The process of setting up an estate plan takes time, energy, and money. But in the long run, taking the time and making the effort to get it right will be worth the effort. To help make sure you haven’t missed anything important in your planning process, we consulted with experts to assemble a list of nine common estate planning mistakes to avoid.
Mistake #1: Not Having An Estate Plan
Sometimes, people intend to create the documents for an estate plan but fail to include essential documents like a will, power of attorney, or trust.
“Estate documents are crucial for individuals 18 and older, especially for families with young children. At a minimum, all adults should name someone who can make healthcare decisions for them if unable,” says Florida certified planner Shane O’Hara.
Estate planning documents allow you to plan regarding your medical care wishes. These documents will help whether you are temporarily or permanently incapacitated. Also, this documentation will designate what happens to your belongings after you pass. Without proper documentation, the courts, through the probate process, will distribute assets as they see fit. This could leave family business members in limbo and delay getting assets to family and others.
Mistake #2: Not Updating Your Documents Regularly
In addition to making an estate plan, you need to pay attention to events that might impact these documents.
Martin Gasparian, attorney and owner at Maison Law in California, says, “One of the biggest mistakes people make when planning their estates is failing to update their documentation frequently. It’s essential to have a clear and comprehensive overview of all your assets and to ensure that all information is current, accurate, and aligned with your wishes. It’s best practice to update your will periodically and any other relevant documentation relating to aspects such as the power of attorney, trust fund titles, and beneficiaries.”
It is a good idea to review your documents every five years, according to O’Hara, or whenever a major change occurs in marital status, health, or with your children. He adds that sometimes new legislation can impact your estate plan, so it makes sense to review it periodically to ensure it is current.
Mistake #3: Failing to Fund Your Trust
Creating a trust is a good option for many estate plans. But sometimes, individuals forget an important step—funding the trust.
Louisiana attorney Scott Smith says that people often pay attorneys to create a trust but fail to take the steps to endow the trust with assets. The trust “remains just an empty shell,” says Smith, and “your assets have to be moved into or donated to the trust, or it’s just a waste.”
Mistake #4: Leaving Out Digital Assets
If you have a digital footprint through social media with sites like Facebook, Instagram, and Twitter or a website or LinkedIn page, you may want to pass along those digital assets to your heirs. In that case, addressing how you want your digital assets handled is a good idea. Create a digital estate plan that addresses the handling of your online accounts, personal or professional.
Arizona attorney Becky Cholekwu says, “If you haven’t planned to transfer your digital assets at your death, it will be like losing all your cash in a house fire.”
Generally, it’s best to go beyond giving your executor permission to access your digital assets in a will, trust, or power of attorney. Be sure to leave written information and instructions on how and where to access your accounts and files.
In preparing your note, keep in mind the following:
- Make a list of your digital assets and designate who has access.
- List all usernames and passwords.
- Tell your executor what to do specifically with each account. Do you want your Facebook account deleted? Do you want all photos on your computer to be shared with your family? Do you want your blog saved? Go through your digital life and make a plan for each segment. Be clear on your instructions.
- Keep this note or letter with the instructions in a safe place. You can store this document with important information like your will, passports, or health care power of attorney. Be sure this document is easily accessible because your executor will need quick access.
- Keep the information current. As any account information changes, please update it in your letter/note.
Mistake #5: Not Listing Secondary Beneficiaries
Reviewing your beneficiary designation periodically is important. Many people make the common mistake of listing a single beneficiary. It would be best to designate a secondary beneficiary.
Cholekwu says, “If you do not name a secondary or contingent beneficiary, that asset may go through the probate process. The worry is that if your spouse dies before you and you no longer can update the form, or if your spouse is killed with you in the same car accident, this asset will default to your probate estate.”
Having a secondary or contingent beneficiary will allow the asset to pass to the proper beneficiary in the way you intended.
Mistake #6: Failure to Appoint a Medical or Financial Power of Attorney
A common mistake is failing to appoint a medical or financial power of attorney as a part of your estate plan.
“These documents are designed to protect individuals from unexpected circumstances like incapacitation, dementia, or serious injury. If you do not have these documents and something happens unexpectedly, the probate court will appoint someone to care for you. Often, the court will appoint someone without great concern for your wishes,” says Michigan attorney Kelsey Simasko.
In addition, not having a medical power attorney means a lack of control over medical treatments, conflicts among family members about the best treatment decision, delay of care, and the risk of not honoring your wishes should you become incapacitated. Similarly, with a financial power of attorney, you have more control of your asset management, the ability to manage your day-to-day finances, and an increased risk of financial exploitation.
Mistake #7: Neglecting Tax Implications
Estate taxes may prevent you from leaving what you intended for your beneficiaries. Thinking about ways to leave assets to your beneficiaries without your estate being prohibitively taxed is crucial. There may be ways to work around tax consequences with a trust or a gift exemption. Seeking advice from an estate or tax attorney may be beneficial in maximizing the amount you can leave your heirs.
Mistake #8: Relying on DIY Estate Planning
Online will and trust forms may seem convenient, but the truth is that these documents need to consider your specific scenario. “Making your wills would appear more affordable, but most lack the legal knowledge required to handle sophisticated estate planning difficulties,” says Michigan and Georgia estate planning attorney Tim Hurban.
DIY estate plans may not consider legal changes or all potential scenarios you must address. Not seeking guidance from an estate attorney or financial planner may cost your estate and your beneficiaries more than anticipated.
Mistake #9: Not Having a Discussion with Family Members about Your Estate Plan
You may not feel compelled to discuss all the details of your estate plan with family members, but having a brief discussion about the basics of your intentions could prevent infighting among family members. It’s a good idea to let family members have a reasonable expectation of how the estate will be handled.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.