Regardless of whether or not you have a formalized estate plan, you probably know it’s a good idea to have one.
The basic estate documents (like a Will, Living Will, Durable Power of Attorney, and Healthcare Durable Power of Attorney) help you form a plan for how you’d like your personal affairs handled in the event of death or incapacity. If you have a more complex estate, Trusts and business entities may enter the planning picture.
Currently, estates with a value of $11.2 million (or $22.4 million for married couples) will not face an estate tax, which allows the majority of families to pass their wealth from one generation to the next without the concern of a massive tax hit. Keep in mind, however, that the estate tax exemption amount has varied over time. Planning may need to take place in the future to avoid the estate tax.
Some states have their own estate tax, which may cause more estates to be taxable at a lower value.
Working with an experienced attorney in your state is critical in making sure you are protecting yourself (and your family) to the best of your ability. The problem is, no matter how good of an estate plan you put together, your estate can be mishandled due to one common issue:
Lack of communication.
Even with a well thought-out estate plan, if it is not communicated to the heirs, problems will (most likely) arise. Litigation costs can cost hundreds of thousands of dollars and last for years on end. If family members are caught off guard, it won’t end well.
The most common issues are when assets aren’t divided equally among children, or one individual is chosen as the executor of the estate over another. In families that have had children in previous marriages, accidentally disinheriting someone is also a common issue.
If lawsuits have to be filed in order to “make things right”, no one wins in the end. Relationships are weakened and the estate will most likely be footing the bill.
In order to avoid these estate planning pitfalls that go beyond the scope of actually completing your documents, take these few steps:
Review your estate plan with your attorney and/or financial planner on a regular basis.
If you are a parent, include your kids in the discussion about how you plan to have your estate distributed at your death.
If you have parents that are still alive, engage them in a discussion about how they would like their estate distributed.
The best way to have these conversations is with everyone present, perhaps during a formal “family meeting” on an annual basis. This gives everyone the opportunity to express their opinion and openly discuss differences. Any issues that arise are better addressed today rather than when it’s too late.