Individual financial planning covers a wide range of topics. If you browse through my recent articles, you’ll find that they are rich in content and cover a broad spectrum. This field is both complex and rife with pitfalls that can lead you to make mistakes. By the time you realize it, you may have missed out on the benefits foresight could have brought. Therefore, it is crucial to focus on these key issues and ensure they are handled properly!
Death and taxes are inevitable, yet many of us fail to take the time or fully consider preparing for what lies beyond for our loved ones. With a current estate tax exemption of $12.06 million, most of us need not worry about estate taxes.
When it comes to estate planning, have you found yourself lacking time, procrastinating, or just thinking about it sporadically without fully committing to it as a current priority? Drafting a will and planning your estate is not just for those nearing the end of life; every adult with income and assets should prioritize this.
Without proper and effective estate planning, state laws will dictate the distribution of assets, which may not align with your wishes. Not having a say in this could have devastating consequences, potentially leading to family rifts – a situation no one hopes to see!
So, get started sooner rather than later. Seek out, screen, and engage an experienced estate planning attorney recommended by others to assist you in this endeavor. While lawyers can handle complex legal matters, you can also involve professionals in this field who may not necessarily have a juris doctor degree.
You’ll need to gather and organize documents that reflect your overall financial situation when devising an estate plan. Later on, we will discuss a common mistake: forgetting to periodically review, examine, and update your estate plan when marrying, divorcing, having children, or experiencing financial changes.
This task involves more than simply drafting a basic will; it entails creating multiple legal documents tailored to individual needs and goals, as mishandling them could lead to unforeseen and unfavorable tax consequences. This might mean beneficiaries and heirs receiving less of the estate, possibly sparking family disputes – a scenario you’d want to prevent. By not dedicating time and effort to thoroughly completing this task, you’re essentially delegating crucial financial decisions to be determined by the court, even if unintentional.
What does “thoroughly” mean in this context? It involves preparing a will, trust, durable power of attorney, healthcare proxy, and possibly a living will. These documents should clearly articulately your wishes and intentions regarding life insurance, gifts, and charitable donations. The plan should address current needs while considering long-term goals and desires. However, avoid getting too specific or including too many conditions and details that would require resolving through family disputes and litigation.
A common mistake among beneficiaries is failing to update changes as needed. You might not want assets transferred to an ex-spouse or end up benefiting fraudulent charities. Moreover, beneficiary designations should align with the language used in wills, trusts, and other relevant documents.
It might be a good idea to let family members know about your estate plan in advance, even though in certain circumstances, this could pose other issues, thus you might want to avoid doing so. Additionally, designating secondary beneficiaries, as well as alternate will executors and trustees, is a wise move.
Another frequent oversight is digital assets. Many of us have cryptocurrencies, NFTs (non-fungible tokens), or other digital assets that may be overlooked. Not only should you list these assets but also detail how to access them and specify how you wish to manage such assets. This entails providing account numbers, online links, usernames, answers to security questions, and passwords. By including all this information in your estate plan, you can also see the importance of securely storing this sensitive data and provide instructions on how trusted individuals responsible for managing the distribution can access and handle your digital assets.
Don’t forget about your collectibles, such as coins, aged wines, and artworks. While assets can be classified as vehicles, furniture, appliances, and clothing, the more detailed the information provided in the list, the less potential for confusion and disputes. Handle bank and brokerage accounts with caution. If you designated beneficiaries in financial institutions and this information is reflected in your records, those designated individuals will take precedence over beneficiaries mentioned in your will – a common mistake!
Apart from overlooked assets, it’s easy to overlook costs associated with death, such as burial plots, memorials, coffins, urns, funeral services, debt handling, and whether we allocate fees to designated trustees overseeing all these tasks for us. My sister had been handling these matters for our parents and several others, so when I designated her as my trustee, I included a clause in the documentation to pay her for her services.
Planning for home healthcare assistance or transitioning to facilities like nursing homes requires thorough, thoughtful preparation. This involves not only emotional aspects but also financial considerations and affordability. Leaving these decisions to others in case you lose mobility can burden your family, and the resulting choices may not align with what you anticipated in your final days.
There are a wide range of backup options and choices, so make sure you fully understand the associated costs, as they can escalate quickly. One of the most dreaded scenarios is long-term care (LTC) depleting the entire estate, even worse, exhausting funds while you’re still alive! This indicates that you should carefully research long-term care insurance. With long-term care insurance, you may utilize health savings accounts, Medicaid, and various annuities to ease the costs.
Lastly, thoughts of losing autonomy can be repugnant to all of us, making it easy to focus solely on continuing our lives without considering how to prepare for this potential situation. That is, in the event of losing autonomy, we have a responsibility to ensure our loved ones know what actions to take if dementia strikes or we lose mobility due to a stroke. List your decision-makers, discuss your plans and expectations with them, and create authorization documents.
Here are some useful tips and comprehensive recommendations based on the common mistakes we’ve discussed:
1. Search, screen, background check, and hire the right estate planning professionals.
2. Outline key components of wills to make them legally binding documents.
3. Identify your beneficiaries and regularly review, update, and make changes as necessary.
4. Wills are crucial in estate planning, trusts are equally indispensable – create trusts with the same attention.
5. Inventory all assets and reflect all intentions to ensure that your plan is smoothly executed according to your plans and wishes.