Passing on your estate and assets to your heirs is serious business, and there’s very little room for error. For instance, what happens if your executor or trustee passes away before you do and you didn’t update your estate plan to reflect that? What happens if you remarry and your ex-husband is still named in your estate plan but your current spouse is not? Generally, mistakes like these end up with your heirs and beneficiaries fighting in court over the problems your carelessness caused.
Here are 5 mistakes many people make when creating their estate plan. While your estate plan doesn’t have to be perfect, the closer you can make it, the less likely you are to disturb your family’s harmony.
1.Failure to Update Beneficiary Form
Life changes happen to all of us … marriage, divorce, birth of children, loss of loved ones, etc. Once the joy or grief has passed, it’s time to think about updating all your beneficiary forms as needed. IRAs, retirement plans, annuities and life insurance policies aren’t controlled by your estate plan, but by the beneficiary designation forms you completed. Fail to update these and it is possible the wrong people could inherit your estate. Just as important is completing the alternate beneficiary designation section of these forms. Something could happen to your beneficiary before he or she inherits, which is why it is smart to name an alternate person. If you fail to name a beneficiary or alternate (it happens more often than you think) your estate could go into probate and take a long time to be settled to say nothing of expense.
2. Selecting the Wrong Person as Executor or Trustee
The executor (in Arizona the Personal Representative) or trustee of your estate is a key player in your legacy. He or she implements the estate plan you have created, but if that person doesn’t pay attention to details or pursues his or her own interests instead of your wishes, it could be a disaster. Find people you trust, who are honest and lack conflicts of interests. These people should understand your objectives and be willing to carry them out. Sometimes a group or professional company is better than a single person.
3. Appointing the Wrong Person for Powers of Attorney
If you become ill or unable to exercise your mental powers, your attorney- in- fact (the person you name)will act on your behalf to make financial decisions. It is no different than if you were writing the check. If you name the wrong person — a person who has his or her own agenda or is irresponsible — it is likely to upset other family member and end up in ugly court battles. Consider appointing a person who isn’t likely to collude against members of the family. Problems often arise between siblings in this regard.
4. Hiding or Not Sharing Your Estate Plans
Not knowing is the most frequent cause of family arguments over an estate. If you share your plan and intentions with your family before you pass away, they won’t be surprised and will be more accepting of how the assets are being distributed. Don’t distribute copies of your plan, but discuss it with all family members concerned. There is no need to discuss the actual money or property involved, but the general plan discussion is important. If your executor or trustee isn’t a member of the family, it might be a good idea to introduce family members to him or her well in advance — again, so there will be no surprises.
5. Failure to Update Your Plan
Failure to make updates to your estate plan can be devastating for family members. If you fail to update after a life change to account for — a divorce, death of beneficiaries, changes in net worth, changes in tax law — then your obsolete plan may end up in court no matter how your tried to avoid that. You should consider meeting with an estate planning attorney on a regular basis, but no less that every three years, just to discuss whether there has been any changes in your family, your finances or in the law.