Imagine if your will began with the words, “To my beloved government, I bequeath…”
Nobody ever intends for their money to go to the government. Unfortunately, for many people, this is exactly what happens when they adopt a “DIY” approach to their estate plan. Or, when they create a plan and then don’t think about it for years afterward.
Or when they have no estate plan at all.
Estate planning is one of those areas of finance that seems like it should be simple. Thanks to the internet, it’s easy to get a lot of information very quickly about how to write a will. And it’s certainly not difficult to purchase life insurance. But a good estate plan — one that doesn’t include the government as a beneficiary — involves so much more. If anything, the internet has made it easier to overlook key details. Details that can cause your estate to pay unnecessary taxes, high fees, or distribute the wrong assets to the wrong people at the wrong time.
In other words, it’s easier than ever to make mistakes that could derail your estate plan. Here are some of the ones I see “Do It Yourselfers” make the most often:
Out-of-date wills and trusts. Many wills and trusts are missing key details because they have not been updated. Others are likely to contain language that does not allow a couple to take full advantage of certain regulations. This may result in unnecessary taxation. It can also lead to loved ones not receiving what you intended.
Family additions, deaths, and divorce not accounted for in out-of-date plans. The most striking example I have seen was the couple, both with prior marriages and one with children from a first marriage, who adopted an infant. Their old will left their entire estate to the older children with no mention of support for the adopted child!
Improper powers of attorney. The longer people live, the more likely they are to need help with decision-making in their twilight years. That increases the risk of court-ordered guardianship if no proper powers of attorney have been settled. Power of attorney allows a person of your choosing to step into your shoes and make decisions regarding your health. For example, what kind of care you need, who will provide it, where you will be treated, and how it will be paid for. A power of attorney for financial management will allow your chosen person to make property and disposition decisions for you, access your retirement accounts for your expenses, file your tax returns, and make estate planning decisions, including gifts.
Poor choice of executor. Choosing an executor for your estate can be stressful. There are so many potential pitfalls! Sometimes, nobody wants to be an executor. Other times, the wrong person wants to be named. If you have any fears that the person you have chosen does not have the patience or diligence needed for the job, then it may be wise to pick someone else. Furthermore, people who are in an uncertain financial situation of their own are also best avoided. (Think debts, liens, poor credit history, a history of bankruptcy, judgments against them, etc.)
Avoiding the inevitability of taxation. Don’t get me started. Addressing the issue of taxes is one area most leave to the last minute. Taxes can take the biggest bite out of the value of your income and assets. Do not wait until it is too late because it takes regular planning to optimize and maximize your income, assets and legacy.
Based on over 36 years of seeing the results of poor planning, there are many easy-to-make mistakes with your estate plan. Any of these can lead to major, and often lasting, consequences. But the good news is that it’s equally easy to avoid these mistakes.
All you need is a little help.
If you are concerned that you may be making any of these mistakes, find someone who would be happy to give you a second opinion.
It takes a level of commitment to start planning. My wife Amy and I decided as soon as we got married in 1997, to make an appointment and get it done. As a fiduciary advisor, and founder of Bloom Financial, LLC, I had an advantage. I had been estate planning with my clients for almost 10 years. I had a network of attorneys. I knew the estate planning attorney for our plan very well because I referred my clients to his tax-law firm.
Make time to look at the entire “state of your estate” to see if there are any decisions that need to be made, documents that should be updated, or gaps to fill. Then find a way to ensure your estate plan truly fits your desires, not the government’s!
A lot of my clients tell me they “feel like a weight has “been lifted off” their shoulders. The process does not take long at all. The confidence that comes from it can last a lifetime. Make it happen.