Covering Your Assets: 7 Common Estate Planning Mistakes People Make
When it comes to checking tasks off your financial to-do list, estate planning is probably the last item you’ll get to—if you get around to it at all.
We don’t necessarily blame you. After all, it can be morbid to think about preparing for death, and people often don’t know where to start, so they simply don’t get started.
Case in point: According to legal services site Rocket Lawyer, 64% of Americans don’t have a basic will.
But estate planning shouldn’t fall to the wayside. Because, although it’s nice to think that you can trust everyone to do the right thing, the truth is that if you don’t have your wishes formalized, there may be a debate over what the “right thing” actually is.
“It’s always difficult to predict which families will get along and which will end up in court fighting over mother’s heirloom china,” says Tim White, an attorney with Smith Haughey Rice & Roegge. “Leaving an estate plan with clear instructions is your best defense against family discord.”
Of course, there’s also no shortage of ways in which people can stumble when it comes to making their after-death arrangements. That’s why we rounded up some classic estate planning mistakes that people tend to make, so you’ll know what not to do when it comes to prepping your own estate plan.
Common Mistake #1: Assuming Estate Plans Are Only Meant for the Wealthy
Somehow many of us have adopted the stereotype that estate planning is reserved for rich people. Truth is, it’s for anyone who wants to know what’s going to happen to their end-of-life medical care, assets, children or general private affairs if they become incapacitated or die.
So in other words, that’s pretty much all of us.
“Absolutely everyone, 18 and older, needs an estate plan, no matter his or her net worth,” says Wendy Witt, director of WealthCounsel’s Advisors Forum, a community of estate planning attorneys. “If you want to have control over your life—and drastically reduce the burden on your loved ones—you need a written, legally documented estate plan.”
In addition to determining what will happen to your money or property after you die, estate planning also includes tasks like setting up a living will, deciding on a guardian for your minor children, or preplanning funeral arrangements. If you’re not clearly stating your directives in these areas, you may be leaving too much power in the hands of the courts or the state, warns Witt.
In some states, for example, a widower may only get enough money from his deceased wife’s estate for one year of living needs if she passes away without a will. In year two, the assets would be divided among all of her heirs, including her spouse and children, says Dawn Humphrey, First Vice President and Regional Financial Planner at SunTrust Private Wealth Management.
“In this scenario, the amount of money the husband receives is significantly less than he expected and could have a drastic impact on his lifestyle,” Humphrey explains.