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Avoid common estate planning mistakes

By Greg Bonney on Thursday, July 22nd 2010

At first glance, estate planning can seem like an unpleasant task. It requires people to plan for their own, inevitable death. But viewing estate planning instead as insurance, as a way to provide for your loved ones for years to come, can help — both as motivation to do it and to do it right.

The most common estate planning mistake is having no plan. Over 40 percent of Americans age 45 or older do not have a will, according to an AARP survey. Some don’t bother because they’re satisfied the legal system will see their assets are divided fairly among survivors. Others think they can’t afford it. And others don’t believe their estate is sizable enough to matter.

Many Americans are surprised to learn the real value of their assets. Home equity, retirement accounts and insurance policies alone can equal a sizable estate, and advance planning can be an affordable way to protect it — especially if you work with an attorney who concentrates in the area of estate planning. Experienced estate planning attorneys have worked with a variety of clients and scenarios and have the expertise to help you develop an estate plan that meets your goals and objectives.

Without a will, the state decides who cares for your children, who handles your estate and how your assets will be distributed — potentially leaving certain loved ones or favorite charities with nothing.

Another common estate planning mistake is failing to coordinate beneficiary and account ownership designations with wills or other estate planning documents. These designations "trump" wills and other documents, so if your will dictates that your children are to get certain assets at certain ages but you name your children as beneficiaries on a life insurance policy, your children will get their entire portion of the life insurance proceeds at the age of 18. Consistency between beneficiary designations and will provisions can assure your estate is distributed according to your wishes.

Coordinating beneficiaries is also important for estate and income tax reasons. Unnecessary taxes may be owed if beneficiaries are not correctly named on retirement accounts and life insurance policies.

The third most-common estate planning mistake is failing to revisit your plan. Estate planning is not a one-time event where you do it and it’s done forever. Any life-changing event — the birth of a child, death of a spouse, divorce, remarriage, retirement, etc. — should prompt a review of your plan.

You should also review your plan if you have aging parents named as beneficiaries, if the guardians you have designated for your children divorce, move away or die, or when tax laws change.

Absent these kinds of circumstances, it’s a good idea to review your plan every five to seven years. When you do, be sure that all your professional advisors — accountant, financial advisor and attorney — are on the same page. Often, your tax preparer is in a good position to coordinate communication among your advisors because he or she sees you at least annually.

The initial planning and periodic reviews require a little extra time and thought, but the effort will help you avoid mistakes and assure your wishes concerning your assets and loved ones are realized. 

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