Creating an estate plan is something anyone can do at any age—and should.
Perhaps you have the basics in place, such as a will and a medical directive, and are ready for other tools. Of course, you may also be starting from scratch. Regardless, here are five mistakes to avoid.
1. Not planning for minors
If you already have a will, does it include instructions for the care of your children if you and your spouse suddenly die? Make sure you name a guardian and provide instructions regarding financial support for your children. Life insurance will provide the funds.
2. Passing up the need for liquidity
Asset liquidity is essential if you plan to divide your estate among your children. Once again, life insurance will provide the cash to help in paying off your debts and dividing wealth among your heirs.
3. Forgetting about income taxes
Your heirs may have to pay income tax on certain assets they receive, such as the proceeds from an IRA. However, during your lifetime, you can convert a traditional IRA to a Roth IRA and your beneficiary will not have to pay taxes upon withdrawal. Your attorney or financial adviser can tell you more.
4. Failing to plan for long-term care
The majority of people over the age of 65 require long-term care. A private room in a nursing facility runs over $100,000 per year and a home caregiver may cost $50,000 or more annually. Explore long-term care insurance as soon as possible since the cost continues to rise.
5. Not updating
Remember that major changes in life will affect your estate plan. For example, if another grandchild arrives, one of your beneficiaries dies or a substantial inheritance comes your way, you will need to make adjustments. Plan on updating your documents every three to five years.