Wealth management and estate planning go hand in hand. A well-designed estate plan can help ensure that you share your hard-earned wealth according to your wishes and protect it from creditors and tax liability. As you develop your plan, or review an existing one, be aware of these common mistakes.
Not Funding Your Revocable Trust
A revocable trust is a common tool used in many estate
plans. A revocable, or "living" trust, changes the title
of how your assets are held. Instead of your home or investments
being owned in your individual name, it is retitled and is now
owned by your revocable trust. A revocable trust is not necessarily
used for future tax savings, but instead it avoids probate, ensures
privacy and carries on your wishes after you are gone.
A common mistake with a revocable trust is that people spend the time and money creating a trust with an attorney, but they do not follow through and transfer all their assets over to their trust. You should send a copy of your trust to your financial advisor or CPA so they can help review your tax documents to ensure financial accounts have been transferred over.
Related Read: Is Your Revocable Trust Fully Funded?
Not Reviewing and Updating Your Estate Plan
The tax laws are constantly changing and it is important
to check in with your attorney and financial advisor to make sure
your estate plan documents are up to date with current tax law for
both federal and state changes.
Major life events significantly impact your future estate planning goals. Marriage, divorce, children, grandchildren and death not only alter our day-to-day life, but also our future goals and plans. It is important to understand what to adjust for if one of these major life events occurs, whether it be updating your 401(k) beneficiary designation form, amending your trust document or retitling your current assets.
Your estate plan should also address contingency plans for beneficiaries. What would happen to your assets if one of your beneficiary predeceased you? You want to make sure you address these issues according to your preferences rather than having state law choose for you. For example, if you have two children and one dies before you – do you want your assets to be distributed per capita ("by the head") so 100% goes to the surviving child, or do you want your assets to be distributed per stirpes ("by the branch") so the 50% share goes to your grandchildren of the deceased child?
As time goes on, our preferences and lifestyle changes. If you created your estate plan in your early thirties, by the time you are in your sixties and seventies and looking towards retirement, your plans and outlook may have changed. It is important to review your plan to see if your old plan fits your new lifestyle.
Related Read: Who are Your Beneficiaries?
Failing to Track Your Assets
In today's digital world, you may not be receiving
paper statements of life insurance, 401(k) statements or even bank
accounts. It is essential to have a list of your assets in a secure
location that someone else knows about in the event you become
incapacitated and can no longer communicate with a loved one the
details of all your accounts and assets. This will also help if you
choose to fund a revocable trust and need to retitle your assets or
make any changes due to a major life event as mentioned above.
AVOID PITFALLS
These common pitfalls are just a few of the many challenges that individuals face when working on their estate plan. Working with a trusted advisor and attorney can help alleviate these struggles and help you carry out your wishes with ease.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.