Estate Planning Pitfalls
“Carve your name on hearts, not tombstones. A legacy is etched into the minds of others and the stories they share about you.”
Estate planning can be tricky, but it's easier once you know what to watch out for. This guide is a great place to start that can help you protect your loved ones without making mistakes that can cause stress later. My goal is to make things simple, not complicated.
Whether you're starting a new estate plan or updating an existing one, now is the time to learn the details that matter. This knowledge will help you create a plan that reflects your wishes and protects your legacy.
Here are 10 common estate planning pitfalls and how to avoid them.
Procrastinating on Your Plan
One of the biggest mistakes you can make with your estate plan is not setting aside time to create it. Many of us tend to delay this important task, but neglecting your estate plan or leaving it incomplete puts your financial future, legacy, and loved ones at risk.
Solution: If you haven't started your estate plan yet, or if it's been over five years since you last updated it, or if you've had a major life event recently, now is the perfect time to sit down and either begin or review your plan.
Not Sharing with Family and Friends
While there are exceptions, it's generally a good idea to have at least a brief conversation with your family and friends about your estate plan. Setting expectations now can help prevent disagreements later. If discussing isn't an option, you can include language in your estate plan to specify that anyone contesting it could be excluded.
Solution: Take some time to discuss your estate plan with your spouse, executor, or trustee. Consider notifying specific people named in your will or trust. We frequently schedule meetings with our clients and their family members to facilitate this conversation.
Naming Only One Beneficiary
Always designate more than one beneficiary for your assets. If a beneficiary passes away before you, you'll need a contingent beneficiary to inherit the asset. Ideally, list more than one contingent beneficiary.
Solution: For each asset, account, or policy, make sure to list a primary beneficiary and one or more contingent beneficiaries.
Missing Power of Attorney or Healthcare Representatives
It's important to name a Power of Attorney (medical or financial) and/or a Healthcare Proxy. These individuals will make decisions if you become incapacitated. Note that these roles usually end upon your passing.
Solution: If your living will doesn't designate a Power of Attorney or Healthcare Proxy, ensure you have standalone documents appointing trusted individuals to make important financial and medical decisions for you.
Overlooking Final Arrangements
Your loved ones will be grieving after you pass away, but planning your funeral or burial arrangements in advance can be a great help to them. It's also important to make your wishes for end-of-life care known, such as preferences for hospice or assisted living.
Solution: Think about how you’d like your life to be celebrated and what type of funeral, memorial, or burial you want. Write these wishes down so your loved ones know how to honor you. Include end-of-life planning documents in your estate plan to ensure your final wishes are respected and to ease the burden on those grieving your loss.
Not Considering Your Children's Future
While your intentions may be good, the way you word things in your estate plan could unintentionally cause issues for your children or heirs. When it comes to young children, it’s common for me to see missing directions on how their guardian should use assets to care for them or benefit them.
Solution: Provide clear guidance on how inheritances should be passed on to minors. Consider factors like age, marital status, or educational milestones. Be thoughtful about any stipulations you include to avoid future complications.
Being Too Specific
While I generally recommend that you are specific in your estate plan, there's a caveat. You might own assets now that you won't have in the future, like specific stocks, real estate, or other possessions.
Solution: Review and update your estate plan every three to five years or after any major life event. If you sell an asset listed in your plan, make sure you revise the document as soon as possible.
Not Properly Funding Your Trust
A trust is a valuable part of an estate plan, but it's ineffective if not properly funded. Unfortunately, this is probably the top mistake I catch. Creating a trust is only half the battle; it needs to be funded to be useful.
Solution: Follow all the steps to fund your trust, including titling your assets correctly, obtaining a taxpayer identification number (TIN), and handling personal property and titled assets appropriately. Refer to a comprehensive guide on funding a trust for detailed instructions.
Not Storing Your Documents Properly
Even the best estate plan is useless if your heirs can't find it. Avoid placing your plan in a safety deposit box, as it can be difficult for loved ones to access after your passing.
Solution: Store your estate plan in a fireproof safe or a secure location. Make sure your spouse or a trusted family member or friend knows where it is. We will also keep a digital version of the plan on behalf of our clients. This helps make the documents accessible no matter where they are.
Not Updating Your Plan
Estate planning isn't a one-time task. You need to keep it current to reflect life changes, such as marriage, divorce, the birth of a child, or the death of a family member or beneficiary.
Solution: Update your estate plan after any major life event and conduct a general review every three to five years, even if no major events have occurred.
Action Items
Creating an estate plan is a wonderful gift to your family and loved ones, showing your care and foresight. However, even with the best of intentions, it's easy to make common mistakes.
Besides these 10 common mistakes, there are many more that I have witnessed. If you’re ready to start your first estate plan or have an existing plan that needs to be reviewed or updated, I can help.
Book a quick call so I can answer any questions and ensure your wishes are carried out perfectly.
~Alex
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