Contrary to common belief, estate plans are not just for the rich and wealthy. Anyone who owns something of values should have an estate plan.
Based on years of experience, there are some common yet important estate planning mistakes that I think you should avoid in your estate plan, this is important so that your wish can be carried out smoothly after your passing or when you are unable to do it for yourself, and most importantly, to avoid disputes among family members. Here are the 6 most common mistakes that you should avoid.
1. Trying to “Keep it simple” or “Do it yourself”
Trying to keep your plan simple not necessarily a good move. If your family is important to you, then your estate plan should deserve the investment of your time, effort and money. Don’t shop around for an estate plan purely based on “price”. You may end up getting someone who can help you draft out a “Simple Will” based on your idea, which may cause unnecessary cost, delay and disputes among family members in the future. You may have just left out the advice that an experienced estate planner can provide.
This is the documents that you put down all your assets as a legacy to the people you care about most. So it is wise for you to plan properly so that they are protected from unnecessary problems when it come. Get good advice and do a thoughtful plan for them, they will definitely appreciate it.
2. Not keeping your estate plan up-to-date
There are many events that can happen which might change your estate plan. Births, deaths, divorces, set up a business, change of business structure, new property acquisitions, etc. Therefore, it is wise to do periodic review and update your plan when changes take place.
3. Not choosing (and preparing) the right representative
When you make your estate plan, you’ll need to designate a representative who will be in charge to carry out your will.
– Executor – You need to have an Executor who is responsible to file your will and administer the distribution of your assets. If the representative you choose do not have the capability or dedication to do it, it may cause unnecessary delay, extra expense, missed opportunities to save taxes, conflict among family members, etc.
– Guardian – If you have young children, you should appoint your guardian, he/she will have legal custody of your children. So make sure you consider the values they share, lifestyle, the place they stay, their relationship with your children, etc. This is important as they are the one who will upbringing your children, taking care, giving love and educate your child. Most importantly, try to talk to them so that they know your arrangement and willing to take up this responsibility.
– Trustee – If you have a trust in your plan, you’ll need to appoint trustee. They are responsible to manage your assets on behalf of your beneficiaries. It’s got to be someone you fully trusted and capable to do that.
4. Do not make special provisions for special beneficiaries (minor / disabled / problematic beneficiaries)
If you have minor children, disabled beneficiaries, they are not eligible and capable to handle the assets you leave down to them. You need to put up a trust to hold and manage your assets on behalf of them, and use the funds to support them financially until they are capable to do it themselves.
Other than that, if you know that you have a problematic beneficiary, perhaps a gambler or a spendthrift, you should also consider holding your assets in a trust instead of will it away directly to them. This arrangement avoid them from wasting it foolishly. As long as the assets is still being held in a trust, it can be protected from the beneficiary’s spending habits, from creditors, and even from divorcing spouses. Otherwise, you may also consider setting provision to pay for your grandchildren’s education instead.
5. Not planning for contingencies
We come across many estate plans that do not have contingency plan in place. Most of the plan did not have contingency instruction in place in case any of their representative or beneficiary predeceases them. If this were to happen, it might create a lot of problems with the will and the distribution might not be as you wish.
6. Not planning for disability
Many people view estate plan as documentation to execute your wish in case you die, actually it is just partially true, dying is not the only reason. An unexpected or long term disability can often have great impact to your personal and financial affairs. Taking measures to ensure that there is someone there to help you in handling your finances, raising your children, or making healthcare decisions on your behalf and for your benefit is important.
If you have done your estate plan, do review your plan to make sure that the above mistakes are not made. But if you do not have your plan yet, you are worse than those who have done all the above mistakes.
This is one of those things that we tend to put off for another day. After all, it’s not pleasant to think about what would happen to your loved ones if you died. Unfortunately, no one can escape death, but a proper planning for what may occur after your passing is one of the most important things you can do to ensure your wealth is handled properly when this unavoidable event occurs.
Understand that it might be a difficult decision to make, but any decision is better than none at all. After all, you can always change your plan from time to time. Having a plan will also give you a peace of mind, knowing that your wishes will be fulfilled and your loved ones are protected.
My hope is that by sharing this essential information, more families can be spared the difficulties that can otherwise be avoided by proper planning. A financial adviser with estate planning experience can help you make the right decisions and cover all your bases. After all, you don’t want to cause hardship for your family members and loved ones in your absence.