Unless you really want to leave a mess for your heirs when you die (maybe you do, in which case you can close the article), there are some potentially catastrophic estate planning mistakes you will want to avoid to make things much easier for your family in what will already be a stressful and emotional time.

1. Wrong beneficiary on accounts

Did you intend to leave the entirety of your 401(k) to your ex-husband? Didn’t think so! But that’s what can happen if you don’t regularly check and update beneficiaries on bank accounts, retirement accounts, life insurance policies, trusts, and other assets. Assets with beneficiary designations typically pass outside of the probate process, which means even if you update your will and other estate planning documents, assets with beneficiaries may not reflect your current wishes. It’s a good idea to regularly log in to your accounts and check who the beneficiaries are and update as necessary. You may never need to change beneficiaries, which is great, but it’s always better to be safe than sorry.

2. Giving assets away before you die

There is absolutely nothing wrong with being generous while living and giving assets to your heirs, but in some cases giving assets away before you die can be a huge mistake. Investments, real estate, and other property can receive what is called a step-up in basis at death. 

Let’s say a nice couple, Bobby and Bobbina, want to give their favorite son Bobbo their treasured family vacation home. Bobby and Bobbina bought the home for $10,000 and a silver dollar in 1958, but now the home is worth almost $3 million. If they gave Bobbo the home while they are living, their basis of $10,001 carries over to Bobbo. That means if or when Bobbo sells the home, he will owe taxes on the entire sale price over $10,001 (minus any exemptions if the home becomes his primary residence).

If Bobby and Bobbina instead leave the vacation home to Bobbo in their will, he will receive a step-up in basis when he inherits the home. That means if or when Bobbo sells the home, he would only owe taxes on the amount the home has appreciated in value since he inherited it. The difference between giving assets away before you die or after you die may seem small, but it can have huge tax consequences for your heirs.

3. Not having any or enough life insurance

A large number of Americans don’t even have health insurance, much less life insurance. Not everyone needs life insurance, but if others are financially dependent on you to live, chances are you should consider your need for life insurance. A need for life insurance often exists when your assets aren’t large enough to cover your debts (like a mortgage). Life insurance can also be used to replace your income if you are worried about taking care of your family financially if something were to happen to you. If you are older and have done a great job investing for retirement, you may be able to self-insure. This means you have enough assets to pay off your debts if you were to die and your family would be taken care of. There are many different types of life insurance available, but we believe term life insurance is the best and most cost-effective solution in most situations.

4. Not having estate planning documents

Wills typically don’t cost a lot of money, and if you don’t have children or many assets, a simple will may do the job. If your estate is more complex, it would be smart to use an estate attorney to prepare your will. Dying intestate, or without a will, means the laws of your state will decide how your property is distributed upon your death. This might not be a huge deal if you don’t leave behind anything worth fighting over, but the more assets and potential heirs you have, the greater the need for a will.

Wills aren’t the only way to express your wishes when you are no longer able to do so. An advance healthcare directive gives instructions for your medical care if you are no longer able to make your own decisions. There are several different types of power of attorney that can be used to allow a person or organization to manage certain affairs on your behalf. There is medical power of attorney, financial power of attorney, and durable, limited, or springing power of attorney. Like the names suggest, a power of attorney can handle your estate, financial, and even medical decisions.

5. Worrying (or not worrying) about estate taxes

Not worrying about estate taxes can be a catastrophic mistake, but I would argue that for most people, at least with the current federal estate tax exemption, worrying about federal estate taxes is a much more common mistake. The current federal estate tax exemption is $13.99 million, or $27.98 million for married couples, which means you must have a very substantial amount in assets to be impacted by federal estate taxes. If you think you will or could be impacted by federal estate taxes, consider reaching out to a fee-only financial advisor to develop a plan for minimizing or eliminating the impact of estate tax.

Some aspects of managing your financial life can be pretty tolerable and even enjoyable. My wife enjoys managing our household budget and I really like contributing money to our retirement accounts and watching them grow. Unfortunately, I can confidently say that estate planning is rarely enjoyable and, at its best, somewhat tolerable. However, it is a vital part of planning for your financial future, and something that must be taken seriously and considered a priority.

If you are fortunate enough to inherit a large sum of money, what should you do with it? Purchase a house, if that is your goal, or invest the funds for retirement?

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

What should parents and grandparents do with their finances as they get older? Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

In this highlight, we discuss factors that most people may not consider when it comes to inheriting wealth and how you should handle them.

See also our Ultimate Guide to Estate Planning.

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

In this highlight, we discuss the right way to leave an inheritance to your kids.

Have more questions about estate planning? Check out The Money Guy Ultimate Guide to Estate Planning.

If you’re wealthy, you’re at least somewhat concerned about the effect your money will have on your kids. Growing up wealthy can be a big obstacle to true success; if everything comes easy, your kids will never understand the value of discipline, hard work, and what being successful truly means. The vast majority of millionaires in the U.S. are first generation, and kids who inherit money tend to not hold onto it for very long. 70% of wealthy families lose their fortune by the second generation, and 90% by the third.

Inspirational stories abound of very successful people who grew up poor and rose to the upper class. In some ways, growing up in poverty fuels your motivation and drive for success.

How to set your children up for success

No matter how much money you have or how much money your children will inherit one day, there are some basic lessons that every child needs to learn growing up. One of the most difficult things to do as a parent is watching your child make mistakes and not bailing them out. It can be painful to see your children suffer, and when you have the means to stop that suffering it can be hard to resist the temptation.

Allowing your children to make mistakes, though, will be critical to their success later in life. They gain valuable problem solving and coping skills when they learn to solve or deal with their own problems. If you take care of your children’s problems for them you may be saving them from some initial pain and suffering, but you are limiting their growth and development as human beings.

Children born to families who make less money don’t have this problem; their parents are unable to solve all of their problems and take away their pain and suffering, even if they want to. A parent’s money, power, and influence can make many of their children’s problems disappear, but they would be better served solving their own issues.

Don’t go too far in the opposite direction, either

You don’t want your kids to grow up feeling entitled, but you don’t want them to grow up resenting you, either. It’s important to reward hard work, discipline, and other positive characteristics your children exhibit. Make sure your children understand how lucky they are to have the advantages in life you can afford to provide, and make sure they earn any financial rewards. If they are rewarded even when exhibiting negative or entitled behavior, that negative behavior will only get worse.

Withholding too much from your kids in an effort to not make them entitled can backfire too, though. You’ll want to find a balance between rewarding your children’s success and hard-work but not punishing them for being born into a wealthy family. Children must be taught to work for the things they want.

Making sure you kids don’t grow up to be spoiled is no easy task. Believe it or not, there are other downsides (and things you’ll want to avoid) if you’re wealthy. Watch our latest show, The Dark Side of Being a Millionaire, below to learn how to be wealthy without letting it ruin you.

You’re not going to believe we’re giving away this advice for free! We’re so excited to share these untold secrets and help you take your finances to the next level.

WARNING: These ideas are advanced. While they may be exactly what you need to achieve financial abundance, each step involves complex rules and the IRS. You may not want to try these without a professional.

If these strategies sound like your next step, let us guide you to success! It may be time to take our relationship to the next level as part of the Abound Wealth family.

Here’s what you’ll learn in today’s episode:

Advanced Charitable Giving

• How to use Charitable Gift Funds like a pro
• How to give a larger gift to charity and get a larger tax deduction
• What a “QCD” is and why every non-profit, church, and person over 70 needs to know about it

HSA Fund and Hold

• 3 Ways to Use an HSA (and how most people miss best one)
• The powerful HSA strategy only 4% of people are taking advantage of
• What happens to your HSA if you pass away

Roth Conversions

• How to get the tax advantage of a Roth IRA in spite of the income limit
• The one “catch” to Roth Conversions
• A flow chart that lets you know if Roth Conversions are right for you

Mega Roth Conversions

• How to contribute $50,000 a year to a Roth IRA (We know it sounds crazy!)

Resources and Research Cited in this Episode

• IRS Bulletin (Covering HSA rules)
• Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2017: Statistics From the EBRI HSA Database

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If you have any questions (or just want to say hi!), feel free to reach out to us: brian@moneyguy.com and bo@moneyguy.com. You can also join the conversation on The Money Guy Show Facebook page or connect on Twitter @MoneyGuyPodcast.

End-of-life decisions are heavy and uncomfortable to think about, but they are something everyone has to confront at some point. We get that estate planning sounds like a tired financial topic. Yet, most people agree it is important. However, few people take care of estate planning matters when they think of it. 

According to a Care.com survey, 76 percent of respondents said it was important to have an estate plan but only 40 percent actually had one. Given how important estate planning is to your financial well-being, we cover this topic in exciting (yes, exciting!) detail on this week’s episode of The Money Guy Show!

Estate planning can seem like a complex undertaking, and not knowing how to approach it can lead to inaction. Lucky for you, you know us! And like any good friend, we are going to let you in on what we know. Pull up a seat as we share how to get your estate plan established well and the common mistakes people make that you won’t after tuning in to this week’s how.

Here is What You’ll Learn in This Episode:

• The seven common mistakes people make when it comes to estate planning

1. Not having the “BIG 3” components of a proper estate plan
   • Will or Trust
   • Healthcare Directives
   • Durable Power of Attorney
2. Not having life insurance
   • 41 percent of Americans don’t have it, but 83 percent of respondents say they should! 
   • How to calculate how much life insurance you need.
   • Why we like term life insurance policies so much.
3. Adding your name to a parent’s account 
   • This is well-intentioned, but don’t do it. It can create a host of tax problems for you. Instead, set up a revocable trust, power of attorney or simply get account view privileges so you don’t change ownership of the accounts.
4. Giving highly appreciated assets to loved ones while you are alive
   • As parents get older they may want to offload assets such as real estate or appreciated stock. Even though this is noble, it is not the best solution due to the tax consequences. When it comes to highly appreciated securities the best thing is to hold on to them and pass with them. There are long-term tax consequences when you transfer highly appreciated assets to loved while you are still alive. The Money Guy solution is to gift cash instead, because it puts your loved ones in a better long-term tax planning situation.
5. Not knowing how wills and beneficiaries work together
   • After you get your estate planning documents done, you may be super happy and excited and think that you’re done. However, beneficiary designation on your policies and accounts usurp what is in your estate plan so you have to make sure you update beneficiaries at the source!
6. Not paying attention to the paperwork
   • It seems so obvious, but you make a great estate plan but don’t tell anyone! Don’t keep it a secret that you have this done, especially to the people named in your estate planning documents.
   • Why you want people to know about your healthcare directives and remember to reference them if you’re the one responsible for someone’s healthcare decisions.
   • Why you should immediately get an appraisal on inherited assets.
   • The horror that can happen if you don’t update your beneficiary designations!
   • The other important documents you need to keep updated and accessible to make it easier on the executor of your estate, like durable power of attorney and a net worth statement.
   • Why you shouldn’t keep utilities and accounts open in a deceased loved ones name. 
7. Leaving a hot mess for your family and beneficiaries
   • The average executor spends 570 hours settling an estate! It can be this bad if you neglect setting your estate up properly. 

Resources and Research Cited in this Episode

• Family Conflict Reigns as Greatest Threat to Estate Planning, According to TD Wealth Survey
• Caring.com’s 2019 survey
• Why Americans Aren’t Getting Life Insurance – and what they spend money on instead
• NerdWallet’s Life Insurance Comparison Tool
• New Study Reveals More Than 40 Percent of Americans Don’t Have Any Form of Life Insurance
• Estate Settlement Statistics (Estate Exec)

Enjoy the show?

• Make sure you subscribe so you get updates, announcements, and exclusive post-show deliverables!
• Leave us a review on iTunes
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• You can also use #AskTheMoneyGuy on social media!
• ?Get your FREE copy of The 30-Minute(ish) Financial Plan

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