Tax season forces many people to gather financial documents, review accounts, and take a closer look at their overall financial situation. While doing this, many families realize there are gaps or problems in their estate plans that they had not noticed before.
Because tax preparation often involves reviewing assets, beneficiaries, and financial records, it can reveal issues that could create serious complications for loved ones later. Following are tips from an estate planning attorney to help you be on the lookout for common estate planning document mistakes during tax season.
Outdated Beneficiary Designations
Many financial accounts are structured to pass directly to designated beneficiaries when someone dies. Such accounts may include IRAs, 401(k)s, bank accounts, and investment portfolios. During tax season, people often review statements for these accounts and realize that the beneficiary designations have not been updated in years. This can create significant problems when an individual passes. For example, it is not uncommon to find that an ex-spouse or deceased person is still listed as a beneficiary. Since beneficiary designations act to override a Will, it is crucial to keep such designations up to date.
No Inventory of Assets
Preparing tax returns often requires gathering information from many different financial sources. This process can highlight how difficult it may be for family members to locate accounts and assets if something happens unexpectedly. When someone dies, loved ones are often left scrambling to determine what assets that individual maintained at their death and where those assets are located.
To that end, it is important to create a clear list of assets like bank accounts, investment accounts, real estate holdings, business interests, and life insurance policies. Without an organized inventory, executors and family members may struggle to identify and manage assets during estate administration. A well-prepared estate plan should include clear records of assets and financial institutions to make things easier for loved ones.
Missing or Outdated Powers of Attorney
While reviewing financial matters during tax season, many people realize they do not have a financial power of attorney or that the document they have is outdated. A financial power of attorney allows someone you trust to handle financial matters if you become unable to do so. Without one, your family may have to go through a court guardianship process to manage your finances.
Common problems often discovered include:
- The document was signed decades ago
- The person named as agent is no longer appropriate
- The document does not provide adequate authority for modern financial accounts
Updating powers of attorney is an important part of keeping an estate plan current.
Failing to Update an Estate Plan After Major Life Changes
Tax season often reminds people how much their financial and personal circumstances have changed. Major life events that should trigger an estate plan update include items such as:
- Marriage
- Divorce
- Birth of a child
- Death of a beneficiary or executor
- Starting or selling a business
An estate plan that was created 10 or 15 years ago may no longer reflect a person’s current wishes or financial situation.
Forgetting About Digital Assets
Many people now have valuable digital assets that are not addressed in their estate plan. During tax season, individuals often log into financial platforms and online accounts, which can highlight how many digital accounts exist. Examples may include online investment accounts, cryptocurrency holdings, or Venmo balances. Without considering such assets and providing an anticipated executor with access to information regarding the same, it can be extremely difficult for family members to locate or access those assets upon someone’s passing.
Get Started on Creating or Updating Your Estate Plan with Plakas Mannos
Estate planning is not something that should be done once and forgotten. As financial circumstances change, it is important to review and update planning documents periodically. Tax season provides a natural opportunity to make sure your estate plan still reflects your wishes and your current financial situation.
If you have questions about estate planning or need to review an existing plan, contact the team at Plakas Mannos to see how we can help you.
About the Author
Hunter Miller, an associate attorney, focuses on estate, trust, and wealth planning; estate, trust and probate administration; estate, trust and probate litigation; commercial litigation, and other practice areas.
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