NEW YORK (MainStreet) — Most consumers don't have even a basic estate planning strategy, and what's worse, appear indifferent about getting one.
Figures from RocketLawyer.com show that last year 64% of American adults didn't have a will, up 12% from 2011, with 57% saying they don't have one because "they just haven't gotten around to making one."
Not having a will or other basic estate planning tools in place when you die can cause huge problems.
Exhibit A is the estate of actor and comedian Robin Williams, who died last year with an estate plan — but not one that prevented a legal battle between the actor's wife and children.
"The problem with the Robin Williams estate is that wasn't specific enough about which items go to which people," says Joshua Rockwell, investment communications director at Falls Church, Va.-based Azzad Asset Management. "For example, you can't just say that 'all tangible personal property is to be divided equally among my kids' because the question arises as to who gets the emerald necklace and who gets the Persian rug."One way out of that mess is to be creatively direct about what who gets what in a will.
"We had one client who wanted specific pieces of jewelry to go to specific children, because she wanted to be fair and to maintain the sentimental value the pieces had. So she took pictures of each piece and labeled which pieces go to which child," Rockwell says.
Not being clear is just one common mistake Americans make in estate planning.
One of the bigger problems is failure to change your designated beneficiary on a IRA or 401(k) plan to your new spouse, says Peter Blatt, president of Blatt Financial Group in Palm Beach Gardens, Fla. "Here in Florida, if you fail to leave at least 30% to your surviving spouse — even if you are married for only one day — then she or he can make a claim on your assets."
Another issue: not naming a durable power of attorney "to allow someone to handle your affairs if and when you become disabled or incapacitated," says Jay Freireich, a member of the wills, trusts and estates practice group at Brach Eichler in Roseland, N.J. "Having a power of attorney can avoid the delays, uncertainties and costs of a guardianship proceeding."
Failing to have a living trust to avoid probate can also lead to major estate planning headaches. "While wills can be helpful, they do not allow you to bypass a probate, " says Jared R. Callister, a tax attorney at Fishman Larsen Chaltraw & Zeitler in Fresno, Calif.Read More: Long-Term Care Payouts Are at Record Highs, Meaning You Pay More Too
"In most states, probate is time-consuming and expensive and puts a semi-hold on a person's assets after death," he says. "I represented a family where both parents died simultaneously, leaving a very large estate and several businesses. It took years and a lot of time to completely probate the large estate, and would have been much smoother and simpler had a simple trust been used. I've also had clients who received drafts of their estate documents to review, but took so long to review them that there was an unexpected death prior to execution."
Callister also says he sees plenty of people who have a living trust but forget to fund it. "Nowadays, it seems online estate plan services are ubiquitous, churning out [forms for] living trusts to families in record numbers," he says. "However, these 'self-help' document providers often don't provide any guidance on funding the living trust. Having a will and trust in one place is one thing, getting it properly funded is another."
Estate planning can be a complicated process, but it is a necessary one. Make sure you cover the financial ground needed to protect your loved ones. Getting professional financial help is a great place to start.
— By Brian O'Connell for MainStreet