Your primary focus is on enjoying the life you have today and the life you want in the future. That’s why end-of-life planning can be the most challenging part when you start putting elements in place toward your financial wellbeing.
It may be difficult to fathom now, but estate planning can be a critical step in ensuring your loved ones’ futures. How can you ensure they are set up for success and avoid common mistakes that can put a wrench in their plans and yours?
#1: Putting it off
Because you cannot see the immediate payoff to estate planning, it’s easy to procrastinate on this step of your overall financial wellbeing.
Unfortunately, no one is invincible, and not one of us can accurately predict what our health will look like from one day to the next. Yet, according to a recent survey, 2/3 people in the U.S. do not have a will. This is an important step for anyone—especially those with dependents.
As the saying goes: “Don’t put off until tomorrow what you can do today.” No matter your income, any time is a good time to get started.
#2: Not having a full plan in place
Many people think estate planning is just about having a will in place. But not all assets pass to your heirs through your will. For instance, retirement accounts (such as an IRA or 401k), insurance policies, and other assets rely on beneficiary designations to determine who receives these assets at your passing. You will want to coordinate your estate plan with your beneficiary designations.
You also want to coordinate your estate planning goals with your current goals. If you feel comfortable that you have enough assets to last for your lifetime, you may want to think about gifting to loved ones or charity while you are still alive to see them enjoy that gift.
#3: Not planning for tax impacts
Different assets have different tax implications for your heirs, and that may impact who you want to leave certain accounts to. For instance, if you are charitably inclined, it often is more beneficial to leave IRA assets (rather than Roth IRA or taxable accounts) to a charity that can receive the IRA assets tax-free.
If your estate is over a certain size, you may also be subject to federal or state estate tax. Attorneys can help you plan around this and find ways to reduce your estate to minimize these taxes.
#4: Failing to plan for the unexpected
A good estate plan makes the toughest decisions for your family a little easier. Your estate plan should designate the right people for important jobs that make it easier to move forward should you be unable to make decisions yourself.
Who will make medical decisions if you become incapacitated? You’ll need a Power of Attorney when it comes to your health and your finances. Who can access your accounts and pay your bills?
After you pass, your loved ones may be left with unexpected costs. Your estate plan should have liquidity, which can help address things such as:
- Medical and funeral costs
- Loan debt
- Executor fees
#5: Forgetting to review your plan
An estate plan should not be a “set-it-and-forget-it” document. Goals can change over time, as can charitable giving priorities. Public policy can affect tax laws and greatly affect your estate plan.
New family members are born or marry in, while divorce and loss can shift family dynamics and finances in unexpected ways. Those family members who may be unable to deal with a large amount of money at once, such as adolescents or anyone struggling with addiction, may require a trust for their inheritances.
In any case, it’s important to periodically review your plan to ensure it’s as accurate and up-to-date as possible. This is something you can review with both an estate attorney and a financial planner, who can make sure your estate plan ties back to long-term goals.
Contact the team at Team Hewins to learn how your financial plan and estate planning go hand-in-hand. Speak to one of our CFP® professionals to get started.
Team Hewins, LLC (“Team Hewins”) is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.