Many people believe that a simple will is all they need to accomplish their goals for the future. However, a flawed estate plan can create just as many headaches, heartaches, and expenses for your loved ones as having no plan. Life changes, laws evolve, and even the best intentions can fall short, leaving family members facing court battles, unexpected taxes, or painful disagreements. Here are 12 common mistakes that might be hiding in your estate plan that can jeopardize your hard-earned money and property, diminish your legacy, and place unnecessary burdens on your loved ones. Ask yourself: Is my current plan truly ready for the future, or is it time for a review?
- Lack of healthcare planning. Most deaths occur in hospitals or other healthcare facilities, where many patients near the end of their life are unable to make or communicate their decisions. Without a plan, families and providers can be left guessing. Advance directives outline your preferences for end-of-life care; healthcare powers of attorney appoint a trusted person to make decisions on your behalf when you cannot. Together, these documents ensure that your medical wishes are honored and can be paired with financial powers of attorney to protect your property and finances during incapacity.
- Failure to appoint financial decision-makers. There may come a time when you need someone to manage your financial and legal affairs, either because you are incapacitated or simply unavailable for a specific transaction. A financial power of attorney allows you to appoint a trusted person to act on your behalf, ensuring that bills are paid and important matters are handled without the need for court intervention.
- No will or trust. Without proper planning, your estate may be held up in the often long, public, and costly probate process for months or even years after your death, at a great emotional and financial cost to your family. If you have no will, a judge will apply the state’s statutory default distribution plan to determine who will receive an inheritance from you and how much they will receive. This plan may not match your wishes.
- Lack of attention to digital assets. Without a plan for your digital assets (such as digital photos, cryptocurrency, nonfungible tokens, social media profiles, content creation accounts, and accounts associated with e-commerce businesses) your loved ones may lose access to critical documents, photos, memories, and other important family records. They may also be unable to access any bank accounts or money associated with or generated by your digital assets or accounts.
- Failure to anticipate your children’s possible future divorces, creditors, or lawsuits. Although it is not fun to consider, if your children divorce, rack up massive debt, or are sued at some point in the future, their inheritance could be lost and end up in the hands of unintended people. A trust can help protect your legacy and your children’s inheritance.
- Failure to provide for an intentional transfer of family values. Do you want to pass on more than just money to your loved ones? A comprehensive estate plan can include provisions regarding family meetings, a family mission statement, and custom planning for your loved ones so that your values will continue into the next generation. Your custom plan could include allowing loved ones to choose a charity to receive part of your accounts or property, setting money aside for future family reunions or travel, or building in provisions to incentivize major milestones such as getting married or graduating from college.
- Wasted individual retirement account (IRA) funds. Retirement account beneficiaries generally have the option to receive funds in a lump sum, which could result in a massive income tax bill for them. If this is not your intent, it is crucial to properly plan these accounts to minimize potential tax consequences. A standalone retirement trust, sometimes called an IRA trust, can help safeguard retirement funds from premature or imprudent withdrawals as well as from beneficiaries’ creditors and financial predators while still ensuring that those assets are available to support your beneficiaries.
- Chaotic record-keeping. Proper planning ensures that your loved ones do not spend months or years trying to piece together your finances or interpret your wishes. A comprehensive estate plan helps you organize your finances and create a clear system for keeping your important documents, financial information, and instructions about your wishes in one place, readily accessible to your loved ones when they need them most.
- Failure to consider a surviving spouse’s remarriage, creditors, and predators. If your surviving spouse remarries, your estate could end up in the hands of people you never intended. Likewise, if your surviving spouse is victimized by financial predators—something increasingly common with an aging population—your family may discover too late that your legacy is gone. A trust can help protect your money after you are gone.
- Family feuds over sentimental items. Sometimes fights are not just about money. Feuds and infighting among your loved ones can occur over items that have little monetary value but high sentimental value. You can help avoid such conflict with a personal property memorandum that lists who gets special items such as artwork, family heirlooms, and jewelry. In addition to the financial accounts, your plan should include careful consideration of important family items.
- Health Insurance Portability and Accountability Act (HIPAA) privacy lockout. If incapacity leaves you unable to communicate, family members—even your spouse—may be unable to access your medical records or talk to your doctors because of HIPAA privacy rules. Signing a HIPAA authorization form ensures that the people you choose can access your medical information.
- Outdated estate plan. Does your estate plan reflect your current circumstances, goals, and needs? Have you, your beneficiaries, or your trusted decision-makers had any major life changes (such as getting married, having a child, passing away, divorcing, receiving an inheritance, or moving to a different state)? A comprehensive review by an estate planner ensures that your estate plan reflects current laws and tax rules and carries out your wishes based on your and your loved ones’ lives today.
Do not leave your family vulnerable to these common oversights. A strong estate plan provides peace of mind, knowing that your loved ones are protected and your wishes will be honored. If you recognize any of the above mistakes in your own plan, or if it has been years since your last review, now is the time to act. Contact us today for a comprehensive review and to create a plan that truly reflects your life and legacy.
Call Santaella Legal Group, serving all of California, at (925) 831-4840, or reach out to us here.