If you are ready to move forward with creating your estate plan, you will want to have everything in order from the start.
In an effort not to leave anything to chance, here are five common estate planning mistakes and suggestions on how to avoid them.
1. Forgetting about liquidity
Your estate plan calls for liquidity to help divide wealth and pay debts after your death. If you are passing along the family business, sufficient liquidity also ensures your heirs can continue to operate the business. Life insurance will provide the liquidity you need for these goals.
2. Not planning for long-term care
Currently, a private room in a nursing facility runs more than $100,000 per year. The salary for a caregiver who comes to your home is more than $50,000 per year. Do not forget to plan for disability and long-term care. Look into long-term care insurance as soon as you can because the cost increases every year.
3. Ignoring tax implications
Inherited IRAs and 401(k)s are subject to required minimum distributions (RMDs), which could complicate the tax picture for beneficiaries. To aid your heirs, consider converting your retirement account to a Roth IRA during your lifetime since Roth distributions are generally non-taxable.
4. Overlooking care of minors
Your estate plan must ensure the care of minor children in the event you and your spouse suffer a sudden death. You must designate a guardian for minor children in your will. At the same time, provide instructions about the use of money to support the children. A life insurance policy can provide the funds for this purpose.
5. Failing to update
Remember that major changes in life happen, everything from a divorce and remarriage to the birth of a child. It is a good idea to review and update your estate plan every three to five years.