Estate planning isn't anyone's favorite thing to think about, but it is important. You need to plan for what will happen when you are gone in order to protect the people you love.
Unfortunately, many people make some fundamental mistakes when it comes to legacy planning. Here are five common errors along with tips on how you can avoid them.
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1. Not making a plan at all
One of the most common errors in estate planning is simply not creating any plan. This is an especially frequent mistake among young people who assume the need for such a plan death is decades away.
Unfortunately, without a plan, your loved ones could face a host of problems after your passing, especially if it is unexpected. There could be too little money to live on if you die with no life insurance and have dependents. There could be a fight over who inherits which assets or a dispute over who should take custody of minor children you leave behind.
The process of transferring assets to loved ones could also take longer, and intestacy laws in your state would determine who inherits what (and they might not be the people you prefer).
This error is easy to avoid. Work with an attorney to make a comprehensive plan or use online resources that help you to create a plan on your own.
2. Failing to address all the important issues
Making an incomplete estate plan is a common mistake that could have devastating consequences.
If you don't plan for how to afford long-term care, you could not only drain your 401(k) balance and all your bank accounts, but you could also end up losing a family home and other assets you had hoped to pass down to children. That's because Medicare and other health insurance usually won't cover nursing home costs if you need custodial care (basic help with daily living tasks) rather than having a specific medical need.
Long-term care is expensive, so it's important to create a plan to cover it, such as buying long-term care insurance or using asset-protection trusts to qualify for Medicaid coverage.
Likewise, if you don't create a living will and give someone healthcare power of attorney, your loved ones might have no idea what kinds of extraordinary medical interventions you might or might not want. And they could be unable to determine who should make those decisions.
When you make your estate plan, you can avoid these complications by thinking through all of the key issues. Take steps to protect your assets, be clear on who inherits what, and address what happens if you become incapacitated.
3. Not considering your pets
You don't want to forget about your furry family members when you make an estate plan. If you have animals, you should specify who will take guardianship of them if you die while they are still alive. Talk to those individuals to confirm they are willing to do it, so your animal doesn't end up in a shelter.
And you might want to leave some money set aside for the care of your animals for the remainder of their lives.
4. Naming only one beneficiary
You might be tempted to just leave everything to your spouse or your child and call it a day. But what happens if that chosen beneficiary happens to die first? Not naming a secondary beneficiary could be a serious mistake.
To make sure that you get to determine what happens to your assets, it's a good idea to name a contingent beneficiary to receive your money and property if the person who is your first choice dies with you.
5. Forgetting to update your plans
One more mistake many people make is assuming estate planning is a one-and-done process. But your life will likely change in many ways after you make your initial estate plan -- especially if you follow my advice and create it when you're young.
When you buy or sell major assets, start a business, add members to your family through marriages or births, or separate from some family members through divorce, you'll need to update your plan accordingly.
Hopefully, you can now avoid these major estate planning mistakes and ensure your loved ones are provided for and your legacy is secure.
