Planning your estate isn't exactly the most enjoyable of pastimes, but it is an extremely important one. Many people simply don't understand the ins and outs of planning an estate, which can problematic down the line. As such, here are three common estate planning mistakes that you should avoid at all costs:
Not Planning for Simultaneous Death
The majority of people, when planning their estate, name their partner as their sole beneficiary. This is understandable; after all, you'll want your spouse to have control of the inheritance in order to properly distribute the income as you had wished. However, this can often prove to be problematic as it does not account for the event of simultaneous death.
This is a rather grim topic to consider; however, it is vitally important to address. If both you and your partner die at the same time, how is the inheritance to be distributed? This issue can prove to be particularly problematic as it is left to the state to decide who died first. Oftentimes, this is more of a formality, but it is a formality on which a lot rests.
The reason this is so critical is because whichever party the state deems to have died first passes on all of their estate, by law, to the other party. This means that the distribution of the estate is then carried out according to that party's will. If you have children from a previous marriage, they may not be addressed in your partner's will and can end up losing out on any inheritance whatsoever. As such, it's best to avoid this problem occurring by making provisions in your estate plan for simultaneous death. Of course, this is a rather sombre topic to plan in advance; however, doing so can save your family a lot of stress once you're gone.
Forgetting to Review Your Plan
Planning for your death isn't something you'd enjoy doing regularly, so it's understandable that you may forget about your estate plan once you've drawn your first draft up. However, this is not a great idea.
Your life changes as time goes on, and so does the life of those you named in your initial estate plan. It's possible for people to grow apart, become more unstable, or simply fall off your immediate family's radar. In these situations, do you really want to grant them the responsibility of managing a chunk of your estate once you're gone? Of course not; however, it is only you who can address this.
As such, it's good practice to review your estate plan every year or two – or whenever your life changes significantly -- in order to ensure your beneficiaries are up to date. This is fairly easy to do, and while you may incur a small cost to alter your plan, it will be worth it in the long run as you will be able to rest knowing your estate is in good hands.
Forgetting to Give Gifts Before Death
When it comes to planning your estate, you may be concerned about how much of your family's inheritance will be chopped off by the tax man. What you may be forgetting, however, is that you can reduce the amount of tax on your estate by giving gifts to your relatives prior to death.
This is a great thing to know, as the Internal Revenue Code states that you can give gifts of up to $14,000 per annum to your family. This limit applies to each spouse, so if you are both smart, you will be able to give gifts of $26,000 from your estate per year.
Giving gifts isn't only a great way to reduce tax on your estate, but it's also a good way to make sure your beneficiaries understand how to handle a large sum of money. You wouldn't want to leave your hard-earned savings to your children only for them to blow it within a year or two. Giving them a smaller sum of money and teaching them how to use it is a great way to give them the gift of financial planning in addition to the money itself.
For more tips on estate planning, contact a lawyer who specializes in estate planning, such as one from a firm like LeBaron & Jensen, P.C.