Ten Most Common Estate Planning Mistakes
Tackling estate planning tends to be at the bottom of nearly
everyone’s to-do list. After all, not
many people enjoy spending time contemplating their own mortality. But after
you make the time to do it and feel the sense of accomplishment that comes with
checking that off your bucket list, wouldn’t be a shame to learn you made a
mistake? Here are ten common mistakes
people make when undertaking their estate planning.
1. Failing to update
It’s not uncommon for people to do an estate plan, relish in the
sense of accomplishment, then pat themselves on the back and toss their
documents into the filing cabinet, never to look back again. What they don’t understand is that estate
planning is not an event-- it is a
process. As life circumstances change, your
estate plan should be modified too.
Plans should be reviewed at least every five years and with every major life
change—like the birth of a child, a move,
or a divorce.
So you’ve accounted
for all your assets, liabilities, and
beneficiaries. You’re done, right? Not so fast.
Did you remember to include your digital assets? This includes any documents, pictures, or
other information you may have stored in the cloud or on a computer. It also includes passwords to access these
things. Have you considered what you
would like to happen to your social media accounts? Facebook, for example, has
options to memorialize, delete, or simply leave your account unchanged. You are also allowed to designate a “legacy
contact” who can pin a post on your timeline after your death, such as a
funeral announcement. Along with your
estate planning documents, be sure to include a list of all your digital
accounts along with their passwords.
Also, be sure to include specific instructions for how you would like
your social media to be handled.
3. Forgetting the
Sometimes with all the thought that goes into providing for
children and other loved ones, people overlook the furry members of their
family. The fact is, if you have not
planned for your pets, you run the risk that they will be placed in a shelter
or euthanized when you are no longer around to care for them. When doing your estate planning, be sure to at
least leave something in writing that outlines your wishes for your furry
friends. Or, even better, consider
establishing a pet trust. These special
trusts set aside funds that are to be used for the care and maintenance of the
furry friends you love.
4. Selecting an
The trustee is the fiduciary you choose to manage your trust
and distribute your assets according to your wishes. Sometimes people do not put nearly enough
thought into the person they select as their trustee. They may choose the older child, simply
“because they are the oldest,” or an old family friend because “we’ve known him
forever.” You should never choose a
trustee solely because they are the oldest, you’ve known them the longest, or
because you think they’re “nice.” Being
a trustee can be a hard job. Trustees
must keep impeccable records, and be beyond reproach ethically. They sometimes are called upon to make tough
choices in the midst of clamoring beneficiaries. Your trustee needs to be familiar with the
demands that will be required and feel that he/she is up to the task. Sometimes people overlook professional
fiduciaries since they think they will cost too much. The truth is, any fiduciary is entitled to
compensation for the work they do in their fiduciary role. Professional fiduciaries have much to offer
in the way of expertise. They can often
do things in far less time than a lay fiduciary could, and they have access to
resources that lay fiduciaries may not even know about.
5. Failing to plan
A will or trust is
designed to distribute your assets upon your death. However, a comprehensive estate plan will plan
for much more than what happens when you die.
Equally important to your will or trust are the documents that plan for potential
incapacity-- in other words, an
emergency situation in which you become incompetent and are unable to direct
your own affairs or health care decisions.
Documents such as a durable power of attorney, living will, and health
care power of attorney are essential to a complete estate plan and are just as
important as a will or trust.
6. Failure to
coordinate non-probate assets with the entire plan
Some assets, like life insurance, retirement
proceeds, and annuities, pass to beneficiaries outside the scope of a
will. An estate plan should look at the
big picture and take into account ALL your assets and how they will be
distributed. The distribution of these
assets should be coordinated with the will and the entire estate plan as a
7. Failure to plan
people sit down to do their estate planning they envision the “logical” order
of things. Parents die first-- then children inherit. But what if a child
predeceases a parent? What if an
accident were to cause a child to become disabled? What if you experience a divorce? A well drafted estate plan covers these out-of-the-norm situations.
8. Failure to retitle
assets to a trust
It’s not uncommon
for folks to go to a lot of work to create a trust, and then once the documents
are signed, to think they are done. In
actuality, a trust is not complete until all assets have been retitled in the
name of the trust. Without any assets actually in the trust, the trust is
really just like an empty shell. If you
establish a revocable trust, you must be sure to retitle your assets in the
name of the trust. Additionally, you
should also have a “pour over” will.
This type of will transfers all other assets—such as jewelry and cars or
anything you may have missed—into the revocable trust.
9. Do it yourself
With the advent of
software programs and online “fill in the blank” services, more and more
consumers contemplate doing their own estate planning. The fact is, DIY estate planning should come
with a warning label: “DO NOT TRY THIS AT HOME.” Estate planning is a highly
specialized field with many solutions to varied individual needs. The laws surrounding estate planning are
among the most rapidly changing in the legal field. And what might be an acceptable method of
estate planning in one state, may be completely invalid in another. Consumer Reports
studied three different DIY
estate planning products and concluded that “all were inadequate unless a very
simple plan was required, such as one that leaves everything to a spouse, with
no other provisions.” You wouldn’t
perform something as complicated as surgery on yourself. So why attempt to undertake something as complex
as estate planning on your own.
10. Not having an
estate plan at all
Estimates vary, but somewhere between
60-70% of adults have no estate plan in place.
With no will or trust in place, the state will intervene and distribute
your assets according to state statute—which may not mirror your wishes. Additionally, your estate may be subject to
hefty state or federal estate taxes, which may have been avoided with a little