After a lifetime of building a successful career, it is imperative that you protect those who will inherit your well-earned estate.
Proper estate planning during life can reduce or even eliminate federal or state estate taxes or state inheritance tax to the benefit of heirs. Just as critical is avoiding certain pitfalls in estate planning so that your family does not find themselves dealing with the issues that could had been prevented if proper steps were taken during the estate planning.
Here are some of the most common mistakes made when planning one’s estate:
- Executor who is too busy to do the job right
The primary duties of an executor is to collect the assets of the decedent, pay his or her creditors, and distribute the remaining assets to his or her heirs or other beneficiaries in accordance with the decedent’s wishes. The executor also will have to file various types of tax returns and make important choices on them. Therefore, it is imperative to choose someone who is both trustworthy and competent to serve as executor or personal representative. In addition, this individual must be able to fit in his or her schedule the executor duties and do it diligently. Carefully consider who should be chosen as the executor of your estate.
- Lack of communication with family members
It is imperative to sit down with all the family members and discuss with them what the estate planning structure will be, including a discussion on who is getting what assets and why. Don’t leave this up the executor. Having open and “early on” communication with all related parties will help prevent any potential conflict between family members at the time of death. This is especially important within blended families.
- Failing to identify all beneficiaries
Having proper and updated beneficiary designations is key in transferring assets to loved ones quickly and with ease upon death. Failing to update beneficiaries can have negative consequences that could of have been prevented. For example, failing to update the beneficiaries on a retirement account started 30 years ago may result in the retirement proceeds going to an ex-spouse instead of the children designated as heirs in the will and estate planning documents.
- Failing to prepare an inventory of all the assets owned and passwords
It is a burden for heirs to hunt down accounts and documentation after the death of the decedent in order to figure out what assets were owned. A scattered estate plan by a secretive decedent may cause some assets to be left uncollected, undistributed and even lost. It is best to keep copies of documents, recent account statements, safe deposit box information, etc. in a notebook and to make the trusted heirs aware of its contents. In addition, in today’s high-tech era where passwords are used for virtually everything, it is important to let someone else that can be trusted know those passwords. Primarily, passwords need to be shared for any computer or laptop where important documents are stored, bank accounts, investment accounts, retirements, and anything else that requires a password to access assets that will be part of the estate.
- Having a will prepared in another state
If the original will was prepared under a state that is different than the state where the decedent resided, the validity of the will could be called into question. If the last will was not “self-proved,” it may not be accepted by certain courts until a witness who had signed the original will signs an oath swearing that he or she saw the decedent sign the last will. This could be a costly situation since it may be difficult to find the original witnesses. In order to prevent this, an individual can either: rewrite his or her will or do a self-proved affidavit signed in the new state.
Proper planning during life can allow heirs to resolve the estate quickly and easily get back with their lives. Understanding and avoiding these common errors can help assure that assets owned upon death are handled in accordance to the decedent’s wishers while minimizing the estate taxes. Please give us a call if you would like to discuss your estate plan further.