Estate planning can be beneficial to everyone, not just the wealthy. People plan for their future and their retirement, and why stop there? Estate planning is the next step, and while it may seem grim, these plans help to mitigate the risks at the end of your life and beyond. It can be uncomfortable to discuss and plan for your estate, it’s a necessary step in making sure that your wishes are carried out both in life and beyond.
An estate plan generally consists of three primary documents: a will, a durable power of attorney for financial matters, and a health care power of attorney or similar document. In the case that you cannot make decisions involving your finances or health while you’re still living, the latter two documents designate individuals to help. By working with a financial and legal professional during this time, they can help you avoid a few common estate planning mistakes.
Not Having a Plan
The cardinal mistake of estate planning is simply not having a plan at all. You need not possess millions of dollars worth of assets, but you should at least have a will. The will provides specific information as to who will receive your assets, whether they are money, property, or other investments. Without this document, state law will decide how to divide your assets, and it’s likely that their decision will differ greatly from yours. Your heirs will be subjected to what is usually a lengthy and costly process if you die intestate, that is, without a will.
Missing or Incorrect Beneficiaries
Though a will is a crucial document in estate planning, some assets, including retirement accounts and life insurance policies, are not controlled by the will. In this case, in order for the right person to inherit these assets, a specific person or trust must be named as the beneficiary for each account. One of the most common pitfalls, however, is the failure to update beneficiary designations. It’s important to update your beneficiary designations as your plans change. Say that an unmarried person opened their IRA in their 20s named a relative or friend as a beneficiary. Years later, perhaps that same person is now married and has children. If they pass away without changing the beneficiary, the amount in the account will go to the person named decades ago instead of the spouse or children.
Absolute Retirement Solutions does not provide tax, legal or estate planning advice or services. Always consult with qualified advisors concerning your own situation.