Estate planning requires you to plan for the unexpected and be proactive. Many people ignore this until it is too late. This unwillingness to confront reality can often lead to severe hardship, expense, and trauma for the loved ones you leave behind.
The recent rise of online estate planning services such as LegalZoom®, Rocket Lawyer®, and Trustandwill.com may have led you to believe that estate planning is an easy DIY affair. It involves only filling in the appropriate legal forms. Proper estate planning involves more than just filling out forms.
You will likely make mistakes when you create a DIY trust or will if you don’t have a good understanding of the legal process in the event of your death or incapacitation. These mistakes will not be found until your death, and the people you want to protect will have to clean up the mess you made to save money.
Estate planning is not something that can be done in a single way. Although you may think your situation is straightforward, it turns out that this is seldom the case. In part one, we highlighted the first five errors of estate planning. Now we will wrap up the list with five more.
6. Not Updating Beneficiary Designations
You should review and update your core estate planning documents, such as your will, trust, and power of attorney. It is also important to update your documentation for other assets, particularly those with beneficiary designations. You cannot transfer your most valuable assets via a trust or will, such as 401(k), IRAs, and life insurance policies.
These assets come with beneficiary designations, which allow you to name the person or persons you would like to inherit the asset. People often forget to update their beneficiary designations to meet their estate planning goals. This can lead to financial disaster. If you remarry and fail to update your 401k, your ex-spouse could inherit your retirement savings.
Some people also assume that because they have named a specific heir as the beneficiary of their IRA in a will or trust, there is no need to name the same person as the beneficiary again in their IRA paperwork. They leave the IRA beneficiary forms blank and list “my estate” as the beneficiary. This huge mistake could lead to costly complications for you and your loved ones.
It doesn’t matter who is named as the beneficiary of your trust or will; the beneficiary designation must be made by the person you wish to inherit the asset. Otherwise, your heirs must apply to the court for the asset.