As an estate planning attorney in Boston, I am often asked to explain the estate planning process. Estate planning is a critical process that provides both asset protection and if necessary can provide for business succession and ensures your assets are distributed according to your goals and wishes after you pass away. However, many people make crucial mistakes that can lead to unintended consequences. Here are some of the most common estate planning mistakes and tips on how to avoid them:
1. Not Having an Estate Plan
Mistake:
Many people assume that estate planning is only for the wealthy. This misconception leads to procrastination and, in some cases, failing to create a plan altogether.
Solution:
Regardless of your net worth, having an estate plan is essential. It allows you to control how your assets are distributed, who will care for your minor children, and who will make decisions on your behalf if you become incapacitated.
2. Failing to Update Your Estate Plan
Mistake:
Life changes such as business changes marriages, divorces, births, or deaths can significantly impact your estate plan. Neglecting to update your plan can result in outdated or contradictory instructions.
Solution:
Review and update your estate plan regularly, especially after major life events. It is recommended you look over your documents at least once every 3 years. While a power of attorney or any of the other documents don’t necessarily “expire”, they can become inappropriate for what you actually still want or need to achieve. Ensure all documents reflect your current wishes and circumstances.
3. Overlooking Digital Assets
Mistake:
In today’s digital age, it’s easy to forget about digital assets like online accounts, social media profiles, and cryptocurrencies.
Solution:
Include digital assets in your estate plan. First this means identifying all your important digital assets and writing them down – easier said than done. Then try matching your current password to those assets. Then try keeping them up to date while also keeping them confidential! Not easy. Provide access instructions and designate someone to manage these assets after your death. Because you may need to change passwords regularly, it is a good idea to use a trusted and safe password app to store your passwords as they evolve.
4. Not Designating Beneficiaries
Mistake:
Failing to designate beneficiaries for retirement accounts, life insurance policies, and other financial instruments can lead to delays and legal complications. These assets often pass outside of the probate estate, and become unchangeable after you are gone, so make sure you review and update your designated beneficiaries.
Solution:
Ensure all beneficiary designations are up-to-date and correctly filled out. Review these designations periodically.
5. Choosing the Wrong Personal Representative (Executor)
Mistake:
Selecting an fiduciary, such as a Personal Representative for your Will, or a Power of Attorney representative for Durable Power of Attorney, who is not capable or willing to handle the responsibilities can create chaos and conflict. These can be burdensome, stressful and nuisance jobs for the wrong person.
Solution:
Choose a fiduciary who is trustworthy, organized, and able to handle the tasks involved. Discuss your choice with them beforehand to ensure they are willing to serve.
6. Ignoring Tax Implications
Mistake:
Failing to consider the tax implications of your estate can result in significant financial burdens for your heirs. Massachusetts has a estate tax on all estates over $2 million. Which while considerable can be reached if there is a house, life insurance and some financial assets involved.
Solution:
Consult with a financial advisor or estate planning attorney to understand the tax consequences and explore strategies to minimize tax liabilities.
7. Not Planning for Long-Term Care
Mistake:
Overlooking the potential need for long-term care can deplete your estate and burden your loved ones.
Solution:
Consider long-term care insurance or other financial strategies, such as irrevocable trusts, to cover potential future care needs without exhausting your estate. These needs to be done well ahead of when it might be needed, because there is a 5 year look back for some benefits. It will be a balancing act to retain control of your assets while also protecting them. That is why it is important to consult with an experienced elder law attorney.
8. Failing to Communicate Your Plan
Mistake:
Keeping your estate plan a secret from your loved ones can lead to confusion and disputes.
Solution:
Discuss your estate plan with your family and beneficiaries. Clearly communicate your intentions and the rationale behind your decisions.
Conclusion
Estate planning is an ongoing process that requires careful consideration and regular updates to match your financial plan and needs. By avoiding these common mistakes and working with professionals, you can ensure that your wishes are honored and your loved ones are taken care of. Take the first step today by evaluating your current estate plan and making any necessary adjustments.