Creating an estate plan helps protects your assets and ensures your heirs are cared for after you are gone. An estate plan provides peace of mind, and it prevents your family from wading through messy court proceedings.
However, you need to do more than just create estate plan documents, or your estate plan may not do what you set out for it to do. Here are some estate planning mistakes to avoid.
According to Forbes, a common estate plan failure occurs when heirs are not prepared to take financial responsibility of their inheritance. This can occur if children have not been taught how to manage money or property. Heirs may also lack the emotional maturity to handle money, particularly if you have a large estate you are passing on.
Teach your children how to manage money
One way to prevent this failure is to teach your children how to manage money early. You could have your children meet with financial advisors to improve their financial literacy. Or you could teach them to manage money by providing an allowance and teaching them how to budget.
Protect their inheritance through a trust
If you know your heirs are not great with money, you could also create a trust. With a trust, you appoint a trustee who can distribute funds as you direct. You can have the trustee disperse money on an annual basis, or however you think best to prevent money mismanagement.
Let your wishes be known
You also need to communicate with your children about your estate. If they have no idea that they will be inheriting a large amount of money, they may be unprepared to handle it. Knowing about the inheritance before may encourage your children to educate themselves about money management.
Telling your children how you plan to distribute money could also prevent family discord that could lead to litigation. It will give you time to discuss their questions or concerns, so you can explain why you choose to divide your estate that way. Since your wishes are known, it will also prevent anyone from questioning the validity of the estate plan documents.
Fund your trust
Another common estate planning error is not completing or updating your estate plan. If you create a trust, you need to transfer the assets to the trust. If the property is not transferred to the trust, then the trust is not funded, and everything goes through probate instead.
Let your family know about health care directives
If you designate someone with power of attorney or create other health care directives, you need to let that person know about these documents. These directives will not do any good if no one knows the documents exist.
Do not forget to update your estate plan
After you create your estate plan, you may also need to update it. You may buy a new house, have a new grandchild or maybe there is a change in law that affects your estate plan. Review your plans every few years or if you know a major change will impact it.
Creating an estate plan is an important step. However, you need to let your family know about your wishes and prepare any heirs that may be inheriting a large sum. You also may need to update your estate plans and make sure fund any trusts you create. Doing these things helps ensure your estate plan will provide effectively for your family.