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.

What should you look for when transitioning to retirement and needing estate planning? A CPA or CFA or someone else entirely?

In this highlight, we discuss where to factor in estate planning in the Financial Order of Operations.

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.

Throughout every decade, there are different areas of your financial life that come in and out of focus. In this episode, we’ll discuss what you need to focus on by age, pitfalls to watch out for, and how to know you’re doing it right.

In this episode, you’ll learn:

• The five tiers and considerations of the financial planning pyramid (cash flow, risk management, investing, tax planning, and estate planning)
• What each tier should look like at your age (20s, 30s, 40s, and 50s)
• Common pitfalls and missed opportunities in each decade

Research and resources from this episode:

• Bankrate’s 2023 Annual Emergency Savings Report
• NAR Finds Shares of First-Time Home Buyers Smaller, Older Than Ever Before
• Most Used Cars Are Now Selling for Less than MSRP (Jalopnik)
• 15.7% of New Car Buyers in Q4 2022 Paid Over $1,000 Per Month (GM Authority)
• State of the Automotive Finance Market Q3 2022 (Experian)
• Job unhappiness is at a staggering all-time high, according to Gallup (CNBC)
• 43 Incredible Job Satisfaction Statistics (2023): Average Job Satisfaction in the U.S. (Zippia)

Enjoy the Show?

• Sign up for the Financial Order of Operation (FOO) Online Course!
• Sign up for our Know Your Number Course!
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Wills

Not everyone needs a complex will; for many who are younger that don’t have any children or many assets, a simple will may be enough to meet their needs. In some states handwritten and oral wills are valid, and there are several online legal services that offer will preparation at a low price. Once your estate has some level of complexity, you may want to seek out an estate attorney to prepare your will. No matter how simple or complex your will is, you need to make sure you understand exactly what your will says and how it works.

Wills typically don’t cost a lot of money, but not having a valid and up-to-date will can cost you a fortune. Dying without a will, or dying intestate, means that the laws of your state will determine how property is distributed upon your death. If you only have a small amount of assets, dying intestate may not be detrimental to your friends and family members. If you have a greater number of assets and children, dying without a will could leave a big mess for your survivors to clean up.

Beneficiary designations

Not all assets pass through a will; some assets, like bank accounts, retirement accounts, and life insurance policies have beneficiary designations. It’s important to review beneficiary designations regularly and when any major life events occur. For example, if you have a child, you may want to add them as a contingent beneficiary. If you were to divorce and remarry, you would likely want to change your beneficiary from your ex-spouse to your current spouse.

Powers of attorney

There are several different types of power of attorney: medical power of attorney, financial power of attorney, and durable, limited, or springing power of attorney. A power of attorney is a person or organization that is allowed to manage certain affairs on your behalf. It’s very important to have a power of attorney in place as you age in case you become incapacitated and unable to handle your own affairs. A power of attorney can handle your estate, finances, and even medical decisions. In addition to a medical power of attorney, a healthcare directive helps explain the type of care you would like to receive in an emergency or end-of-life situation.

Term life insurance

Life insurance can be a valuable tool to protect your family in case of your early death. Term life insurance is pure life insurance without any investment options, and is consequently the least expensive form of life insurance. If you are looking for protection at a low cost and don’t want to mix your insurance with your investments, you may want to consider term life insurance.

Not everyone needs life insurance. If you don’t have family members that would be financially harmed by your death or are self-insured, you may not need life insurance. A common misconception is that only working spouses need life insurance. This is not necessarily true; childcare and maintaining the home have a monetary value, and can be expensive to replace. If you have debts that need to be repaid after your death, like a mortgage, or would need to leave money to provide for your family, you may want to consider purchasing life insurance.

The value of having a comprehensive estate plan isn’t the only thing you can learn from Tiger King. Watch our most recent show, “7 Financial Lessons You Should Learn From Tiger King!” for even more financial wisdom we gleaned from Tiger King.

The Netflix documentary “Tiger King” is more than just a hilariously captivating hot mess. It’s a perfect example of what NOT to do with your personal finances. If Joe Exotic (and the whole cast) had followed the advice from this episode, their lives would have looked wildly different than they do today! Let’s have some fun and break down 7 fantastic personal finance lessons you can learn from this crazy show.

Warning: There are “Tiger King” spoilers in this episode!

In this episode, you’ll learn:

• Easy financial planning tips that could have saved Joe Exotic a lot of heartache and legal trouble
• Estate planning tips that would have blown the Carole Baskin/Don Lewis’ story wide open
• How to spot the “Jeff Lowe” in your life
• Why tiger cubs are a perfect metaphor for personal finance

Research and resources in today’s episode:

• Best Online Savings Accounts for April 2020 (Bankrate)
• Disability Statistics and Facts (Affordable Insurance Protection)
• Nearly 75% of parents help their adult children financially (USA Today)
• 68% of young people expect an inheritance, yet only 40% of their parents will leave one (CNBC)
• Tiger King: Murder, Mayhem, and Madness | Official Trailer (Netflix)

Enjoy the Show?

• Get FREE downloads full of financial advice from our Resource Page!
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On December 20th, a big piece of legislation was passed called the SECURE Act. It will affect retirement, IRAs, taxes, and more! Don’t worry, in this episode, we break down everything you need to know about the SECURE Act and how your strategies may need to change. Plus, we make it fun!

In this episode, you’ll learn:

• How the SECURE Act stole money from your kids
• The positives and negatives of the new rules
• The best planning opportunities made possible by the SECURE Act
• Legal “loopholes” to help you make the most of your investments

Resources and research from this episode:

• U.S. retirement assets at $28 trillion in Q1, little changed from end of 2017 (Pensions & Investments)
• RMD Rules for Inherited IRAs (Fidelity)
• Department of the Treasury Internal Revenue Service (IRS)
• Financial Architects, LLC
• SECURE Act And Tax Extenders Creates Retirement Planning Opportunities And Challenges (Kitces)

Enjoy the Show?

• Get FREE downloads full of financial advice from our Resource Page!
• Subscribe on YouTube or wherever you listen to podcasts.
• Leave us a review on Apple Podcasts.
• Send us your questions or share your story.

If you have any questions (or just want to say hi!), join the conversation on Facebook, Twitter, or Instagram!

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)

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