One of the major problems that occurs with planning for one’s passing and financial distribution is that people frequently leave the matter to the very last minute and then make rushed decisions with bad information. No surprise, common mistakes occur that are oftentimes very avoidable with a bit of planning and thinking a bit earlier. Every financial advisor will be quick to say a good financial portfolio includes planning for one’s estate distribution after they pass, but it can frequently sound like a foreign language to others not as familiar with estate planning.
Assuming one can dedicate some time to planning and work a bit sooner than the very last minute, avoid major mistakes many estate plan packages often have:
1. Have a Plan
It’s an absolute train wreck for your family and estate not to have some kind of a plan in place at all. Even a simple will is far better than completely nothing. Ignoring the matter means that your entire estate will be decided by a probate court. Do everyone a favor and at least prepare a basic will designating a default beneficiary for all your assets if nothing else. While many assume their spouse will take over everything, consider point two below, which is a common occurrence.
2. Think Beyond a Single Beneficiary
Don’t assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Life happens and doesn’t stay frozen in time just because an estate plan designates one specific person to be a key beneficiary. Go a second or third layer deeper as a contingency if the first person chosen is no longer available and choose one or two more. You will be making your executor’s task much easier to do getting your assets distributed properly.
3. Regularly Update Your Will, Estate Plan, or Trust
If you have a will, estate plan, or trust already, make sure it is regularly updated. Your financial situation and universe of beneficiaries is regularly changing and oftentimes growing. Big changes that should be adjusted for include new children joining a family, inheritance of assets from someone else, changing large assets such as homes and cars, and designating inheritance of new financial accounts (bank accounts, brokerage accounts, investments etc). Not updating regularly means that when the plan is needed, it may not match or apply at all to extra assets gained after the fact or new beneficiaries not previously identified being left out.
4. Think About Your Own Health
People don’t think about their health when they plan an estate. Very often a surviving spouse may need health support or your own condition may trigger a disability. These translate into costs that have to be addressed for medical services. Not having a clear path for power of attorney and health directives can be big issues if someone needs to make health decisions for you. Again, plan ahead and anticipate these challenges with solutions.
5. Transferring Assets as a Gift
An easy way to transfer assets early without taxes is a gift, but people hardly use it while alive. Any individual can transfer up to $15,000 without taxes on the amount or value annually to any other individual. This is an easy, simple way to liquidate parts of an estate early without the transfer having to go through the estate distribution process after a person passes away. Even better, you are entirely in control of the asset and transfer as opposed to relying on an executor.
6. Choose an Executor
Choose an executor who is capable of handling the task of managing your estate, which includes a lot of paperwork and legalities. People frequently choose a sibling or a close relative to execute an estate. However, that doesn’t mean the person has the fortitude to do the job. Choose someone with the maturity and backbone who is willing to deal with the challenges involved, including appearing at hearings and fending off relatives.
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Luis Rosa CFP® EA is the founder of Build a Better Financial Future, LLC. He has been in the financial services industry since he graduated college in 2001. Luis focuses on empowering people with planning tools and action steps to help position themselves for a better financial future.
Luis has been quoted in articles published in Yahoo! Finance, U.S. News & World Report, NBC News, Investopedia, Business Insider, The Daily News, and several other online publications. In addition to obtaining his securities registrations Series 6, 7, 63, and 66, Luis is also a CERTIFIED FINANCIAL PLANNER™ professional and is enrolled to practice before the IRS. This diverse financial knowledge allows him to best serve his clients by understanding how one financial decision affects the other, allowing him to better guide them toward achieving their goals. To meet and see how Luis may be able to help, contact Luis directly at.
Investment Advisor Representative of Retirement Wealth Advisors Inc. (RWA), 89 Ionia NW, Suite 600, Grand Rapids, MI 49503 (800) 903-2562. Investment Advisory Services are offered through RWA. Build a Better Financial Future and RWA are not affiliated.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Build a Better Financial Future, LLC and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.