Estate planning is not a subject that many people want to think about, but it’s crucial to your life plan. It is important to recognize that there are many myths and misconceptions out there regarding estate planning, but understand that if you fall victim to these untruths, you could leave your family in a scramble once you are gone. Putting a plan in place is the best thing that you can do to ensure that your family and financial goals are taken care of and that the people left behind know your wishes.
Of the many estate planning myths and misconceptions, the following are some of the most common. Don't assume that your circumstances exclude you from making these critical life choices.
Estate Planning Is for the Wealthy
Estate planning applies to everyone, not just wealthy people. It doesn’t matter how much you have in your accounts or how many valuables you own. You want to be sure that whatever you do have goes to the person(s) of your choice.
You're Too Young to Worry
Unfortunately, we are all painfully aware that life can change on a dime. The truth is, it doesn’t matter how old we are or how much of an estate we have to take care of; putting a plan in action as soon as possible is the best thing you can do for yourself and your loved ones.
You're Married and Don't Need to Plan
While being married does make dividing your assets seem a bit easier, there are a lot of things that can change that. What if your spouse remarries, or what if you and your spouse pass away together? What if there are certain things that you’d like to go to your children? These situations come up frequently, and without an estate plan, they could leave your finances in disarray.
Your Family Will 'Do the Right Thing'
While the hope is that our families will honor our wishes and do as we ask, the best thing that you can do is to write them down to mitigate any potential issues. By making your wishes explicitly clear, you can trust that your family will take care of things the way you would have wanted.
Your Retirement Accounts and Insurance Are Fine
While it may seem obvious that your 401(k) and life insurance are part of your estate, they should still be included when planning your beneficiaries and asset divisions. Remember, the person you designate to receive the money on the actual accounts should match the person listed in your estate plan.
Ignoring Potential Scenarios
Estate planning is not just as simple as designating a beneficiary and leaving it at that. You need to take into consideration possible scenarios. For example, what if the person you hoped to receive your assets passes first, or what if that person is no longer capable of making his or her own decisions? Be sure to have alternate plans for your assets in case circumstances change.
Communication Is Key
When planning your estate, be sure to speak with your heirs and loved ones about your plans. Situations play out every day where a loved one dies, and his or her children automatically start dividing up personal possessions, closing bank accounts, and much more without bothering to read any estate documents. Insurance policies, stocks, and real properties can go unclaimed without any communication. Let your loved ones know what you’re planning and what steps you’d like them to take after you’re gone.
Trying to Make Everyone Happy
There’s a saying that goes “You can please some of the people some of the time, but you can’t please all of the people all of the time.” This is true for estate planning, too. You can create a will, divide your assets, and have everything written out exactly you want, and still, someone might not be happy. But remember, it’s your estate, and you need to take care of it as you see fit.
Planning It on Your Own
Estate planning is not a do-it-yourself project. You will really want to speak to professionals such as a financial advisor and an estate planner who know the ins and outs of the law when it comes to taxes, trusts, and wills.
Failing to Update Documents
Estate planning should not be looked at as “set it and forget it.” You are going to need to make updates and changes at least once, or you’ll potentially be missing a lot of pieces to your financial puzzle. Assets can go completely unnoticed, accounts might not be considered, and investments you’ve worked so hard for can amount to nothing.
Failing to Pay Attention to Combined Assets
If you and your spouse have combined your assets to create a large estate for your children and/or loved ones, you don’t want to ignore the potential effects of federal estate tax. Leaving all of your estate to a spouse is tax-free, but after you both have passed away, the applicable laws are different. Speak with professionals to determine the best way to designate a beneficiary in order to avoid large taxes on your estate.
Not Gifting Some Assets Before Passing
If you have several assets and want to avoid the possibility of estate taxes, you might want to evaluate some of them and think about gifting them to your loved ones before you pass away. In 2021, the federal gift tax exclusion allows you to gift up to $15,000 to as many people as you wish, without it being counted against your $11.7 million estate exemption.
Be sure to understand the facts behind estate planning, and don't assume that your circumstances exclude you from making these critical life decisions.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment, tax, estate, or financial planning considerations or decisions.