Celebrity estate stories are rife with lessons about mistakes to avoid when creating an estate plan, such as problems with the estates of James Gandolfini, James Brown, and Anna Nicole Smith. Poor estate planning can lead to probate, taxes, and family disputes. Failing to create an estate plan or drafting a poorly written plan can lead to many issues for your loved ones after you pass away, but there are some mistakes that you can avoid in order to minimize the chances of problems in the estate planning process.
Mistake #1: Thinking You are Too Young or Possess Too Little
In 2012, a report from Texas Tech University revealed that only around 54% of all Americans possess an estate plan. Many do not create a will or other estate planning documents because they believe that they are too young or do not possess enough to warrant a will. However, a good estate plan does not just pass your assets to your loved ones when you die; it can also protect you while you are alive.
An estate plan names people to help you and make decisions if you ever become incapacitated. You can also assign guardianship for children or pets in an estate plan. If you wish for someone other than a spouse or children to inherit, a will is crucial. Even a simple estate plan involving a will and durable power of attorney forms can protect you and your loved ones during your life and after death.
Mistake #2: Placing Everything in Joint Ownership
Some people believe that placing property in joint ownership displaces the need for an estate plan. In joint ownership, the right of survivorship means that if one owner dies the other owns the property in full. However, joint ownership of property also opens that property to the possibility of the co-owner facing lawsuits, financial difficulty, or a divorce.
Mistake #3: Forgetting What a Will Does Not Do
A will does not always have the last say for certain assets in an estate. It is important to remember that accounts that name beneficiaries, like retirement accounts, life insurance, and bank accounts go to the named beneficiary, despite what a will might say. You should also review the beneficiary designations every few years to ensure that they stay up to date.
Mistake #4: Ignoring Family Problems
When you pass away, the last thing that you want to have happen is your loved ones fighting over you estate. While sometimes the dispute is over the amount inherited, but oftentimes the fights are about sentimental personal possessions. One of the easiest ways to avoid this issue is to sit down with you family while you are making your estate plan and discuss what each person should expect. You can also use the time to explain any decisions that you are making with your estate, or ask your loved ones if they have any special requests for items in your estate.
If you do not feel comfortable having a face-to-face talk, consider leaving a letter with your estate plan that explains your decisions. Simply understanding why can alleviate a lot of family strife when it comes to inheritance.