Estate planning allows you to protect and assist your loved ones upon your death. A proper plan can help shield your assets against additional taxes, provide needed funds to loved ones, and ensure your wishes are carried out. Most importantly, it can bring both you and your loved ones peace of mind.
If others depend on you financially, or you simply have a strong desire to dictate what happens to your assets or possessions following your death, then you should get a plan in place right away.
A lack of a plan could leave your loved ones facing financial hardship. It could also cause strife among family members since your wishes would be unclear. Finally, it could mean your local probate court would decide how to distribute your assets. This process can take months or even years.
Estate planning is a process that can solve all these issues. Be forewarned, however—it includes many steps and legal documents. Since it’s easy to miss a step or make an error, we’ve covered six common estate planning mistakes and how you can fix them.
The process of estate planning can be confusing and time-consuming. Because of this, you may be tempted to put it off indefinitely. But this procrastination could cause unnecessary taxes, fees, and stress to your loved ones should you die before a plan is put into place.
Here are some tips to make this process more manageable:
Once you have your plan in place, congrats!
Unfortunately, the work to protect your estate won’t stop there. You will need to periodically update your plan as life events and changes occur.
Some of these changes include:
All of these life events, as well as many others, can influence the needs of your estate plans. Relocating to another state, for example, can void your current will since they’re dictated by state laws.
Even if you don’t experience any major life events, you’ll want to review and update your plan if you change your mind.
A beneficiary is the person you name to inherit your asset(s) when you pass away. There are two types of beneficiaries, primary and contingent. A primary beneficiary is the first to inherit. A contingent only inherits if the primary passes away before you do.
You may feel that it’s not necessary to name a contingent if your primary beneficiary is younger and in good health, but this assumption is a common estate planning mistake.
Your primary beneficiary could pass away, followed by your own death, before you’ve updated your financial documents. Because of this, naming a contingent is essential.
Most financial institutions allow you to make these changes once you’ve logged into your account. If not, contact them directly.
The beneficiaries named in your will should match the names on your beneficiary forms. This includes bank and retirement accounts, life insurance policies, and annuities.
A lack of coordination could mean your estate isn’t divided the way you wanted. A common misunderstanding is that a will supersedes beneficiary forms with financial institutions when in fact, the opposite is true.
For example, if you put your sibling as the primary beneficiary in your will but designate your uncle as the primary beneficiary with your bank, your uncle will inherit the money in that account.
If you change the primary or contingent beneficiaries of your will, you will want to update your beneficiary forms accordingly and vice versa. This ensures your wishes are clearly understood.
As mentioned above, you can update beneficiary forms by contacting the financial institution or by logging into your account. For changes to your will, contact an estate attorney.
When it comes to estate planning, most of us think in terms of our assets. But future healthcare needs should be included as well. You could one day lose control over your own medical decisions. On top of that, your healthcare expenses could cost a fortune.
When planning your estate, you might want to consider:
Taxes can eat away at your estate.
While federal estate taxes only apply to large estates (2021 exemptions are $11.7 million per person or $23.5 million for married couples), this doesn’t mean you shouldn’t consider taxes. For starters, certain states levy estate or inheritance taxes.
You should also look at your current tax burden. If you can reduce your liability now, your heirs can inherit a greater amount in the future.
These three types of accounts can help you reduce taxes:
Additionally, your heirs will likely inherit the death benefit tax-free. (In rare cases, a death benefit can trigger estate taxes.) This death benefit can provide much-needed funds to loved ones following your death. It can be used to cover everyday expenses, college tuition, and even your burial.
If you’re thinking about getting life insurance, or adding additional coverage, Ethos makes life insurance easy. Our free online application process takes about 10 minutes, and you’ll only have to answer a few medical questions—medical exams aren’t required for most. To get started with Ethos today, visit our site.
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