Draw up your Estate Plan (Will plus more). And avoid making these common mistakes

Sourced with thanks from kiplinger.com

First a question – have you drawn up your Will yet? Many of you are likely to respond in the negative. So the first thing is to get started on your Estate Plan which will have your Will as part of it. Take a look at what is an Estate Plan and kind of mistakes that creep in commonly. The author, in the article below, has attempted to offer a simplified piece on Estate Plan and common mistakes with it. Team RetyrSmart

Draw up your Estate Plan (Will plus more). And avoid making these common mistakes

You don’t have to be ultra-wealthy to reap the benefits from a well-thought-out estate plan. But you do have to make certain the plan is updated often so that these kinds of mistakes don’t occur and hurt the people you love most.

Let’s Start with the Basics

An estate plan consists of the legal documents that will provide clarity about how you would like your wishes carried out both during life and after you die. It consists of three primary documents:

  • A will.
  • A durable power of attorney for financial matters.
  • A health care power of attorney or similar document.

The latter two documents designate individuals to help make decisions involving your finances or health in case you cannot while you’re still living.

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Here are five common mistakes to avoid:

Mistake No. 1: No Estate Plan at All 

It’s not uncommon for me to work with people who have accumulated several million dollars in assets, yet they don’t possess even a simple will. A will provides specific information about who will receive your money, property and other assets and therefore is important even for people with minimal assets.

Without a will, state law decides who will receive your assets, and it’s not likely they will be distributed the same way you would want. Dying without a will, known as dying intestate, involves a time-consuming and costly process for your heirs that can easily be avoided by simply having a will.

A will may include several other important pieces of information that can have a significant impact on your heirs. A will provides the opportunity to appoint a guardian for your minor children and an executor to carry out the business of closing your estate and distributing your assets. In lieu of a will, these appointments will likely be made by a probate court.

Mistake No. 2: Missing or Incorrect Beneficiaries

Many people are surprised to learn that some of their assets, such as retirement accounts and life insurance policies, are not controlled by their will. To make certain the right person inherits these assets, a specific person or trust must be named as the beneficiary for each account.

As I’ve already pointed out, one of the most common pitfalls is failure to update beneficiary designations.

For example, a person may have opened retirement account when they were in their 20s. They may not have been married and could have named a relative or friend as the beneficiary. Fast forward years later when that person has married and may have kids of their own. If the employee passes away without changing the beneficiary, the amount in that account will go to the person they named decades ago instead of a spouse, their children or both.

Mistake No. 3: Incorrect Joint Title

Married couples can own assets jointly, but they may not realize that there are different types of joint ownership:

  • Joint Tenants with Rights of Survivorship (JTWROS): If one person passes away, their spouse or partner will automatically receive the deceased person’s portion of the asset by order of law. This transfer of ownership bypasses a will entirely.
  • Tenancy in Common (TIC) — Each joint owner has a separately transferrable share of the asset. Each person’s will dictates who receives the share at their death.

It is not uncommon to see improper joint asset titling become an issue if a deceased person’s share of a joint asset is intended to be used for a specific purpose, such as funding a trust, following their death.

Mistake No. 4: Failure to Fund a Revocable Living Trust

A living trust allows a person to place assets in a trust with the ability to freely move assets in and out of the trust while living. At death, assets continue to be held in trust or distributed to beneficiaries, all of which is dictated by the terms of a trust document.

The major advantages of a revocable living trust are twofold: First, it reduces or eliminates the time and expense associated with the probate process, which is necessary with a will. Second, it provides privacy and protection from the probate process. A will, when submitted to probate, becomes public record, which makes it not only visible, but able to be challenged.

The most common mistake made with a revocable living trust is failure to retitle or transfer ownership of assets to the trust. This critical step is often overlooked after the “heavy lifting” of drafting the trust document is completed. However, the trust is of no use if it does not own any assets.

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Disclaimer: The content including advice on this website provides generic information only. Its not been customised for any particular individual or situation. It is in no way a substitute for a qualified and specific opinion whatever be the area viz. health, finances, retirement, lifestyle etc. Always consult a domain specialist for more information. The information is the viewpoint of the author/source and Retyrsmart does not claim responsibility for this information.
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