An estate plan is a critical document for all adults. While most recognize that failing to have one in place and never updating it are two major errors, they may not realize that there are other mistakes they can make when they create the plan.
Be sure you avoid these three estate planning errors when you’re creating your estate plan.
1. Naming investments
Including specific investments in the estate plan can create unintended consequences. For example, failing to update the estate plan if you sell a specific asset could lead to costly transactions to try to fulfill the plan as stated if the estate has to purchase assets. It is generally better to designate assets based on their overall value rather than specific investments.
2. Selling assets to heirs for close to nothing
Never sell assets to family members for less than fair market value. While this may seem like a way to transfer assets to your heirs while minimizing taxes, it can trigger gift tax and capital gains tax consequences. Additionally, if you sell assets to heirs for less than fair market value, it can create resentment or conflict among family members who feel they did not receive their fair share.
4. Setting unrealistic terms
Don’t create an estate plan with terms that are unrealistic or impractical. For example, you may want to restrict how your heirs use their inheritance or require them to meet certain conditions before receiving their inheritance. This can make it impossible for them to use it as intended, especially if multiple heirs have to agree on usage.
It is important to work with someone to create a plan that is tailored to your unique situation and goals, while also being realistic and legally enforceable.