A solid estate plan can provide you with peace of mind and make sure your family members have a stable financial future. However, before you engage in estate planning, you must understand the common pitfalls in this process that can undermine your desires and diminish your legacy. The Ebbert Law Firm estate planning attorneys can help you avoid making mistakes that cost your heirs money and time. These mistakes include the following:
Not Updating Beneficiary Designations
Beneficiary designations are binding no matter when you make them. They pass the remainder of your accounts to your beneficiary rather than your estate. If you have not updated your beneficiary after naming them on your life insurance policy, 401(k), bank accounts, pension, or retirement savings, where will this big part of your estate go? Updating beneficiary designations is important when there are changes in your circumstances such as:
- A change in marital status. Marriage or divorce should trigger a change in your beneficiary forms. A big portion of your estate could pass to a former spouse or their kids years into the future.
- Asset acquisition. If you have acquired new assets or made changes to your investment portfolio, keep in mind that such changes can impact your overall estate. Thus, you must align your beneficiary designations with the updated portfolio.
- Life changes. Childbirth or adoption and death must trigger a review and update of your designations. The financial needs of your beneficiaries could also change eventually. For instance, a financially dependent child can become economically stable now.
- Trust creation. Assets that you want to place in a trust must list the trust’s name as the beneficiary. If the beneficiary is named the trustee, funds will be disbursed to the trustee, not to the trust.
To ensure your beneficiary designations are up-to-date, monitor it diligently. Consider naming several beneficiaries on every account in case your first option dies before you or refuses to serve. Consider updating such designations every three years or more frequently.
Not Choosing a Trusted Guardian
If you have named a minor as a beneficiary thinking they wouldn’t inherit for many years into the future, remember that this may not be the case if something happens to you soon. Think about what happens when you die before your minor child turns 18.
Without an appointed guardian or trustee for your minor child, the court will choose to handle the inheritance of your child until they reach the age of 18. The appointed person may be somebody you would not have picked as a guardian. Or the court may pick an expensive trustee who decreases your asset amount. Keep in mind that the trustee the limit when and how your child can access their inheritance, possibly affecting their medical care and education. Also, if both adults and minors are named as beneficiaries, disputes may arise over asset management and distribution.
To protect your minor children, set up a trust for their benefit. Apart from picking a trusted person to handle and invest your child’s assets, you leave instructions on when your child can access the assets.
Not Setting Up Asset Protection Measures
The assets in the trust you established for your child will be distributed to them once they come of age. When no longer held in a trust, an inheritance can be lost because your child may not have the financial maturity to handle a huge sum. They may misuse or squander the funds within just a few years of receiving them.
Also, all distributed funds become the assets of your child and can be utilized to pay damages should your child face a lawsuit. Distributing funds to kids at certain milestones or ages puts them at risk when a divorce occurs.
A lifetime asset protection trust can be established for the inheritance of your heirs. This makes sure your heirs have the necessary financial support throughout their lives. An estate planning attorney can set up the trust.
