Estate planning is crucial but often overlooked, leading to complications, expenses, and stress for loved ones. Poor planning can result in lengthy probate, high taxes, and unfulfilled wishes. The good news? Most mistakes are avoidable with proactive steps, ensuring your assets are protected and your family’s peace of mind is preserved.
Mistake #1: Not Having a Plan at All
Surprisingly, more than half of American adults don’t have a basic will, let alone a comprehensive estate plan. This oversight can create a cascade of problems for surviving family members.
An estate plan typically includes several key documents: a will, power of attorney for finances, advance healthcare directive, and potentially a trust. These documents work together to ensure your wishes are carried out and your loved ones are protected.
When someone dies intestate (without a will), state laws determine how their assets are distributed. This process rarely aligns with what the deceased person would have actually wanted. For example, in many states, if you’re married with children, your spouse might only receive a portion of your assets, with the remainder going to your children—potentially creating financial hardship for your surviving spouse.
The intestate process also means the court will appoint someone to manage your estate, and that person might not be who you would have chosen. This can lead to family conflicts and delays in settling your affairs.
Mistake #2: Failing to Update Your Plan
Creating an estate plan isn’t a one-and-done task. Life events can dramatically change your circumstances and make your existing plan obsolete or even counterproductive.
Marriage, divorce, the birth of children or grandchildren, death of beneficiaries, significant changes in assets, and relocation to another state all warrant a review of your estate plan. For instance, if you named your ex-spouse as a beneficiary and forget to update your documents after divorce, they could still inherit your assets.
Similarly, if you’ve named guardians for your minor children but those individuals are no longer suitable choices due to age, health, or changed circumstances, your children could end up in the care of people you wouldn’t choose today.
Estate planning attorneys typically recommend reviewing your plan every three to five years, or immediately following any major life change. This regular maintenance ensures your plan continues to reflect your current wishes and circumstances.
Mistake #3: Not Properly Funding a Trust
Creating a trust is only half the battle—you must also fund it by transferring assets into the trust’s name. This crucial step is where many people stumble, rendering their carefully crafted trust documents largely useless.
Funding a trust means changing the legal ownership of your assets from your personal name to the trust’s name. Real estate needs to be deeded to the trust, bank accounts must be retitled, and investment accounts should list the trust as the owner. For assets like life insurance and retirement accounts, you’ll typically name the trust as the beneficiary.
Without proper funding, your assets will still go through probate when you die, defeating one of the primary purposes of having a trust. The process can be time-consuming and may require working with various financial institutions, but it’s essential for your trust to function as intended.
Consider creating an important document organizer to track which assets have been transferred to your trust and which still need attention. This system will help ensure nothing falls through the cracks.
Mistake #4: Overlooking Digital Assets
Digital assets represent a growing portion of many people’s wealth and personal legacy, yet they’re frequently overlooked in estate planning. These assets include online banking and investment accounts, cryptocurrency, social media profiles, digital photos and videos, email accounts, and subscription services.
The challenge with digital assets lies in access. Without proper planning, your loved ones may struggle to access these accounts, especially with increasingly sophisticated security measures like two-factor authentication.
To address this issue, create a comprehensive inventory of your digital assets along with login credentials. Store this sensitive information securely, perhaps in a password manager that your executor can access, or in a safety deposit box. Some states have adopted laws giving executors the right to access digital assets, but having the necessary information readily available will make the process much smoother for your family.
Mistake #5: Choosing the Wrong Executor or Trustee
The executor of your will and trustee of your trust have significant responsibilities, including managing your assets, paying debts and taxes, and distributing property according to your wishes. Choosing the wrong person for these roles can create serious problems for your estate and your beneficiaries.
Many people automatically name their spouse or oldest child without considering whether that person has the necessary skills, time, and emotional capacity for the job. Being an executor or trustee requires financial acumen, attention to detail, and the ability to remain impartial when family dynamics get complicated.
Consider factors like geographical proximity, financial experience, availability, and potential conflicts of interest. Sometimes the best choice isn’t a family member but a trusted friend, professional advisor, or institutional trustee. You can also name co-executors or co-trustees to share the responsibilities.
Whatever you decide, have a conversation with your chosen executor or trustee before finalizing your documents. Make sure they understand the role and are willing to accept the responsibility.
Mistake #6: Not Communicating Your Wishes
Creating an estate plan in secrecy might seem like the right approach, but failing to communicate your wishes can lead to confusion, hurt feelings, and family disputes after you’re gone.
Family discussions about estate planning can be uncomfortable, but they’re crucial for managing expectations and preventing conflicts. Your loved ones need to understand your decisions, especially if your plan includes unequal distributions or unexpected choices.
These conversations don’t have to happen all at once or include every detail of your plan. Start with general discussions about your values and priorities, then gradually share more specific information as appropriate. Consider explaining your reasoning behind major decisions, such as why you chose a particular person as executor or why you’re leaving certain assets to specific individuals.
Mistake #7: Ignoring Potential Estate Taxes
While the federal estate tax exemption is quite high (over $12 million per person as of 2023), some states impose their own estate or inheritance taxes with much lower thresholds. Additionally, estate tax laws can change, potentially affecting estates that seem safe under current rules.
Beyond taxes, there are other costs associated with estate administration, including probate fees, attorney fees, and accounting costs. These expenses can significantly reduce the amount your beneficiaries ultimately receive.
Working with an estate planning attorney and tax professional can help you understand the potential tax implications of your estate and explore strategies to minimize the burden on your beneficiaries. Techniques might include lifetime gifting, charitable donations, or more sophisticated trust structures for larger estates.
Mistake #8: Using a Generic, One-Size-Fits-All Plan
While online estate planning tools and generic forms might seem like cost-effective solutions, they rarely address the unique aspects of your situation. Every family has different dynamics, assets, and goals that require personalized planning.
A generic plan might miss important considerations specific to your state’s laws, your family structure, or your particular assets. For example, if you own a business, have children from multiple marriages, or care for a disabled family member, your estate plan needs to address these special circumstances.
Professional estate planning attorneys bring expertise in local laws and experience with complex family situations. They can identify issues you might not consider and suggest strategies tailored to your specific needs and goals.
Mistake #9: Neglecting Healthcare Directives
Estate planning isn’t just about what happens to your money and property after you die—it’s also about protecting yourself and your family if you become incapacitated during your lifetime.
Healthcare directives include a living will (which outlines your preferences for medical treatment in end-of-life situations) and a healthcare proxy or power of attorney (which names someone to make medical decisions on your behalf if you’re unable to do so).
Without these documents, your family may face agonizing decisions about your medical care without knowing your wishes. Courts may need to appoint a guardian, which can be time-consuming and expensive, and the person appointed might not be who you would have chosen.
Take time to consider your values and preferences regarding medical treatment, and discuss these wishes with your chosen healthcare proxy. Make sure your documents comply with your state’s requirements and are readily accessible to your family and healthcare providers.
Mistake #10: Procrastinating
Perhaps the biggest estate planning mistake is simply putting it off. Many people avoid estate planning because they find it morbid, overwhelming, or assume they have plenty of time to address it later.
The reality is that accidents and unexpected illnesses can happen at any age. Young parents, in particular, need estate planning to ensure their children are cared for by people they choose and have access to financial resources.
Even if your current plan isn’t perfect, having something in place is far better than having nothing at all. You can always update and improve your plan over time, but you can’t create one after you’re gone or incapacitated.
Conclusion
Avoid common estate planning mistakes to protect your family’s future. A tailored, up-to-date plan ensures security and peace of mind. Work with professionals like attorneys or financial advisors to create a plan that meets your needs. Start today by organizing your assets, setting your goals, and seeking expert guidance.
