5 Estate-Planning Mistakes That Could Cost Your Family

When it comes to estate planning, most people prefer not to think about it. Even those who have often make mistakes when they start taking action. The good news is that there’s time to make things right. By avoiding these five common mistakes, you can improve your legacy planning.

Estate-Planning Mistake 1: Not Doing Anything

It’s true that most people would rather avoid thinking about dying than make plans for when the inevitable happens. But not doing anything can hurt not only your heirs, but it can also hurt you. No planning means the court decides who makes decisions about your healthcare if you’re incapacitated. It also means your assets could be frozen after you’re gone—and even your spouse might have to wait months or years to get access. Also, the court, not you, decides who inherits your money and property.

If you don’t want that, you need to take action. A valid will ensures that your assets will pass according to your wishes. Unfortunately, it won’t avoid probate, which is lengthy, expensive, and open to the public. If you want your assets to go to people of your choosing and you want to avoid probate, you will need a living trust. Finally, if you want to name a particular person to make medical decisions for you, you’ll need a durable power of attorney for healthcare.

This seemingly daunting list might trigger avoidance again, right? Just see an attorney. They know what you need and can easily walk you through the decision-making.

Estate-Planning Mistake 2: Doing It Yourself

Who wants to spend $2,000 to $5,000 when there are online forms to do it yourself? Well, you know the saying: You get what you pay for. Trying to do it yourself could leave your loved ones in the same situation as if you’d done nothing. Your self-written will might not be legally recognized. Even assuming it is, your heirs will still have to deal with probate.

Estate-Planning Mistake 3: Not Considering Tax Consequences of Bequests

Are you leaving money to charity? Are your kids beneficiaries of your IRAs? If your kids inherit your IRA, they have to pay ordinary tax on everything they take out, and they have to take it all out within 10 years. If they inherit your stocks or your house? The tax basis gets “stepped up” to the date-of-death value, meaning your kids pay no tax if they sell right away. And there’s no requirement for them to do so—not within 10 years or ever. If you leave your IRA to charity, the charity pays no taxes. The moral of the story is to leave “stuff” to your kids and leave IRAs to charity. The exception is Roth IRAs. Although your kids still have to cash in within 10 years, there is no tax.

Estate-Planning Mistake 4: Not Thinking About How Old Your Kids Will Be

You’ve been planning to leave money to your kids so that you can help them through difficult times. Maybe you’re 50 years old, and your kids are 25 and 27. There’s longevity in your family. You plan to live to 90-plus. In 40 years, your kids will be 65 and 67—likely already retired. If you want to make a difference in your kids’ lives when it will really matter, you should consider giving gifts during your lifetime. An inheritance after you’re gone might be better used by your grandchildren.

Estate-Planning Mistake 5: Being Afraid to Make Decisions

Maybe you’re not sure who you want to act as guardians for your children. Or you can’t decide how much to leave your nieces and nephews. Don’t let inertia win! The downside of doing nothing is extreme. Make the best decisions you can right now. Your documents can always be amended later.

As the ad slogan says, “Just do it!” You’ll be glad to check this chore off your list, knowing you’ve protected your loved ones.