Why You Need an Estate Plan

A toy house on top of a white calculator

One of the most common financial myths is that estate planning is only relevant for individuals and families with high net worth. In reality, nothing could be farther from the truth. Everyone needs an estate plan, even if the estate is a modest one.

Estate planning is a complex area with a simple goal: to ensure that your assets go to those you choose after your passing and that the transfer is timely and cost-effective. Without an estate plan in place, your desired beneficiaries may not actually receive what you intended for them.

Creating a sound estate plan involves CPAs and attorneys working in conjunction. Together, you and your estate planning team will review your overall financial picture, family and health considerations, how your various assets are titled and your goals for distributing your assets after your death. The financial professionals then help you establish clear steps to meet those goals, while the attorneys on your team will draw up and file the necessary legal documents.

Unfortunately, many people make mistakes surrounding estate planning. This often results in a lengthy or expensive probate process or, in the worst case, a situation where the assets cannot be distributed in accordance with the estate holder’s wishes. To avoid these undesirable outcomes, be sure that you don’t make any of these common estate planning mistakes:

  • Hiding your head in the sand. Hoping you’ll live forever isn’t realistic. By choosing not to have an estate plan, you’re leaving your family to sort everything out while they cope with an already difficult situation. Your assets will pass according to state law, which may not align with your goals, and a lengthy (and potentially expensive) probate period is almost inevitable.
  • Using do-it-yourself legal documents. These helpful forms are easily available and low-cost or free. However, they often fail to be accepted as valid under state law. Going this route won’t necessarily result in the distribution of assets you plan and can end up costing more in the long run than a professionally prepared estate plan.
  • Failing to update ownership of accounts. Even a carefully considered and properly filed estate plan won’t work as intended if the accounts are titled incorrectly. For example, a revocable trust can only be distributed as the estate plan specifies if the name on bank and investment accounts matches the trust name. Having all assets and accounts in your own name will also require the estate to go through probate. Consider adding a Payable on Death (POD) designation to some or all accounts.
  • Failing to review and update documents and beneficiaries. When circumstances change, it’s important to update beneficiary designations on retirement accounts and insurance policies. Do you really want that 401(k), house or life insurance payout going to an ex-spouse? It can happen if you don’t make your changes official. Review all wills, trusts and beneficiary designations periodically to ensure they still meet your goals.
  • Not communicating your plan. Having a plan in place is a great start, but don’t forget to share your plan with heirs and trustees or executors. It isn’t necessary to go over every detail unless you want to; the basics will be sufficient. The appropriate amount of communication depends on your stage of life, age, health and personal preference.

Once your plan is drafted and filed, remember that you can still change your mind. Always reach out to your planning team when questions arise or circumstances change so they can update or amend documents. The most recent version of your estate plan is the one that will govern how your assets pass.

Taking the time to create an estate plan reduces the risk of difficulties for those who will be in charge of implementing it and helps ensure your plan can be carried out as you envision. Nobody likes thinking about their own mortality, but this aspect of your financial life is too important to skip. The professionals at HBP understand the many emotional and financial issues surrounding estate planning, and we’re here to help you create a fully customized and tax-effective estate plan you can feel good about.