Avoiding Estate Planning Pitfalls

Shallon Weis |

The importance of estate planning isn’t lost on average Americans. We know the basics of estate planning and we likely incorporate significant practices to ensure our legacy lives on long after we’re gone.

While there are smart Estate Planning checklists to follow, investors still make common mistakes that can be costly. At Bradford Financial Center, we see clients who have completed plans so long ago that important details are out of date and the tax laws have changed that affect the tax implications of their estate plan.

We’ll outline for you the common mistakes of estate planning we see below. It’s recommended, however, that you review your plan with a professional financial planner who can guide you on the right steps, the documents, and the best ways to preserve more of your assets for the next generation.

Inventorying Your Assets

It’s an unfortunate situation when estate plans are out of date and important items, collections, or other acquired personal possessions that were added in recent years are not included in the overall estate plan. We recommend our clients revisit their estate plans every few years.

At that time re-evaluate your more recent acquisitions (home, properties, vehicles, or additions to a collection whether, coins, art, or otherwise) or when situations change (new grandchildren arrive, divorces, marriages, health issues arise). When considering these items, include the valuation of all new tangible and intangible assets.

Your financial planning professional can help you fold these items in and update your plan. 

Assigning Beneficiaries

The fact is life is ever-changing. What you planned five years ago may look dramatically different today. We recommend our clients review and update beneficiaries every year as a part of their January tax preparation and financial planning habits.

The biggest estate planning pitfall is not assigning beneficiaries or contingent beneficiaries. Beneficiaries are those who will receive your assets in the event you or your spouse are deceased. Be sure to update this across all financial assets and insurance policy documents.

Who Manages What?

An estate plan can have various directives that manage various areas depending on your situation. Work to understand the full capacity of this individual’s role in your finances and what the implications of not having this role assigned can mean to how your estate is doled out. A pitfall is overlooking the designation of these roles and it can mean your assets are not distributed how you wished or that your financial and medical needs are not being managed in your best interests.

  • Trust

Some clients opt to set up a living trust which allows them to designate the appropriation of their property and/or assets and avoid having your estate pass through the court process (called probate) and allowing the courts to decide how it will be distributed. A trustee is normally assigned. This designated role manages the transfer of your assets under the trust as you designated.

  • Designating a Durable Healthcare Power of Attorney

Many don’t realize that when designating a Durable Power of Attorney, you need to have one for financial affairs and one for health care. This important role can make the medical decisions for you when you can’t. For instance, based on your desires, you may wish to end care if your doctors see no viability, or your life can not be maintained without life support. This durable power of attorney can be instructed to make this decision on your behalf.

  • Designating a Durable Power of Attorney

If you’re medically unable to manage your legal or financial affairs, designating a Durable Power of Attorney within your estate planning document allows them to act on your behalf. The benefit of designating this role is that you can rest easy knowing taxes, bills and other asset management for your affairs are being cared for in your estate’s best interest. This Durable Power of Attorney allows for seamless continuation of taking care of business. For example, taxes are due April 15 and your Power of Attorney can sign the returns on your behalf should you not be able to carry out that task.

  • Limited Power of Attorney

Concerned about giving up too much control? Some of our clients designate a limited power of attorney for handling limited items like selling assets or signing certain, specified documents on your behalf. For instance, you may wish to have your farm managed by a specially designated person or company and not the rest of your estate.

Gifting, Estate & Inheritance Taxes

It’s a rewarding feeling knowing you have something of significance to leave to your loved ones. The accomplishment of hard work being passed on is a wonderful gift. But your children and spouse need to understand what the inheritance can mean to their own taxable income.

As tax policies change, this tax can also be affected. Check with your financial planner to best understand the implications your beneficiaries will experience upon the transfer of wealth.

“We advise clients that the first step is to have the meeting with your children,” says Jim Tausz, President of Bradford Financial Center. “The more they know, the better they can prepare on their end for the acquired wealth.”

As you were building your wealth, you worked hard to be successful and a good steward. To make sure all the hard work is protected, make sure your estate plan is organized to carry on with your legacy.