When it comes to estate planning, too many Americans are at best, indifferent, and at worst, are completely ignoring the issue.
According to an April study from BMO Wealth Management, 52 percent of U.S. adults have not made a will, 40 percent of parents haven’t talked to family about their estate planning needs and just 28 percent of those surveyed “know their own parents’ legacy wishes.”
A big part of the problem is a straightforward matter of little or no communication between aging parents and adult children.
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“As family dynamics become more complex, the potential for conflict to play out after a death increases,” says Jason Miller, national head of wealth planning for BMO Wealth Management. “It’s critical to implement and communicate an estate planning strategy in a way that will help prevent conflict and promote harmony.”
That could be the biggest mistake Americans make on the issue of estate planning, but it’s certainly not the only one.
Some estate planning experts believe that Americans are lacking in myriad estate planning areas. Here are some of the worst offenses:
Not properly handling paperwork. A common estate planning mistake people make is not updating the beneficiary designations on their retirement accounts and insurance policies to align with their estate planning documents, says ReKeithen Miller, a financial planner and portfolio manager with Palisades Hudson Financial Group in Atlanta. “Some people may be surprised to know that the beneficiary designations listed on the accounts trump instructions listed in a will or trust document.
“There have been instances where former spouses have received retirement assets or death benefits meant for someone else, simply because the account owner forgot to update the beneficiary designations,” Miller says. “Consequently, make sure you update beneficiary designations and the titling of accounts when you are making changes to your estate plan.”
Not reviewing documents. Another overlooked area is not reviewing all estate documents annually. “We tell clients to make necessary changes to their documents every three to five years,” says Ben Westerman, a money manager with HM Capital Management in Clayton, Missouri. “This is a great way to confirm the executor of your estate and powers of attorney for health care [and] finances are the appropriate individuals.”
Not having any estate plan. “The biggest estate planning mistake I see people make is not having a plan at all,” says Eric Roberge, founder of Beyond Your Hammock, a financial services firm that specializes in working with people in their 30s and 40s and based in Salem, Massachusetts.
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This is especially common among younger professionals. “They assume they don’t need a plan because they don’t have a lot of wealth yet, or they just don’t have enough assets to justify developing a plan with an estate planning attorney,” Roberge says.
Not having a will. Wills aren’t the be-all, end-all on estate planning, but you do need one, says Chris Cooper, a licensed fiduciary in San Diego. “It’s worth it not to have your estate settled by the laws of intestacy of the state you reside in, as well as to name the guardian of minor children.”
Giving away too much, too soon. “One of the biggest mistakes I see in estate planning is parents giving away too much too soon to their children and beneficiaries,” says Darren Case, an estate planning attorney with Tiffany & Bosco, P.A. in Phoenix. Trusts often contain provisions distributing assets to children based upon reaching certain ages, but not much analysis is put into the ages listed.
“If a child were to receive a lump sum distribution early on, it might stifle their ambitions in life, which is something no parent would ever wish to do,” he says.
Also, considering that recent studies show that 50 percent of all inheritances are squandered shortly after their receipt, it’s important for parents and families to strongly consider spacing out an inheritance over the course of the beneficiary’s lifetime.
“For families wishing to go further in protecting their beneficiaries from a blown inheritance, it would very beneficiary for the parents to walk their children through the estate plan after its creation and explain why the will or trust is being set up in such a manner,” Case says.
Not funding your trust. An estate planning trust is like a suitcase, says Christopher Berry, a certified elder law attorney with the CJ Berry Group, in Brighton, Michigan. “When you pass away, you pass the suitcase to your successor trustee,” he says. “If there is nothing in the suitcase, then you’re just passing an empty suitcase and now a probate case will need to be opened.”
[Read: 9 Estate Transfer Issues to Avoid.]
Not understanding the biggest problem. “The biggest problem is human nature,” Berry says. “No one wants to think about our own death or incapacity. We tend to put off taking steps to prepare for the future. We procrastinate. Don’t let human nature interfere with proper estate planning.”
Don’t make these mistakes and leave your family at financial risk. Consult with a financial advisor or estate planning attorney soon, and build the perfect, mistake-free estate plan that works for you.
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7 Estate Planning Mistakes You Can’t Afford to Make originally appeared on usnews.com
