Thinking about your mortality can evoke uncomfortable feelings, but it is something everyone has to come to terms with eventually. You have to be able to ask yourself the hard questions, like: Who will take control of your property and assets once you are gone? Will your family stay united whatever the outcome, and how will your legacy continue?
These are important decisions to make and requires careful thought and consideration. Indeed, we have seen many people make simple blunders while drafting their estate planning documents without an attorney, which ended up defeating the purpose of creating them. Here are four common estate planning mistakes to avoid.
Mistake #3: Not Updating Your Estate Planning Documents
Once they prepare their Wills and other estate planning documents, many people lock them in a safe somewhere and forget about it. Unfortunately, life doesn't allow for one-and-done estate planning with all the changes it will bring you. These changes could include having a child, getting a divorce, getting married, deaths, changes in property or assets, or even acquiring a significant amount of money or assets.
It is particularly important to review and update your estate planning documents often when there are minor children involved. You want to ensure that the guardian you have named in your Will is the best option for your children and consider any special needs they may have.
Mistake #2: Ignoring Important Details
It is easy (but erroneous) to assume that your Will will control how all of your assets are distributed when you are no longer around. Wills and Trusts usually control real estate and other properties, but do not necessarily account for certain assets such as IRAs and life insurance. Ideally, you need to sign a beneficiary designation form that dictates how these assets will pass once you are gone. A Living Trust allows you to transfer ownership of items such as money, bank accounts, and heirlooms into a Trust, which then distributes them on your behalf. It is an extra step that can seem like a hassle, but it is very important in the long run.
Mistake #1: Not Accounting for Taxes
Taxes are one of the most important considerations when drafting estate planning documents. Unfortunately, many people fail to account for this crucial aspect and it often comes to haunt them in the future. The main types of taxes to watch out for are estate taxes, probate expenses, and income taxes. A Revocable Living Trust can help avoid probate expenses, but income taxes must be paid on any income you earn in the year you pass away.
Federal estate taxes can go as high as 45-55%! That means your heirs and beneficiaries may not get as much as you intended for them to get once taxes eat up their portion of your assets. If you don't plan ahead, your assets may have to be liquidated to pay off these taxes. To determine your current net value, subtract your total debts from your total assets. Be sure to include your business interests, home, investments, bank accounts, IRAs, personal property, life insurance benefits, and retirement plans.
The most important thing is to ensure that you choose a reliable estate planning attorney who can guide you through all the necessary steps and considerations. If you need any legal advice on this and other important estate matters, the Tyra Law Firm is here for you! Call us anytime at (301) 315-0811.