A basic estate plan benefits more than just the retired and the wealthy. “This is the only way to ensure your kids will be taken under the wing of the people you want to, in the event you are no longer with them,” says Phelps. However, 78 percent of millennials don’t think about this.
Here are five common estate planning mistakes and how to avoid them:
1. Putting off naming a legal guardian for minor children
If something happens to both parents and they never named the person they want to take custody of their young children in a will, the decision will be left up the government.
As Phelps observes, “This scenario can be avoided by simply identifying the person you want to finish raising your children in a valid will. Naming the person who will love and nurture your children instead of letting the government make that decision for you may possibly be the single most important thing you can do to protect your children should something happen to both parents.”
2. Thinking a will is enough
After someone dies, their original will needs to be filed with the court and judged to be authentic and valid under state law. This process is called probate and it means that the heirs will have to rely on a judge to oversee the administration of the estate within the court system.
“This process takes a lot of time and you find yourself at the mercy of the court. It is also costly and can create family conflict,” says Phelps. “I strongly recommend to my clients to transfer their property to a revocable living trust, which will keep their estate out of court. It is easy to do and you won’t have to file an additional tax return for your trust,” says Phelps.
3. Failing to fund the trust
Your home, bank accounts and other property need to be transferred to your trust to avoid probate. Phelps says that “This is one of the most common mistakes we see when a new client comes to us with an existing trust. So often, estate planning attorneys fail to follow up with their clients to make sure all eligible property is transferred to the trust.”
4. Incorrect life insurance beneficiary designations
Most people don’t realize that when minor children are named as beneficiaries of your life insurance policy and something happens to you, the insurance company will require court supervision of the life insurance money until your child is 18.
Phelps says that “This can be avoided by simply filling out a change of beneficiary form provided by the life insurance company and designating your trust as the beneficiary of the life insurance policy.”
5. Not transferring our values with our money
There are many stories of lottery winners, Hollywood stars and heirs to fortunes ruining their lives after coming into a large sum of money. The way children use the money left by their parents (including life insurance money) can have a great impact on who they ultimately become. Ignoring this can have unintended negative consequences and create dysfunction.
“Sometimes, clients say they don’t care what their kids do with the money when they are gone. As we talk more about this, however, the client comes to realize that they do care what their children become as a result of the way they use the parent’s money,” says Phelps.
Phelps concludes that “Squandered wealth and ruined lives are a choice, not an eventuality. With proper value-transfer planning, this cycle can be avoided. We provide a Letter of Wishes and other resources with our estate plans to help clients pass on their values to their loved ones and future generations.”
Estate planning attorney Kent Phelps is Founder of EstateplanningUS, a company which provides access to quality, affordable estate planning services for everyone without sacrificing the help of an attorney.