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The Biggest Estate Plan Mistakes

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We often talk about the best ways to make an estate plan, but it’s also important to review things that we should never do. Making any of the estate planning mistakes below might drastically diminish your financial legacy.

Many people make these common mistakes:

  1. Procrastinate their estate plan. Some of us are superstitious and believe that planning for the end of our lives will hasten our demise. Some of us just don’t like to think about our own deaths. Some of us delay any action or decision. The truth is that it is rarely too early to make an estate plan. However, it can be too late before we know it
  2. Assume they don’t have enough assets to bother with an estate plan. If we die without a will, the courts will decide how to divide our assets. The result may not reflect our hopes, and may not give an inheritance to a person we cherish. Additionally, a well-crafted estate plan will likely reduce the tax burden on our heirs.
  3. Mistakenly hope to avoid estate planning and estate taxes by making heirs joint owners of our assets. Unfortunately, this gives the heirs’ creditors access to our money. Instead, we should make our bank and brokerage accounts payable upon death to our intended beneficiaries.
  4. Do not discuss their estate plans with their family (or other specific people named in their wills or trusts). However, if people know what to expect, they can discuss their concerns with us now, which can lessen the likelihood of contention later. If there is a disagreement that we cannot resolve, we can write into our will that anyone who contests it will be prohibited from inheriting.
  5. Ignore their digital assets in their estate plan. Digital assets such as cryptocurrency, nonfungible tokens, and tokenized assets are new enough that we often forget that they are part of our financial legacy. We should consider naming a digital executor to ensure our digital assets are handled properly.
  6. Forget that, in addition to federal taxes, the state we live in will have taxes. The states where our beneficiaries live will also have taxes. We need to write our estate plans with a full understanding of the taxes that will be due when we die.
  7. Neglect to make charitable donations part of our estate plans. We can support the causes we believe in by naming nonprofits as beneficiaries of assets, such as life insurance policies or investments, or by leaving them bequests. For a list of local Sonoma County charities, use this link.
  8. They are too specific in their bequests or make bequests conditional. Courts are unlikely to uphold any gift that requires specific behaviors from an heir or that restricts heirs’ freedom of religion or choice. Or if the courts allow the condition to stand, heirs may have to incur substantial legal fees to get what they truly want. We should instead act as generously as we can and resist the urge to “manage from beyond the grave.”
  9. Name just one beneficiary. However, to protect against the chance that the beneficiary dies before we do, we should name a second beneficiary who’ll be next in line for our estate or any given asset.
  10. Create a trust, but fail to fund the trust. A trust is useless without assets. We should take the time to retitle assets and learn how to add assets without titles to the trust.
  11. Forget to update named beneficiaries for life insurance policies, retirement accounts, and pensions as life circumstances change. When we revise our wills and trust documents, it’s important to review and possibly revise beneficiary designations for assets not held by trusts.
  12. Focus on the financial, but neglect to describe what we’d like for a funeral and burial. If we describe how we’d like our life to be celebrated or memorialized, that can be a blessing for our heirs, giving them one less bit of stress in their grief.
  13. Forget to leave instructions for our passwords and/or password managers. Our executor and heirs will need access to our online banking and investment accounts, our social media accounts, and our email and phones. They cannot access any of these unless they know how to find our passwords.
  14. Forget to tell our heirs where our plans are located. It can be complicated for our heirs to access our safe-deposit boxes after our death. A better option is a fireproof safe.
  15. Forget that financial and health care powers of attorney are part of a solid estate plan. If we become incapacitated before we die, we will want to have a person we trust make financial and medical decisions on our behalf.
  16. Forget to update our estate plans regularly. Personal circumstances, health, and estate laws change over time. Without a current plan, our wishes can’t be honored.

Final Thoughts: The Importance of Regular Estate Plan Reviews

To avoid these mistakes, consult an experienced estate planning attorney regularly, or whenever you experience a big life event. For a deeper dive, use our Estate Planning Checkup, and review your decisions every few years.

 

Miranda Dressler
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