Estate planning mistakes can upend your best efforts to protect your family's finances after your death. Everyone can benefit from an estate plan, a process that entails getting your financial affairs in order so that your assets and possessions get passed on to the people or organizations you want to inherit them.
Having a comprehensive estate plan will also spare your loved ones the pain and expense of determining how to allocate your money and property while they’re grieving your loss.
But creating an estate plan can be complex and emotionally challenging, which may explain why two out of three Americans don’t have any estate planning documents, according to Caring.com’s 2023 Wills and Estate Planning survey of 2,483 adults ages 18 and older. And around a quarter of those without a will said they don’t ever plan on creating one.
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Here are eight common estate planning mistakes to avoid.
1. Procrastination
You certainly don’t want to become incapacitated because of a health emergency, such as a stroke or heart attack, and lack an estate plan. Yet over 40% of Americans without a will said they plan on waiting for a medical diagnosis to create a will, the Caring.com survey found. So don’t wait to get your estate plan in order.
2. Creating an estate plan on your own
Estate planning documents that are incomplete or contain errors can cause complications when you pass Consider hiring an estate attorney to help you craft a comprehensive estate plan and understand the legalese.
Generally, estate lawyers charge $200 to $2,000 for an estate plan, depending on the complexity of the client’s assets, according to Legal Match. (Many estate attorneys offer free initial consultations.) You can find an estate attorney in your area using an online directory such as Justia, Legal Match, or the American College of Trust and Estate Counsel (ACTEC).
3. Leaving loved ones uninformed
Sharing your estate plan with your family and heirs can help prevent confusion, conflict, and unnecessary stress in the future. Sit down with the relevant people and have an open conversation about your intentions.
4. Keeping estate planning documents in a safe or safe deposit box
Don’t keep your estate documents in a safety deposit box or other place that’s difficult to access. For good measure, provide copies of your estate plan to your appointed executor or trustee, a trusted family member, and your estate lawyer.
5. Missing key documents
An incomplete estate plan can create confusion — and the potential for disputes among heirs when you pass. Make sure your plan includes these essential documents:
- Last will and testament. Often simply referred to as a "will," a last will and testament outlines your final wishes and instructions for the distribution of your assets and the management of your affairs after you pass.
- Beneficiary designations. Make sure to assign beneficiaries for 401(k) and IRA accounts, pensions, and life insurance policies.
- Durable power of attorney for medical care. This appoints a person to make medical decisions for you, on your behalf, should you become mentally incapable of making them yourself. It often includes an advanced healthcare directive, which instructs your family and doctors to use or not to use life support.
- Durable financial power of attorney. This assigns an individual to manage your assets if you become incapacitated.
- Funeral instructions. Specify whether you’d like a burial or a cremation and the type of funeral service you want.
- Proof of identity. Gather your social security card, birth certificate, marriage and/or divorce certificate, and any prenuptial agreements.
- Deeds or loans for large assets. Collect this paperwork for homes, boats, and other big assets.
6. Overlooking digital assets
Many people forget to account for their digital assets, such as cryptocurrencies, social media accounts, cloud storage, and digital files when creating an estate plan. Consider assigning a digital fiduciary in your estate plan who has the right to access your digital assets when you pass.
7. Not updating your plan
Failing to review and revise your estate plan after major life events — a marriage, divorce, birth of children or grandchildren, or the acquisition of new assets — can lead to consequences, such as assets being passed to the unintended beneficiaries.
8. Appointing the wrong executor or trustee
Choosing someone who may have a conflict of interest can lead to problems when it comes time for them to administer your estate. Select an individual (or individuals) who are unbiased, and get their permission before you assign them as an executor or trustee.
FAQs
' The five or five power is the power of the beneficiary of a trust to withdraw annually $5,000 or five percent of the assets of the trust.
What is the most important decision in estate planning? ›
A will or trust should be one of the main components of every estate plan, even if you don't have substantial assets. Wills ensure property is distributed according to an individual's wishes (if drafted according to state laws). Some trusts help limit estate taxes or legal challenges.
What are the 3 main priorities you want to ensure with your estate plan? ›
Protect and Maximize Your Estate for Your Heirs
In conclusion, when creating your estate plan, it's crucial to prioritize these three key objectives: naming a trusted individual to handle your affairs, ensuring your estate goes to who you want it to, and protecting and maximizing your estate for your heirs.
What is the 50% rule in real estate? ›
The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.
What is the rule of 7 in real estate? ›
In fact, in marketing, there is a rule that people need to hear your message 7 times before they start to see you as a service provider. Therefore, if you have only had a few conversations with the person that listed with someone else, then chances are, they don't even know you are in real estate.
What are the most important documents for estate planning? ›
Key Takeaways
Common estate planning documents are wills, trusts, powers of attorney, and living wills. Everyone can benefit from having a will, no matter how small their estate or simple their wishes.
Why should you be concerned with estate planning? ›
If you want your assets and your loved ones protected when you can no longer do it, you will need an estate plan. Without one your heirs could face big tax burdens and the courts could designate how your assets are divided—and even who gets to raise your children.
How to build a successful estate plan? ›
Estate Planning Checklist: A 10-Step Guide
- Assemble a team. ...
- Outline your wishes in your estate planning documents. ...
- Establish guardianship for your dependents. ...
- Consider trusts. ...
- Plan for federal and/or state estate taxes. ...
- Avoid probate. ...
- Prepare for long-term care. ...
- Consider income in respect of a decedent (IRD) taxes.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
What is a negative of a family trust? ›
The disadvantages of a family trust are all about expenses. Funding the trust requires you to transfer the title of the assets held in the trust. You must prepare and submit legal documents, which the court charges a fee to process.
What Is A Trust Fund Baby? A trust fund baby refers to someone whose parents created a trust account, which they benefit from. The term “trust fund baby” has a negative connotation, as it's associated with the stereotype of a spoiled individual who doesn't have to work.
Which of the following is not an important document associated with estate planning? ›
Estate planning documents typically include a will, insurance policies, trusts, powers of attorney, and other legal documents that help individuals plan for the distribution of their assets and the management of their affairs after they pass away or become incapacitated but birth certificated is not associated with any ...
What is usually the most important client objective in estate planning? ›
Estate planning typically focuses on managing a person's assets after their death, with the goal of ensuring that their assets are distributed according to their wishes and that their loved ones are provided for.
What is the 5 by 5 rule example? ›
If your social media feed tends to pick up a lot of inspirational quotes and motivational creeds, you may have seen the 5-by-5 rule before: “If it won't matter in five years, don't spend five minutes worrying about it.” While it's usually meant to apply to your personal life, it's also sound professional advice.
How does a 5 and 5 power work? ›
It's a provision in the trust that grants a beneficiary the annual power to withdraw the greater of $5,000 or 5% of the trust's assets, while avoiding certain negative tax consequences (which are beyond the scope of this post) that might otherwise be applicable if the withdrawal right were exercised outside of those ...
What is the 5x5 right of withdrawal? ›
A 5 by 5 clause, or right of withdrawal, must be specifically stated in the governing trust. The right occurs once a year generally, and will allow the beneficiary to take up to 5% of the value of the trust out to be included in their current tax year or to take $5,000, whichever is greater at the time.
What is the 5 2 rule in real estate? ›
When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.
