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Estate planning oversights and mistakes

Estate planning often requires a lot of careful reflection, calculation, and communication. Along the way, there is room for various mistakes. Here we will look at a handful of examples.

The most basic mistake in estate planning is to fail to do anything at all, even setting up a will. Sometimes people choose to forego a will, thinking that things will get sorted out in the end. That is true to some extent, as state law provides default rules about how to distribute assets in the absence of a will. Intestate succession rules are a sort of one-size-fits-all system that will probably not work perfectly for most people. Without a will, a probate judge will determine who will serve as guardian for any children and who will serve as your personal representative. These decisions are much better made by you than by default rules and a judge.

Another mistake that is sometimes made in estate planning is to name an estate as beneficiary on life insurance plans, qualified retirement plans and annuities. Many folks do this thinking they will change it later. If they fail to do so, however, the assets may end up going through probate and incurring related costs. Creditors will also have the opportunity to lay claim on those assets. In addition, if the will is successfully challenged, assets may end up going to unintended heirs. A much better practice is to name persons as beneficiaries right off the bat. These designations can be updated when appropriate.

Many people are aware that having an attorney at one's side is very important in setting up an optimal estate plan. Some folks make the mistake, though, of taking advice from nonprofessionals or internet websites run by individuals who are either nonprofessionals or do not know your particular situation. It is important to meet in person with professionals who are competent on the various aspects of estate planning. Those professionals include an attorney for legal matters, a certified public accountant for tax issues, and a financial planner for financial strategies.

Another mistake is to withhold information from the attorney assisting you with your estate plan. Whether it is unpleasant family details, children conceived by an affair, or embarrassing details regarding your financial situation, it is important to communicate them to your attorney. Doing so is the only way an optimal plan can be drafted.

One final mistake to mention is failing to understand your estate plan. Sometimes estate plans can become complex. Ask your attorney to explain every detail to you. Doing so will help you understand how or if the plan will help you achieve your goals.

Source: Cincinnati.com, "Insurance: 6 estate planning flaws to avoid," J. Brendan Ryan, Sep, 2011.

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