollars, a power of attorney and an advanced medical directive are a must to ensure that the individual of your choice will be empowered to make important life decisions on your behalf.
- Leaving an IRA, 401(k) or life insurance policy to your estate: Leaving an IRA, 401(k) or life insurance policy to your estate may be a mistake. In the event you die with debt, the proceeds from any of those assets would instantly become available to your creditors. Additionally, there may be unforeseen tax implications of leaving certain assets to your estate. Individual beneficiaries often pay a lesser income tax than estates. Thus, designating a specific beneficiary for these types of assets often is a wiser option.
- Failure to understand probate versus non-probate assets: Probate assets pass under a will and non-probate assets, like an IRA or life insurance policy, pass by operation of law or beneficiary designation. Another example of non-probate assets are joint accounts with the right of survivorship. Failure to understand the differences between these two categories of assets could lead to unintended inheritances or disinheritances.
- Leaving high value assets to a beneficiary outright: This could potentially cause major problems even with beneficiaries who are adults. Leaving an asset outright to a beneficiary upon your death could expose that asset to your beneficiary’s creditors, including an ex-spouse. Instead, let assets pass in trust for your beneficiaries. Trusts can be drafted very flexibly to avoid this potential pitfall and still allow the beneficiary great control over the assets they inherit.
Don’t wait until it is too late! Avoid the mistakes that could create big problems for your family after you are gone. Meet with one of the Virginia Beach trust and estate attorneys at Poole Brooke Plumlee to discuss your estate plan and the documents that are right for your specific situation.