While creating your Estate Plan is important, creating one that avoids common pitfalls and mistakes is essential! After all, you don't want to go through all the time it takes to create a plan to protect your loved ones, just to have it riddled with errors that end up causing them stress and headaches in the end. Whether you’re creating your first plan ever, or you’re updating an existing one, get familiar with what can trip you up, so you can have a plan that accomplishes exactly what you envision while you safeguard your legacy.
Below are the top 10 most common estate planning mistakes along with solutions on how to avoid the mistakes.
- Failing to Plan - The biggest mistake you can possibly make when it comes to your Estate Plan is simply not making the time to do it. Failing to prioritize your Estate Plan, or not ensuring it’s complete, ultimately means you’re risking the financial future of your estate, your legacy and most importantly, your loved ones. If you haven’t yet started your Estate Plan (or if it’s been more than five years since you’ve updated it), take the time to sit down and either get started or review your plan.
- Not Discussing with Family and Friends - Of course there are exceptions to this rule, but if possible, it’s usually a good idea to have even a brief conversation with your friends and family. Setting expectations now, where there is an opportunity for discussion if needed, could lessen the likelihood that there is any contention or disagreement after your passing. Set aside time in advance to discuss your Estate Plan with your spouse or anyone you’ve named Executor or Trustee, and think about notifying specific people you name in your Will or Trust.
- Naming Just One Beneficiary - You should always have more than one beneficiary designated for any of your assets. In the event that a beneficiary passes away before you do, you’ll want to have what’s known as a contingent beneficiary. This is who would be next in line to your estate or any given asset. So, for each asset, account or policy, be sure to list a primary and one or more contingent beneficiaries.
- Forgetting about Power of Attorney or Healthcare Representatives - Naming a Power of Attorney (either medical or financial) and/or a Healthcare Proxy is important, as these are the people who would step in to make decisions should you become incapacitated. Make sure you have standalone documents that appoint a trusted person or people to make important financial and medical decisions for you.
- Forgetting about Charities that are Important to You - Particularly if you have a large estate, but even if you don’t have incredible wealth, you can still allocate some of your assets to benefit a charity that’s important to you. Including the gift you want to bestow in your Estate Plan is one way to make sure your wishes are honored, or you can name a charity as beneficiary of an asset like the proceeds from an investment or life insurance policy.
- Getting Too Specific - We normally advise you to be as specific as possible when writing your Estate Plan. However, there is one caveat to that. You may own assets at one point in life that you might not necessarily have in the future. Are you putting stocks in your plan? Real estate? Season tickets to your favorite sports team? Review (and update if needed) your Estate Plan every three to five years, or anytime you have a major life event. If you sell a house that was in an original Estate Plan document, be sure to revise as soon as possible.
- Improperly Funding Your Trust - A Trust is an excellent component to have in virtually any Estate Plan - but it could all be for naught if you don’t properly fund it. Creating a Trust is useless until it’s actually funded. Follow all the steps to funding your Trust and be sure you know exactly what you need to do.
- Forgetting about Taxes - Estate tax liability can put a huge dent in what you plan on leaving your beneficiaries. In addition to your estate owing taxes before beneficiaries are paid out, you also want to think about how your gifts will impact individual heirs, too. Most often, estate tax liability isn’t going to be a huge problem. Unless you have a very large estate (roughly $13.6m per person or $26.2m per couple), your estate will not be taxed at the federal level. Keep in mind though, in not too many years, unless an extension is put into place, the law will revert back to half of the current exemption amount.
- Not Securing Your Estate Plan - Having the best Estate Plan in the world won’t accomplish anything if your heirs can’t find it. Think twice before putting your plan into a safety deposit box - it can become complicated when your loved ones try to gain access after you pass away. But you do want to keep all of your Estate Planning documents together and in a safe place. Don’t forget to let your spouse or another trusted family member or friend know where this is located.
- Updating Your Plan Too Infrequently - Unfortunately, Estate Planning is not a set-it-and-forget it deal. You need to keep it current, and make sure it reflects all of your life changes as they come. In addition to updating your Estate Plans after any major life event, it’s worth mentioning again how important it is to do a general review every three to five years (even if no major life events have occurred).
Contact RKPT’s Estate Planning Attorneys Today
RKPT’s estate planning attorneys can help you develop your estate plan and ensure it remains up-to-date and reflects your current personal and financial situation. Whether you’re crafting your first plan or updating an existing one, understanding potential pitfalls ensures your estate plan protects your legacy.
Explore our Estate Planning page, call us at (513) 721-3330 or contact us online to discover more about our estate planning services. Based in Cincinnati, we proudly assist clients across Ohio with their personal planning needs.
Article written by Attorney William Sherman.
