If you’re taking the first steps on your estate planning journey, congratulations. No one likes to contemplate their mortality, but having a plan in place can provide you and your loved ones with peace of mind should you unexpectedly become incapacitated or die. Keep reading to learn five basic estate planning pitfalls you want to avoid.
Pitfall 1: Failing to Coordinate Different Plan Aspects
Typically, there are several moving parts to an estate plan, including a will, a power of attorney, trusts, retirement plan accounts, and life insurance policies. Don’t look at each one in a vacuum. Even though they have different objectives, consider them to be components that should be coordinated within your overall plan. For instance, you may want to arrange to take distributions from investments — including securities, qualified retirement plans, and traditional and Roth IRAs — in a way that preserves more wealth.
Pitfall 2: Not Updating Beneficiary Forms
Your will spells out who gets what, where, when, and how. But it’s often superseded by other documents, such as beneficiary forms for retirement plans, annuities, life insurance policies, and other accounts. Therefore, much like your will, you must also keep these forms up to date. For example, despite your intentions, retirement plan assets could go to a sibling or parent — or even worse, an ex-spouse — instead of your children or grandchildren. Review beneficiary forms periodically and make any necessary adjustments.
Pitfall 3: Improperly Funding Trusts
Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated, which will expose them to public inspection and subject them to delays. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.
However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if real estate is being transferred, the deed must be changed to reflect this. If you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.
Pitfall 4: Mistitling Assets
Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.
Not only is titling assets critical, but you should review these designations periodically. Major changes in your personal circumstances or the prevailing laws could dictate a change in the ownership method.
Pitfall 5: Failing to Regularly Review Your Estate Plan
It’s critical to consider an estate plan as a “living” entity that must be nourished and sustained. Don’t allow it to gather dust in a safe deposit box or file cabinet. Consider the impact of major life events such as births, deaths, marriages, divorces, and job changes or relocations, just to name a few.
We Can Help You Avoid Pitfalls
These five estate planning pitfalls are just some of the dangers to watch for when planning your legacy. To help ensure that your estate plan succeeds at reaching your goals and avoids these pitfalls, turn to the professionals at Ramsay & Associates. We can help ensure that you’ve covered all the estate planning bases.
