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Estate planning is a big step. It is a sign of maturity and shows understanding of the nature of life. At some point, we are all going to die. In establishing your estate plan, it is important to be mindful of the common mistakes that people make. These mistakes can happen early or they can happen after you have completed the process. The purpose of this blog is to help remind you of some the common mistakes Arizonans make when establishing their estate plan.
Now, each state has their own laws that pertain to estate planning, but there are some similarities in the mistakes that people tend to make. In Arizona, the most common mistakes tend to fall into one of four categories:
Common Arizona Estate Planning Mistakes:
Lack of Understanding About the Estate Planning Process
This is one of the most common mistakes people make. Many people just listen to their CPA and estate planning attorney and go along with what they say. It is important that you ask questions and research and educate yourself on basic estate planning principals. The effect of this will be to provide you with a greater understanding, and appreciation, for the work that your estate planning and wealth management team are doing for you and your family. It will also help to provide you with peace of mind that you understand what you have done and why you are doing it. This will make the whole process much more enjoyable..
Failing to Fund Revocable Trusts
Failing to fund a Trust is one of the biggest mistakes you can make. One of the main requirements for a Revocable Trust in Arizona is a "trust corpus" or Trust assets. If there are no assets, there is nothing for the Trustee to manage and oversee. The end result: there is no Trust. This means that the Trust will fail as a matter of law and the assets you intended to pass through the Trust rather than through Probate, may end up in Probate after all.
Failing to Coordinate Between Trusts and Retirement Plans
Failing to coordinate between Trusts and retirement accounts is a common estate planning mistake, and can create major headaches. The most common misstep people make is failing to utilize the proper beneficiary language in the Trust. This happens when designating the Trust as the beneficiary of a retirement account. Failing to use the right language in the Trust may have the effect of accelerating the taxes on the IRA. Make sure that you speak with an attorney about the type of trust you are establishing to ensure that the proper language is used to allow you to continue to defer taxation on that account.
Failing to Update Powers of Attorney and Beneficiary Designations
This is by far the most common estate planning mistake. Failing to update beneficiary designations can create any number of problems. Major life changes such as divorce, children, and death of a beneficiary can create a major headaches. For instance, if you designate your spouse as your beneficiary on your life insurance, but your spouse passes away before you, then the terms of the life insurance policy will control what happens with the money. The money will likely end up in the estate of your spouse, or your estate, rather than in the hands of the people you want to have it. This makes it vitally important to review and update these designations every so often to make sure everything is still in order.
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