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Estate planning is hardly the cheeriest of topics. You determine how your money and property will be handled, who will raise any minor children you have, and who will make health care and financial decisions for you in the event of your incapacity or demise.
Yet your estate plan needs to be addressed promptly, properly and periodically. After all, your personal circumstances, health and estate laws change over time. Without a plan, your wishes can’t be honored, and you’re likely to leave your loved ones with a host of problems just as they’re coping with your loss.
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Still, only 34 percent of Americans have created an estate plan, according to research by the financial services firm D.A. Davidson & Co. In the 2022 survey, 37 percent of respondents said they didn’t have one because they felt they didn’t have enough assets to warrant it. Another 32 percent said they hadn’t gotten around to it — which is remarkable, considering that COVID-19 took some 460,000 lives in the U.S. that year.
A complete estate plan is essentially a toolbox that will settle your affairs, lending you peace of mind, says Patrick Simasko, an elder law attorney and financial adviser at Simasko Law in Mount Clemens, Michigan. “Leaving one tool out may seriously impact you and/or your family in the future.” An estate plan should include:
- Last will and testament. You specify what happens to your property and who raises your children.
- Living will. With this document, also known as a health care directive, you designate someone to make your health care wishes known if you can’t communicate them.
- Health care power of attorney. You appoint someone to make health care decisions for you if you’re incapacitated.
- Financial power of attorney. You designate someone to make financial decisions if you can’t do so.
- Living trust. You reserve your assets for your loved ones to avoid delays and expenses with the court, in probate.
Estate planning should be your biggest concern if you are 50 or older, says Dan Serra, a certified financial planner (CFP) at SageVest Wealth Management in McLean, Virginia, who has spent many hours trying to “put the pieces together after a client died.” He recommends seeking professional advice from a financial planner, lawyer and/or tax expert who will consider the details of your life and create an appropriate plan. “Professional advice in this area is well worth the cost to avoid headaches and fighting among children.”
Start 2023 right by creating a new plan or reviewing your current one to reveal potential problems. Following are mistakes that people often make.
1. Plans that are incomplete or in error
Obvious as it may seem, some people don’t have an executed will, or they fail to update a previously executed one when they divorce or go through another life change, says Kevin Brady, a CFP at Wealthspire Advisors LLC, in New York City. “This delays the administration of an estate or leads to heated litigation and acrimony.”
Also, some people assume a plan is complete because an attorney prepared it, says Neal Van Zutphen, a CFP at Intrinsic Wealth Counsel in Tempe, Arizona. One plan he reviewed lacked provisions for the minor children. “Read your estate planning documents before you sign off.”