Estate planning is incredibly important for ensuring that your wishes get carried out when you are no longer able to voice them. Unfortunately, the estate planning process can prove quite complicated, and people can make many costly mistakes if they are not careful.
By learning about these common pitfalls and working closely with an experienced professional, you can avoid making these same mistakes. If you do not catch and correct these issues promptly, you may face some serious unintended consequences that could cost you, or your loved ones, a lot of money. Some of the most common mistakes made in the estate planning process include the following:
- Failing to fund the trust.
A trust is an excellent tool for estate planning. However, you need to make the trust the legal owner of the assets you wish to disperse through the account. If you become incapacitated before putting the assets in the trust’s name, then the transition you intended will not occur smoothly. These assets will get hung up in probate, when one of the key reasons to create a trust is to avoid this time-consuming process. It could also result in your assets not getting distributed as you intended since a court has the final decision. Be sure all the assets you wish to pass through a trust are legally owned by that trust.
- Updating plans too infrequently.
Over time, our life situations can change dramatically. Even beyond major life events such as marriage, our goals and intentions can change as we get older. Always revisit your estate plan when a major life event occurs, but also build time into your schedule to review the plan regularly. That way, you can always be sure that the plan you have in place recognizes your wishes. You do not want to be scrambling to make changes when you feel that end of life is imminent. If you keep your plan updated, then you can avoid this added pressure.
- Overlooking beneficiary designations.
Jointly held investment accounts, life insurance policies, and retirement accounts all avoid the court probate process, but this only happens when you designate a beneficiary. The beneficiary designations on these accounts supersede any provisions made in a will or trust, which is an important thing to keep in mind. Make sure that your beneficiary designations are up to date and make any changes quickly. This is an important thing to do when your situation changes. In many cases, you can also name backup, or “contingent” beneficiaries.
- Avoiding the creation of advance directives.
No one likes to think about end-of-life planning, but this is an important part of estate planning. Writing and establishing advance directives ensures that your wishes are honored. Make sure your estate plan includes a living will, which lets you record your wishes regarding life-sustaining measures like intubation. You should also name a healthcare power of attorney, which is a person who can make medical decisions on your behalf when you become incapacitated. Once you name this person, you should have regular conversations with them about your values so they are confident in making a decision that aligns with your wishes.
- Making revisions on your own.
While you need to keep your estate plan updated, making major or even minor revisions on your own can be problematic. In general, you should make these changes in collaboration with a trusted professional to ensure that no conflict arises. If you make revisions on your own, you risk introducing conflicts or creating a provision that cannot be carried out for whatever reason. There are often nuances in the laws of each state that make it imperative to use an elder care or estate planning attorney for these documents or changes. Professionals can ensure that revisions are as clear as possible, enabling your wishes to be fulfilled faithfully. Conflicting measures can cause a lot of unrest—and even lawsuits down the road. Also, while there are very cost effective “providers” such as Legal Zoom, we usually do not recommend trying to “save money” on things like estate planning documents.
- Forgetting to include digital assets.
The idea of including digital assets in an estate plan is relatively new. After all, most people did not have significant digital assets until recently. However, there are always questions about how digital assets should be handled after someone passes, so be sure to include this information. The term digital asset is vague and can include anything from crypto-currencies to online banking accounts to social media. Think about your online presence and what needs to be managed after you are gone. Even something as simple as an email account can be included in this digital estate planning to ensure that no squabbles occur. You can even name a digital executor to handle these assets.
- Planning inadequately for taxes.
While taxes are generally no one’s favorite subject, they need to be considered in estate planning. Estate tax liability can take a massive chunk out of the assets you wish to pass to beneficiaries. Think about the taxes your estate will owe before paying out beneficiaries to avoid passing this burden on to other people. Typically, federal taxes only kick in for very large estates, but you should always check about other taxes, such as inheritance or state estate taxes that may be applicable, depending on where you live. In addition, you should ask about how your gift will impact the tax situation of your heirs. Often, you can structure your will or trust to avoid taxes for beneficiaries, but only when you think about this issue upfront and make it central to the planning process.