9 mistakes people make when estate planning.
Estate planning is a difficult task to tackle. We might procrastinate a little too long and leave our loved ones without the information they need during a stressful and difficult time. But no one that should be rushed into completing an estate plan.
In an ideal world, we would live long, healthy lives with just enough warning of our impending passing to get our affairs in order. In reality, many of us won’t get that chance. We could die unexpectedly, or an illness or disability could rob us of the ability to make decisions for ourselves. Watch for these common mistakes.
Mistake 1: Not having a plan
Think estate planning is for the wealthy or someone older than you are? We all need an estate plan regardless of our age, marital status or financial status. Clearly stating your wishes in how our assets are divvied up can save your family a lot of confusion and disagreement.
There’s no one right way for everyone to plan their estate, but experts do agree on one thing: we should make the decisions while we are able to do so. We know it isn’t an easy thing to do, but it’s better for everyone to have a plan in place.
Mistake 2: Being disorganized
Organization can make a big difference when someone has to step in and handle your finances or estate. Do your heirs know which lawyer or accountant you work with? Can they find a copy of your will? Do they know how to find information about your insurance policies, investments and bank accounts?
You don’t have to give away this information right now. A net worth statement outlining your assets, debts and expenses can go a long way to help.
What happens if you die without a will? (A status known as “intestate”.) The law gets to decide how much of your assets go to which parties — namely spouses and blood relatives. The defaults may not work for you, especially if you have a blended family. Things get even stickier if your heirs don’t live in the same province you do.
Mistake 3: Thinking all you need is a will
A will is important, but it doesn’t cover things such as accounts to which you designate a beneficiary, jointly owned properties or businesses, and joint bank accounts. Wills don’t tell you how much in capital gains tax your estate may pay — or how this tax will be paid. Look at the “big picture” and tend to other aspects of our finances. For example, we should designate beneficiaries for things like our RRSPs and pension benefits (if applicable), and make sure we have adequate life insurance.
Mistake 4: Choosing the wrong executor
Many people choose someone who is close to them to handle the matter of settling their estate — despite the fact that most people have no experience in this area. Treat it as a job.
What should we look for in a good executor? Not only does this person need to outlive us, good communications skills, knowledge and the time are assets. If you’re naming more than one executor, make sure they can work well together.
You can pay a third party such as a lawyer or accountant to handle the task, but many people avoid these fees by appointing a friend or family member.
Mistake 5: Not having a Power of Attorney or Personal directive
What about your health or finances while you are still alive? The time to think about a power of attorney, personal directive is while you are still able to make these decisions yourself. Chances are you’ll need one before you need an executor.
How far should doctors go with life-saving measures, and who should make decisions about your care if you aren’t able to? These steps help ensure your wishes are followed, and they can ease the decision-making burden placed on your loved ones.
Mistake 6: Tying up all your cash
It’s smart to keep some assets liquid to cover those “final expenses” such as a funeral and disposal of your remains. Cash from investments, properties and insurance policies doesn’t become available immediately upon your death.
Mistake 7: Automatically leaving everything to your spouse
For many people, it makes sense to leave their entire estate to their spouse so he or she is provided for. Many assume the spouse will then pass on all of the assets to their children. However, it doesn’t always happen that way. A spouse could remarry and the assets might go to their new family.
You may want to set up a small trust for your grandchildren. Examples could be, education or give cash gifts while you’re still alive in lieu of an inheritance
Mistake 8: Assuming lawyers are always right or Steering clear of lawyers altogether
We turn to lawyers because they have expertise we don’t — but that doesn’t mean we shouldn’t be informed decision makers. Experts advise to read through drafts of any documents and check for errors. Don’t be baffled by “legalese” — if there’s something you don’t understand, ask for an explanation or clarification.
Unless you happen to be a lawyer, chances are you’re going to need some help beyond a notary. A lawyer can explain your options, make sure you’ve covered every aspect of the planning and help get the paperwork in order. Laws and policies may differ depending on where we live, so general self-help advice doesn’t always apply.
Even if you do most of the planning your advisor, experts suggest having someone with the right expertise look over the documents.
Mistake 9: Not reviewing your plan
Circumstances change, and so should our estate plans. Revisiting your plan every few years — especially when there is a major life event such as marriage, divorce, the death of a spouse or family member, or a new child. You might want to change your will to include your blended family or change the beneficiary on your accounts from your parents to your adult children when they reach a certain age.
Of course, change isn’t just about you and your family — experts also warn that changes to legislation and tax laws should prompt a review as well.