Some Estate Planning DON'Ts

A properly thought out and well-constructed estate plan is a tool that will clearly direct your assets to your beneficiaries in a manner of your choosing and with a minimum of time, expense, and trouble. Of course, as initially stated, that's what a "properly thought out and well-constructed estate plan" should do. Many plans, however, are either not thought through sufficiently, or not put together well, or both. Although by no means an exhaustive list (you're greatly encouraged to consult with an experienced professional for more in-depth advice), to help make sure your estate plan does what it should, here are some "Don'ts" that you might be wise to heed.

Don't… :

…neglect to prepare a will. If you die without having a will, your assets will be disposed of according to the intestacy laws of your state. And these laws could end up dividing your possessions in a manner that's quite apart from your desires.

…focus just on estate taxes. Many individuals are of the opinion that estate planning only involves the tax implications of distributing their assets to survivors. Those with smaller estates tend to think that because their total assets are less than $2 million (which is the federal estate tax exemption amount at the time of this writing), they won't owe any taxes and, thus, don't need to worry too much about estate planning. These are narrow viewpoints; in actuality, there are a number of additional issues that should also be under consideration. The fact of the matter is that the majority of estate-related family squabbles are not about money. Most arise because the human elements of these situations (sentimentality, jealousies, grief, etc.) are not taken into account beforehand and addressed. For example, rival heirs might dispute seemingly endlessly over family photographs, inexpensive costume jewelry, furniture, or countless other things you wouldn't have considered to be a problem. Further, you might name one of your children as the estate executor, only to end up inadvertently slighting the feelings of your other children and causing additional heartache regardless of how the assets are distributed. And on the subject of executors, don't…

…choose the wrong executor. When you're gone, the executor will be in charge of carrying out your estate plan. This entails a great deal of responsibility, and someone who's emotionally very close to you might not be able to function at his or her best during that time. For example, your spouse may be too overcome with grief to bear that additional burden, and it might be impractical to expect a son or daughter living across the country to be able to discharge the duties efficiently. These factors should be and are best regarded and evaluated well beforehand.

Consider a younger relative (with presumably more energy to handle the responsibilities) that doesn't live too far away. Ideally, he or she should also be an individual who's organized and detail-oriented. However, if you think that your spouse might be hurt by such a designation, then name the younger relative as co-executor along with your spouse. But don't forget to ask the person if they're willing to perform the job. Furthermore, it's also prudent to designate an alternate or two in case your primary designee becomes unwilling or unable to complete the duties. Now, once you've chosen the right executor, don't…

…make things unnecessarily difficult for your executor. People often thoughtlessly keep important documents in several different locations, or worse still, simply strewn everywhere. This can make the planning of your estate (not to mention its discharge) unduly difficult, confusing, and time-consuming. It also increases the odds that valuable assets might be overlooked or forgotten just when they're needed most. Do yourself and your executor a favor by gathering all your important papers and documents together into one place, such as a folder inside a home safe. If the documents that you retain are copies, write on each one where the original can be found – such as with your attorney, CPA, doctor, etc. Also, to the extent that it's feasible, simplify your executor's duties by consolidating accounts into one bank, one broker, one insurance company, and so forth.

…neglect to update your beneficiary designations. Keep in mind that life insurance policies, payable-on-death (POD) accounts at banks and brokerage firms, retirement accounts, and other types of assets pass directly to the beneficiary or beneficiaries named on the asset's paperwork, regardless of what's written in your will. Check these designations periodically to ensure that your beneficiary choices are up-to-date. Along these same lines, don't…

…establish your estate plan on outdated documents or information. Your assets can change over time, laws may change over time, and even your family can change over time. Therefore, you – along with your attorney – should review all of your estate-planning documents at least once every two or three years, and anytime you decide to make a change. Wills, powers of attorney, trusts, and executor instruction letters should all be revisited and kept current.

…undervalue the size of your estate. Though you may not consider yourself to be particularly rich, if you own real estate, a life insurance policy or two, and a retirement account, once you tally up the total value of all your assets, you might be surprised to find yourself within shouting distance of the estate-tax threshold. And although there's been plenty of talk in recent years of estate tax cuts and even repeals, as it stands now the federal estate tax is still alive and well. What's more, individual state estate tax rates actually seem to be on the rise. So, even if you don't think it likely, your heirs may end up owing some tax.

Earlier in this article we advised you to focus on more factors than just tax planning. But we're also reminding you to not simply forget about tax planning for the sake of these other considerations, because it can turn out to be very valuable to both you in this present time and your heirs later on. In short, cover all the bases.

…keep your loved ones in the dark. Even though it's not generally considered to be dinner-table subject matter, you should discuss your estate plan with your family, including the choices that you've made. This in itself could prevent a number of disputes and fights later. Having a conversation with your family will not constitute a legally binding contract, and you'll be free to make changes down the road as you deem appropriate. It will also, in its own way, ease the burden when that time arrives because your wishes will be known and a direction will already have been decided upon and put into motion, thereby alleviating the need for a great deal of emotional decision-making.

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