Michael Jackson. Prince. Sonny Bono. Marilyn Monroe. James Brown. What do these five people have in common?
Well, aside from delighting generations of fans through their legendary performances, they all wound up dying before they could properly get their estates in order.1 In some cases, this resulted in massive lawsuits that went on for years and cost millions of dollars.1 In others, it led to people who had little to do with the artists profiting from their deaths.1 In each case, failure to perform proper estate planning led to big problems.
- What is Estate Planning?
- Why Do I Need Estate Planning?
- What’s in an Estate Plan?
- 6 Mistakes
Estate planning is a process by which a person can manage the distribution of their asset base in the event of their incapacitation or death.2 Common tools in this process are the creation of a living will, a last will and testament, a trust, and appointing an executor to make sure the transition goes smoothly.
If you’re thinking to yourself, “I don’t have Michael Jackson money – why do I need estate planning?” you’re not alone. A 2020 Caring.com study revealed that among people who had not made a will, 30.4% of respondents said they “didn’t have enough assets to leave anyone,” compared to just 21.6% the year before.3
However, there’s a good chance that you might have more depending on you than you realize. In addition to deciding who gets whatever monetary assets you do have, estate planning helps your executors decide things like who becomes the guardian of your children under the age of 18. It determines what happens to your debts. It can even help determine who gets your pets after your death.
If all this sounds complicated, that’s because it is. Dying is easy. Dying with your affairs in order is a lot harder. To help simplify things, eForms has created a handy estate planning checklist with seven important considerations. They are:
- Have proper insurance
- Designate beneficiaries
- Write a living will
- Name powers of attorney
- Make a last will and testament
- Consider a living trust
- Review tax laws4
You can find the complete list with step-by-step instructions here.
Once you’ve completed your estate planning checklist, it’s understandable to want to tuck your documents in a safe location and never have to think about that stuff again. That would be a mistake. Not updating your estate planning to reflect your current assets or relationships could lead to expensive corrections should you pass away suddenly, and is the first on our list of 6 costly estate planning mistakes.
Recently had a kid? Update your will. Changed relationships? Update your will. Sold a major asset that was in your will? Update your will. You don’t want to have your executors go out and buy a 2007 Ford Fiesta because you left it to your ex three relationships ago and forgot to update your documents.
(Yes. They have to do that.)
In fact, there was one case where executors had to spend almost the entire estate repurchasing shares of a stock that the deceased had sold years ago at a much lower price, but left to his beneficiary by name in the will.5
Don’t make that mistake.
Having a trust is not something that applies to everyone. However, if it applies to you, be sure that it is fully funded! Just because the trust has been created and the proper documents have been signed doesn’t mean that the assets automatically switch over to the trust’s ownership. Make sure you take that last necessary step, or all the effort of creating a trust will be for naught.6
You want to carefully consider the person or persons who will oversee your affairs after your death. This person should be close to your family, capable, and most importantly, trustworthy. There have been executors who have just stolen estates from families because they legally could.
As the executor to your estate, the scrupulous person you designate will have numerous responsibilities, including notifying the proper authorities, submitting death certificates, notifying creditors, paying liabilities, consulting family members and dispersing assets.7 Designate a representative who you feel will handle those responsibilities capably and with your best wishes at heart. Then, find an alternate and designate them as a backup — just in case.
A residuary clause is a line in a will that determines the fate of all other assets not explicitly given out in the will.8 Simple little thing, right? Well, it can lead to huge complications if it’s not properly filled out — especially if those “not specified” items wind up being contested in court.6 It’s best to have a catch-all and make sure a residuary clause is properly filled out in your will.
5. Don’t wait until you die to share parts of your estate with your loved ones (but be sure to review tax laws for your state first!)
Let’s say you have a nice little nest egg for your dependents, and you want to make sure they get the most benefit out of it. Depending on the regulations for where you live, it might make more sense not to wait until you die to chip off some of that inheritance.
You can give up to $15,000 as a gift without it being taxed PER YEAR (and per person). Any excess of the $15,000 goes toward the lifetime gift tax exemption which is $11.58 million, and you pay taxes on the excess of $11.58 million.9 That’s a lot of generosity! Not only will your dependents enjoy that money without the liability of inheritance taxes, but they’ll also get to spend it while you’re still alive, which is a great way to get to live to see the fruits of your labor help your beneficiaries succeed.
Not planning is by far the most common mistake that people make when estate planning.10 It’s hard to face the thought of your own mortality. There are a million excuses that immediately flood the mind to help avoid thinking about it (“I’m healthy!” “It’s complicated.” “I’m young.” “I’m not dying this weekend – let’s do it next weekend.”)
Life is busy, especially if you have a life full of people who depend on you. But ask yourself — what they’ll do if you’re suddenly not there? How will they know what you wanted? Will they know how to find the things you’ve spent so many hours working to provide for them? Will there be someone to care for them? Who is that person?
If you don’t have answers to those questions, that’s a much bigger mistake than the ones you’ve spent the last few minutes reading about. Take a few more minutes and go through this checklist. Your loved ones will be glad you did.