Estate planning mistakes usually arise due to a lack of information. Did you know that over 40% of Australians die without a will? What they leave behind is often chaos that their loved ones must clean up. Family conflict, confusion and mistakes arise when people aren’t sure what the deceased wanted, and particularly if they don’t know the legal requirements that surround the administration of an estate.
To avoid this, don’t make these common estate planning mistakes.
12 Common Estate Planning Mistakes
Failing to Update Your Will
It’s great that you have a will. Wills are written based on assumptions regarding finances, the ownership of certain assets at a point in time, the health of persons identified to assist you and composition of the family. But we know that things change. Your life circumstances are likely to chance. You may get married, divorced, re-married, have more children, and buy and sell major assets. Each time this happens, you should update your will to reflect your change in circumstances.
Let’s say that when you make your will, you leave everything to your spouse, confident that he or she will eventually bequeath what’s left of your estate to the children you’ve had together. Years later you get divorced but neglect to update your will. As a result, your estate may not go to your children from your first marriage, who by this time may be grown and have children of their own (who might be deserving beneficiaries themselves).
Thinking That Estate Planning Is Only For The Wealthy
Somehow many of us believe that estate planning is reserved for rich people. But it’s for anyone who wants to know what’s going to happen to their end-of-life medical care, assets, children or general private affairs if they become incapacitated or die.
In addition to determining what will happen to your money or property after you die, estate planning also includes tasks like setting up a power of attorney and advance health directive, deciding on a guardian for your minor children, or preplanning funeral arrangements. If you’re not clearly stating your directives in these areas, you may be leaving too much power in the hands of the courts or the state.
Believing You Can Cut Someone Out Of Your Will
It may be the final act of revenge, but the truth is that the law casts a moral obligation upon a willmaker to adequately provide for immediate family members. A spouse or beneficiary who has not been adequately provided for in a will could make a claim on your estate. Whether this claim is successful depends on the size of your estate, the degree of dependency on you and consideration of others to whom you have a financial or moral responsibility.
[Tweet “Failing to update your will is one of the more common estate planning mistakes.”]
Failing To Consider Your Superannuation
Your will cannot deal with your superannuation, and you will need to make plans separately for this asset. The distribution of superannuation funds will depend on the terms of the fund, legislation or the trustee of the fund. It may be necessary to prepare a binding death benefit nomination to ensure that an individual’s wishes in relation to their superannuation are achieved. When planning for your family’s future, superannuation should not be forgotten as part of the process and neither should superannuation planning be done in isolation.
Believing That People Will ‘Do The Right Thing’
Many individuals believe their beneficiaries will not fight after their death and accept their wishes as sacrosanct. In our experience, this doesn’t happen. It often doesn’t take long for conflict to erupt, particularly if there is a perception of injustice.
It’s always difficult to predict which families will get along and which will end up in court fighting over mother’s heirloom china. Leaving an estate plan with clear instructions is your best defense against family discord.
You may also find yourself in a situation where you’re concerned about a beneficiary. Do your heirs have the financial and emotional capacity to handle the money responsibly? They may be spendthrifts, lack financial knowledge or could have an asset-consuming issue, such as a drug problem or gambling addiction.
Accordingly, you may want to make provisions in your will to protect them from their own worst tendencies by appointing a professional to supervise these assets.
Overlooking The Need For A Trust
Wills only account for divisions of assets upon death, but trusts go on for a set period, usually governing the distribution of assets. A testamentary discretionary trust enables restrictions on the timing of asset distribution and conditions for heirs to receive bequests — such as keeping bequests under the supervision of a pre-appointed trustee until a minor heir turns 18. A trust is more able to deal with complex situations and consider what-if scenarios down the track, offering you more flexibility and certainty over your estate planning.
Failing To Consider the Tax Implications
This situation becomes obvious where people make homemade wills, but don’t understand the complex area of law of wills. Taxes might be payable in some situations, for example capital gains tax becomes payable in the sale or disposal of certain types of property. Failing to plan for this may mean that your beneficiaries end up with far less that you intended.
You Can’t Bequeath Assets You Don’t Own
If you own assets jointly with someone else (such as the way in which many married people buy property), the rights of survivorship means that the asset will go directly to the other joint owner rather than into the estate. Similarly, if you have assets owned by a company, in a partnership or by a trust, then you can’t bequeath these in your will because you don’t own them. Separate arrangements must be made for assets owned by other entities.
[Tweet “Common estate planning mistakes: you can’t bequeath what you don’t own.”]
Making A Poor Choice Of Executor
Naming the wrong person to administer your estate can be disastrous. The chosen appointee must be able to, (a) collect all assets, (b) pay all obligations and (c) distribute the remaining assets to beneficiaries. An executor has a number of legal responsibilities that must be carefully followed. Never appoint a beneficiary as an executor. Such appointments may potentially give rise to conflicts of interest. Never choose someone who is incompetent, unorganized, dishonest or biased to carry out your estate administration.
Neglecting Your Digital Assets
You’ve got a whole online life to think about. These include online bank accounts, PayPal accounts, digital copies of important documents and online purchases.
Then there’s the matter of your social media accounts. Think about what you want to happen to your Facebook, Twitter and LinkedIn accounts after you die. Do you want them deleted? Would you prefer to have them stay up in memoriam?
Making A Homemade Will
“Do it yourself” kits or personally prepared documents may leave your Will with several ambiguities and you may just end up signing a document that is not enforceable. Surprisingly, instances of testators using beneficiaries or their spouses to witness a Will is still commonplace and makes the Will instantly void.
[Tweet “A homemade will is one of the greatest estate planning mistakes you can make.”]
Failing To Prepare for ‘What-If’ Situations
Your situation now is not likely to remain static over the course of your life. You may face divorce, addiction, health problems, bankruptcy, remarriage, and grandchildren.
Blended families are particularly complex when it comes to estate planning. Disputes break out between second spouses and children from first marriages when there’s no clear plan of who is entitled to which assets.
These types of circumstances are also a good reminder that your will is a living, breathing document, which means you can’t just set it and forget it. Deaths, births, divorce, and changes in your financial situation all mean you need to update your will regularly.
You don’t have to make these estate planning mistakes. Seek the advice of a specialist in this area of the law and you’ll have peace of mind that everything is taken care of for you. Contact us today for your free, 10-minute phone consultation.
[aio_button align=”center” animation=”none” color=”gray” size=”medium” icon=”none” text=”Contact Us” relationship=”dofollow” url=”http://www.mitchellsol.com.au/contact/free-consultation/”]