Estate planning is a critical task for all adults. An estate plan serves as a formal set of instructions that provide guidance for your loved ones in the event of incapacitation or death. The main goal is dictating who is going to get what when you pass away, but a comprehensive estate plan also addresses other consequential concerns.
One of the biggest mistakes you can make is to completely avoid estate planning. When someone doesn’t have an estate plan in place when they die, their assets are distributed in accordance with the state’s intestacy laws. If you don’t want that to happen, you must make an estate plan. By avoiding the following errors, you can help to ensure that the estate plan you make offers the kinds of protection you may need down the road.
Failing to plan for incapacitation
One of the most common mistakes in estate planning is neglecting to plan for incapacitation. You need to write out an advance directive that outlines your medical care wishes. You also need to designate someone as the power of attorney for medical care and the power of attorney for finances, both of while give the designee the legal right to make decisions on your behalf in the respective area.
Including assets in more than one place in the estate plan
Another frequent error is including assets in more than one place in the estate plan. This often happens when individuals fail to update their estate plans after acquiring new assets or changing their financial circumstances. When the same asset is listed in multiple places, it can lead to conflicts and legal challenges among beneficiaries.
Bypassing gifting limits
Estate planning often includes gifting assets to reduce the taxable estate. However, bypassing gifting limits can trigger significant tax consequences. The IRS imposes annual and lifetime limits on tax-free gifts, and exceeding these limits can result in substantial gift taxes. For 2024, the limit is $18,000 per recipient per year. Gifts above this amount count against the lifetime exemption, which is currently $13.61 million. If you exceed this lifetime limit, you’ll owe gift taxes on the overage.
Ultimately, it’s up to you to ensure that you have a comprehensive estate plan that makes your wishes clear. These plans can be complex, so it’s critical to ensure your plan meets all legal requirements. Seeking legal guidance is a good way to get started.