Three Common Estate Planning Mistakes You Don’t Want to MakeMarch 28, 2013

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No matter what your net worth, it’s wise to have a comprehensive estate plan in place, and the earlier you do this, the better. Although contemplating and discussing your death with family members and financial advisors can be difficult, it’s important to have these conversations to ensure that your family and financial goals are taken care of after you’re gone. Without an estate plan, decisions may be made without regard to your wishes and may not fully consider your heirs’ needs.


What does your estate include? It is generally comprised of all the assets you own, including real estate and other property, investments, retirement savings, personal possessions, business interests, and anything else of value. If you have any debts, subtract these from your assets to determine your overall net worth.


What are the essential documents? Documents critical to an estate plan are: a will, an assignment of power of attorney (i.e., a legal agreement that allows someone else to act on your behalf regarding legal or financial matters), and a living will which is a document that allows you to express your wishes to your family and your doctors if you are no longer able to make healthcare decisions due to illness or incapacity.


How often should the estate plan be reviewed? An estate plan should be reviewed periodically, especially after a significant life-changing event, such as marriage, divorce, a new job or business venture, or the loss of a child or spouse. In the instance of such an event, you’ll want to talk with your financial advisor to amend your plan as necessary. Oftentimes, people forget to change their beneficiary designations for their pension, 401(k) and IRA plans, and their life insurance policies.


Where does guardianship factor in? Creating a will is especially important if you have children who are minors, as you’ll have to determine guardianship. I always warn parents to make this decision carefully. It is often better to specify one legal guardian/spouse of a couple, rather than both, to avoid custody battle should that couple’s marriage dissolve.


Now that I’ve covered the important aspects of an estate plan and the main components, the following are what I consider the three most common estate planning mistakes.


  1. Failure to plan. This is actually the number one, universal mistake. Many people have a misconception that they need to have accumulated great wealth in order to prepare an estate plan, but this is definitely not the case. Failure to plan can impact the liquidity of your estate –the amount of cash and cash equivalents available in your estate to pay creditors and other bills that may arise after you pass away. Meet with your financial planner and go through a checklist of specific items that you will need to incorporate into your estate plan. Then discuss these plans with your family members to prevent any disagreements or confusion. Being clear about your intentions can help ward off future conflicts between your heirs.                                           ….     …………………………………………
  2. Leaving all assets to your spouse. An unlimited amount of assets can be passed to your spouse free of estate taxes. However, in this situation, you’re simply delaying the estate taxes and circumventing the federal tax exemption. If the estate continues to grow in value, your spouse’s estate may owe taxes because of its increased value. This problem can be minimized or eliminated with the appropriate use of trusts and gifts.                                                                                                   ……
  3. Leaving assets outright to adult children. For generations, people left their assets to their adult children without complications, but there are particular circumstances where assets should remain in trusts for adult children. A trust allows you to put conditions on how and when your assets will be distributed upon your death. It will also allow you to minimize estate and gift taxes, and avoid subjecting your assets to probate. Trusts also offer greater protection of your assets from lawsuits, creditors and other predators. In our increasingly litigious society, I’ve seen instances where children have been the beneficiaries of their parents’ estate, only to have those assets liquidated by an ex-spouse. Much of this can be avoided by establishing trusts.


Remember that the purpose of estate planning is to prepare for transferring your assets to others upon your death, and to make sure your financial goals and healthcare directives are taken care of. Talk to your family and your financial advisor to create a plan to preserve your hard-earned assets. This will require a considerable amount of time and effort, but nonetheless, it is an important process and will help you avoid costly mistakes down the road.


To learn more about the estate planning process and recent tax changes, please contact me at or 732.747.0500.

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