The problem with estate planning mistakes is that most families don’t realize them until it’s too late to fix them. By the time a mistake is discovered, families are often involved in infighting or complicated legal proceedings. As experienced estate planning lawyers, we hope that we can help you avoid five of the most common mistakes so that you can protect your family and put the right plans in place.
1. Thinking That You Can Do It All Yourself
People often think they’re saving money by using do-it-yourself wills that they download from the Internet or find in books at their local bookstores. The truth is that the small savings upfront can be offset by huge costs later. Most lawyers agree that it’s not worth the risk. One mistake can mean thousands of dollars in:
- Legal fees and court costs to resolve estate planning disputes
- Extra taxes paid to the state or federal government
- Debts paid to creditors that would not otherwise be payable
- Missed disability benefits for a family member with special needs
In fact, considering the potential costs and stresses to your family, downloading a will from the Internet may actually be worse than doing nothing. Instead, it’s much better to talk with an experienced lawyer who can take your personal goals, state-specific laws or a family member’s special needs into account.
2. Naming the Wrong Person as Your Executor
It may be tempting to name your responsible oldest child or a favorite sibling as your executor, just by default. However, the first person who comes to mind may not necessarily be the right choice. Take some time to consider your decision carefully. Will naming this person as an executor give rise to family tensions? What is this person’s capacity to handle complex financial matters? Does this person understand what’s involved, and is he or she fully willing to assume the responsibility?
It is a good idea to sit down with your potential executor and discuss the matter thoroughly. It can be uncomfortable at first to speak of these things, but it is much better to have an open conversation now than to name an executor who is unable or unwilling to follow through.
3. Not Coordinating Your 401(k), IRA, Pension or Insurance With Your Will
When you create a 401(k), receive a company pension or purchase life insurance, you are required to choose a beneficiary designation. Your designation affects who the benefits will eventually pass to. It can also have an effect on your estate, how trusts are funded and the taxes you pay.
Part of a complete estate planning discussion with your attorney should be a review of the beneficiary designations on your 401(k), IRA, pension and insurance policies. Assets in these accounts will be transferred automatically to the beneficiaries you have named—even if your will instructs differently.
4. Not Making Changes When Life Changes
Your will is done, so that’s it, right? Not so fast. Your estate plan documents important life decisions—like who the guardian of your children will be or who you’ve chosen to inherit your life savings. It is critical to change your will as life changes so that these documents reflect your family and your wishes.
Unfortunately, many people set up their estate planning documents and then forget to look at them again. That’s how ex-spouses end up inheriting assets or children are left out of wills altogether.
So, when should you talk with your estate planning attorney about your will? Here’s a general rule of thumb: When your relationships with people change, your estate plan should change as well. For instance, change your will after a divorce, a re-marriage or the birth of a child.
It is also a good idea to adjust your will when your financial situation changes significantly. Major changes in your investments, the purchase or sale of real estate –or even winning the lottery all warrant a look at your estate plan.
Many lawyers even go further than that; they suggest reviewing your will once a year to make sure it’s current. You might do this at the start of the new year or when you’re making other important annual decisions, like the selection of health insurance benefits.
5. Not Doing It At All
The American Bar Association reports that 55% of Americans die without a will or estate plan. Many of these people had planned on talking to a lawyer about a will, but they never got around to it. If you don’t have a will, you’re leaving things up to chance—trusting Minnesota’s state laws to make the same decisions about your estate that you would have made. Procrastination is easy, but the peace of mind gained from the creation of a solid estate plan is priceless.