We see clients make the same mistakes in estate planning over and over. There is plenty of information out there about what to do when you’re working on your estate plan. From How-To guides to blog posts, there is a fountain of information to consume. However, what is less available, is warnings about what not to do.
Below are 8 common mistakes in estate planning that should be avoided.
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Not Updating Your Beneficiaries
A major function of your estate plan is ensuring that your assets are distributed where and to who you wish. This doesn’t work if you are not updating your beneficiaries at the appropriate times. This should happen whenever you experience an important or significant life event--perhaps it’s a wedding or divorce, a birth or a death. Don’t forget about contingent beneficiaries. Even if you have one person who you want everything to go to, you may want to name a contingent beneficiary in case the primary beneficiary passes away before you or at the same time.
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Not Planning Your Final Arrangements and Wishes
This is a step that is too often forgotten. Deciding between burial and cremation, what you want done with your body and organs, and any other specifics about your desires for your service is important. If you neglect this part of your estate planning, it will leave your loved ones to make the decisions for you. To avoid placing that emotional and taxing burden on them, make sure that you put the time and effort into this portion of your estate plan that it requires.
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Not Factoring in Taxes
The inheritance and estate taxes your beneficiaries may or may not be liable for depends on the size of your estate your relationship to your beneficiaries. It is important to look into how taxes may affect your beneficiaries. Ensure that you are familiar with New Jersey’s inheritance tax rules and the federal estate tax law.
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Lack of Organization
A key aspect of a good foundation for estate planning is good organization. This can be a complex process, especially if you have a larger estate. Keeping documents, whether that be physical or digital, organized and in secure locations is important. This makes it easier to keep track of everything and to make changes when necessary. Not only will this make estate planning easier for you, but for your loved ones and executor after you are gone. In order for your wishes to be clear, everything needs to be organized concisely and logically.
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Not Including Digital Assets
In today’s day and age, a lot of value exists digitally. This may refer to digital money, but also online accounts, emails, and other assets that take a digital form. You may even want to make a separate plan for this, depending on the amount and complexity of your digital assets.
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Lack of Communication
Another mistake that is too commonly made is not communicating your wishes to your loved ones and beneficiaries. This can be a difficult conversation to have depending on family dynamics and your chosen beneficiaries, but it is important to communicate your wishes to them verbally. It is also important to keep this information up to date. If you tell them one thing, then write something else in your Will, things could get complicated later! Making your wishes as clear as possible and as consistent as possible will make the process much smoother for everyone involved.
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Not Being Specific Enough…or Being Too Specific
Being too general when documenting beneficiaries or other wishes you have in your estate plan can lead to confusion. However, being too specific -- specifically about assets that you may not have in the future--can make it hard to follow through on those wishes later. This is another reminder to keep your plan up to date. Again, clarity is the ultimate goal.
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Forgetting to Name Representatives and Having Back-Ups
It may slip your mind to name representatives for things like power of attorney or healthcare directives. However, every role is important to consider when you’re creating your New Jersey estate plan. These are likely to dissolve after you pass away, but will come in handy if you are ever incapacitated.
On the other hand, for roles that will go into effect after you die—like executors and beneficiaries—you will want to name “back-ups”. For beneficiaries, these would be called contingent beneficiaries. This would involve naming people to receive specific assets if the first beneficiary named is unable to for any reason. Similarly, naming a backup for an executor or other important roles in your estate plan such as guardians or trustees, ensures security in the case that the first person named is unable to act in that role.
These are just a few of the common mistakes in estate planning that you’ll want to avoid. If you have any questions about any of the above points, please contact Ward, Shindle & Hall.
