Estate planning is an effective way of planning your estate to better ensure that all your affairs are handled as per your wishes in the event of your death or incapacity. As such, it is important to handle the process with careful consideration and attention to detail.
However, there are common high-net-worth estate planning mistakes that you should be aware of to avoid potential pitfalls.
1. Inadequate liquidity planning
When preparing your high-net-worth estate plan, it’s crucial to have sufficient liquid assets available to cover taxes, debts and other expenses. High-value estates often include illiquid assets such as real estate, businesses or art collections. Without adequate liquidity, your heirs might be forced to sell these valuable assets quickly and potentially at a loss to meet financial obligations. Proper liquidity planning helps preserve the value of your estate and allows your beneficiaries to manage expenses without undue financial stress.
2. Failing to consider tax implications
How your estate is divided can significantly impact the amount of taxes owed. High-net-worth individuals need to be particularly mindful of estate, gift and generation-skipping transfer taxes. Without strategic planning such as utilizing trusts, charitable donations or lifetime gifts, a substantial portion of your estate could be lost to taxes.
3. Failing to regularly update the plan
Estate planning is not a one-off task but an ongoing process. Life events such as marriage, divorce, the birth of a child, changes in financial status or alterations in tax laws can all necessitate updates to your estate plan. If you fail to review and revise your plan regularly, it may not reflect your current wishes or take advantage of new legal and financial opportunities.
If you are considering creating or updating your estate plan, seeking legal guidance is an important step to take.