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We all make mistakes, some big, some small. The good news is we can learn and recover from most if not all of them before it’s too late.
When it comes to family, finances, and medical care in terms of estate planning, people make several frequent errors. These often made blunders include:
- not having an advance health care directive or powers of attorney
- failing to name a guardian for minor children
- not titling real estate correctly
- forgetting to name or update a beneficiary on a life insurance policy, retirement plans, or other financial accounts after major life events
- and more!
Below you’ll find an excerpt from our new book Estate Planning 101, with 20+ common estate planning mistakes and tips to avoid them (plus an estate planning checklist to keep you on track).
Being aware of these often made missteps or omissions will help you do proper planning, and steer clear of them-or identify any you’ve already made. If you can raise your hand for any, it’s time for corrective actions.
Whether you’re 18 or 118, you need at least some basic estate planning documents. Prioritize the essentials of an estate plan as a part of your overall life plan.
Learn from others’ errors, so you don’t make any yourself. Or at least have time to fix any already incurred. Before it becomes too late.
The following is excerpted from Estate Planning 101 by Vicki Cook and Amy Blacklock. Copyright © 2021 by Simon & Schuster, Inc. Used by permission of the publisher, Adams Media, an imprint of Simon & Schuster. All rights reserved.
Tips for Getting It Right the First Time
An estate plan that’s full of mistakes might cause more harm than good. Make sure you read all legal documents thoroughly and correct any errors you find before signing them.
Misspelled names or incorrect addresses, accidentally omitting an heir, or gifting the wrong asset to a beneficiary can happen. While you can easily fix those types of mistakes when caught, they may cause lots of grief when they’re not.
Common Mistakes in Estate Planning
Here is a list of frequent estate planning mistakes people make, followed by a checklist to use when doing yours. While neither is an exhaustive list, they can help you avoid errors and track necessary steps as you strategize and put your plan into play.
• Not planning at all! You’re headed in the right direction by reading this book. Now you need to put in the work.
• Planning but not implementing. Without a will, power of attorney, and advance directives, your state determines who manages your affairs and how your property’s distributed. To have your final wishes known and followed, create those legal forms at a minimum.
• Not doing any other financial planning. Estate planning is just one part of a more extensive financial planning process. Not putting time and effort into other areas could put your finances at risk.
• Focusing too narrowly on individual assets. Because specific items in your estate vary over time, consider leaving heirs a percentage of your estate’s value instead of giving them assets individually. This eliminates the need to revise your will every time significant investments change.
• Misunderstanding how assets are owned and/or passed upon death. Jointly held property may pass differently than you expect. And some money (retirement accounts or life insurance) passes to beneficiaries outside of a will or trust. Be sure you understand how “what” goes to “who” when you die.
• Not naming beneficiaries or listing them incorrectly. Not designating a valid beneficiary or failing to remove one you no longer want to benefit after you die can put assets in the wrong hands.
• Not providing contingent beneficiaries. If a beneficiary’s no longer living at your time of death, their benefit passes to a co- or contingent beneficiary. If neither is listed, the benefit becomes a part of your general estate and may not go to someone you’d otherwise choose.
• Stopping at a will (or a trust). A will alone is not an estate plan. Be sure to establish power of attorneys and advance directives and consider your need for a trust, now and in the future. Likewise, a trust alone may not meet all the needs of your estate. The combination of a will and trust may provide the best protection.
• Not correctly funding a trust. You must transfer assets to a trust for your estate to receive the trust’s benefits.
• Failing to plan for incapacity. While it may be difficult to imagine being unable to communicate or manage your medical and financial affairs, creating POAs before possible incapacitation will be much easier on everyone than obtaining an emergency guardianship and conservatorship later.
• Forgetting about taxes. Be sure you consider the tax consequences (for you and your beneficiaries) of any actions you take in your planning.
• Losing control of assets. Adding someone to your bank account or giving them partial ownership of your property could put you at risk of losing those assets due to their mishandling of your funds. You could also be unintentionally creating a gift tax situation or reducing potential benefits you could use later.
• Not designating a property guardian to manage assets left to minors. When you don’t name a guardian in your will, the court intervenes. Assets are turned over to your children when they turn eighteen (often not a good combination!).
• Forgetting about pets. With no plan in place for your pets’ care, they could end up spending the rest of their lives in a shelter.
• Creating a DIY plan without any legal assistance. Trying to cut costs by going the DIY route or using an attorney who doesn’t specialize in estate planning can cost you more in the long run. If you must DIY your plan, see if you can pay for legal advice or a plan review with a lawyer familiar with estate plans.
• Failing to provide protections for an heir with special needs. The best place for assets you want to leave for the benefit of a loved one with a disability is in a special needs trust. An SNT helps you provide for them without putting their ability to receive government assistance at risk.
• Not making changes when divorcing. As soon as you or a spouse files for a divorce, take steps to amend your estate plan. If you don’t, the control of your assets could still go to your spouse if something were to happen to you. Be sure to change beneficiary designations too.
• Failing to make changes after remarriage. Update estate plan paperwork and assets with beneficiary designations to include your new spouse. Additionally, if you and your new spouse have children from prior relationships, put protections in place for not only each other but each other’s children too.
• Not discussing the plan with others. Keeping your goals and plans private can cause unintended hurt feelings and confusion, from how you split assets to how you wanted your trust managed.
• Not keeping proper records. Your agents, representatives, trustees, heirs, beneficiaries, and other loved ones will need more details than your legal documents alone may provide. Maintain a detailed list of assets, liabilities, insurance policies, and other vital records so others have information to handle your affairs when you no longer can.
• Failing to review and update financial and estate plans. Because we experience life changes often, an annual planning review is wise. It’s a chance to revisit your goals, address new needs, implement changes due to the tax code or estate laws, and make updates to beneficiaries, trusts, and more.
Estate Planning Checklist
Use this checklist when doing your planning—even when working with an attorney—to help ensure you’re covering all your bases.
Download a printable copy here
❏ Establish goals
❏ Inventory assets
❏ Inventory liabilities
❏ Inventory digital assets, profiles, and passwords
❏ Evaluate disability insurance needs and purchase a policy
❏ Evaluate life insurance needs and buy a policy
❏ Designate beneficiaries or transfer on death/payable on death for:
- ❏ Life insurance
- ❏ IRAs
- ❏ 401(k)
- ❏ Bank accounts
- ❏ Investment accounts
- ❏ Stocks
- ❏ Bonds
❏ Create a living will/advance care directives (medical power of attorney)
❏ Obtain general financial power of attorney
❏ Draft will
❏ Create living trust if applicable
❏ Fund living trust if applicable
❏ Consider lifetime gifting strategy
❏ Consider donor-advised fund and/or charitable remainder trust
❏ Create a business succession plan
❏ Plan for long-term care
❏ Plan for end-of-life and funeral arrangements and establish funds to pay for them
❏ Write letters of instruction for personal representatives, guardians, and trustees
❏ Write letters to family and friends
❏ Assemble an emergency binder
❏ Secure originals and safely store copies, and provide to others as needed
❏ Set up calendar dates for ongoing review and management of the plan
Excerpted from Estate Planning 101 by Vicki Cook and Amy Blacklock. Copyright © 2021 by Simon & Schuster, Inc. Used by permission of the publisher, Adams Media, an imprint of Simon & Schuster. All rights reserved.