There are many wealthy professionals and business owners who put off estate planning.
Unfortunately, the only beneficiaries of this procrastination are the courts and lawyers.
Inaction is the most significant estate planning error, but there are several other major mistakes that may occur.
Below are four common errors that can prove to be disastrous.
Failure to update an estate plan after the death of a spouse or child
This is an extremely significant event, and the grief that follows may be so deep and prolonged that this may not receive the attention it deserves.
A death in the family frequently necessitates a change in the distribution of family assets.
Unless an update is provided, questions (and disputes) may arise in the future.
Going years without updating beneficiaries
Generally, beneficiaries named on retirement plans and life insurance policies override bequests made in wills or trusts.
Unfortunately, many individuals fail to review their beneficiary designations over the years, and the consequences of this neglect can be pretty severe in terms of estate planning.
Imagine leaving an IRA to your grandson in a will. However, if your ex-husband is the primary beneficiary, then the assets of the IRA would go to him according to the beneficiary designations.
Beneficiary designations have an advantage, they allow assets to transfer to heirs without going through probate.
Considering a will as a protective shield against probate
The existence of a will does not prevent assets from being subjected to probate.
A living trust is designed to protect assets in this manner; a will does not.
A person may clearly state “who gets what” in his or her will but still have the courts decide how the assets will be distributed.
Assuming minor heirs will handle money well once they become adults
It is unfortunate that many individuals do not go beyond the basics in preparing a will to ensure the best possible future.
In many states, when a will is the only estate planning tool used to direct the transfer of assets at death, assets can transfer to heirs aged 18 or older without restrictions.
For example, suppose an 18-year-old inherits several million dollars of illiquid assets. How many 18-year-olds (or 21-year-olds, for that matter) possess the skill set necessary to handle such a large inheritance?
The existence of a trust and the ability of a trustee to manage the distribution of assets to heirs would prevent situations such as these.
A well-drafted trust may also help to prevent disputes among young heirs regarding which asset should be distributed to each.