An estate plan helps designate who will receive your assets in the event of your death. Despite many thinking an estate plan is only for the rich, everyone can benefit from having one. For the first time since 2020, the number of Americans who have a will has declined.
Why are so many choosing not to create one? Nearly 40% of people don't believe they have enough assets to leave anyone. But no matter how wealthy you are, you need a will to protect your loved ones.
While important, an estate plan can be a difficult document to create, leading to potential mistakes that can cost you or your loved ones a lot of money. Estate planning errors can drastically hurt the financial legacy you want to leave behind. Here are some of the big ones:
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1. Not having an estate plan
The first, and perhaps biggest mistake you can make with estate planning is not doing it. After you pass, those closest to you are left dealing with the shock and grief, and you don’t want to burden them with added financial issues. Having an estate plan in place can give them peace of mind and provide clear guidance for handling your affairs.
If creating an estate plan is on your to-do list, don’t procrastinate! Many people think they have plenty of time to create one — someone who is 35 years old may think they have decades to get things in order, but delaying can create extra risk for your family. The truth is, no matter your age, anything can happen. If you pass away and you still have young children, who will be their legal guardian? Without a will or an estate plan, you are putting your children’s future at risk. What if you pass away unexpectedly? Or what happens if you become incapacitated and no one is assigned to make medical decisions on your behalf?
None of us wants to think about our mortality, but procrastinating on your estate plan could create more headaches for your loved ones.
2. Not asking for help with your estate plan
Another common estate planning mistake I see is when people try to do everything on their own. Estate plans that contain mistakes can cause many complications after you pass. No matter the size of your estate, there are still assets to be passed on to your family.
Working with an expert, such as a financial adviser, who has the skills to put together and manage estate plans, can help avoid those errors. An adviser can educate you on what documents you need in your plan such as wills, powers of attorney and health care directives.
A financial adviser can help you inventory your assets and help ensure they are going to the right person. Your adviser can help you review all of your various retirement accounts and designate the exact amount you want to go to each of your beneficiaries.
3. Forgetting to regularly update your estate plan
Establishing an estate plan is an important step, but you can’t simply set it and forget it. Many life events will require you to take another look at it. Maybe you were divorced years ago, but your living will still lists your ex-spouse as the one entrusted to make your healthcare decisions.
What if you got remarried after your divorce? Have you changed the beneficiary of your 401(k) to your new spouse? You don’t want to pass away and subject your current spouse in legal battles with your ex.
The rule of thumb is if you get divorced or remarried, everything in your plan that has a beneficiary designation needs to be reviewed or changed.
It is not only a major life event like a divorce that may require changes to your estate plan. Failing to review and revise your estate plan after the birth of a child, the death of your primary beneficiary, starting a new business or buying a home can lead to big consequences, potentially distributing your assets to the wrong person.
At the end of the day, no matter how rich you are or how many assets you have, you need to have an estate plan. If you are among the many Americans who do not have one, now is the time to create one. A financial adviser can help you organize a plan to ensure your assets are appropriately allocated and your family is taken care of.
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