Unfortunately, estate planning mistakes are routinely made and may involve many areas of an estate. While each individual situation has its own unique circumstances, there are some mistakes found across many estate plans.
Estate Planning Mistakes to Avoid
- Failing to plan. Certainly, estate planning isn’t a fun process, but everyone should complete a plan for their situation. “If you don’t direct to whom and how your assets will be distributed at your death, your state statute will control” (Calio, 2017, p. 26). The state plan may not match your preferences.
- Failing to inventory your assets. Your heirs and the fiduciaries of the estate will appreciate having a complete list of your assets, including online usernames and passwords. This will also prevent assets from being overlooked.
- Failing to update beneficiaries. Circumstances in life change over time, which can significantly alter to whom the client would like their assets. Marriage, divorce, new children, or the death of an heir would suggest a review of beneficiaries should be made.
- Failing to name proper fiduciaries. “Acting as a fiduciary is oftentimes consuming and complex” (Calio, 2017, p. 27). It’s important to periodically review “the individuals and institutions [that are] appointed [to] fiduciary roles” (Calio, 2017, p. 27).
- Failing to correctly title assets. Proper titling can avoid probate for certain assets as well as minimize estate taxes (Calio, 2017, p. 27).
- Failing to consider incapacity. Estate plans should “set forth who will make decisions for you if you are incapable of making them yourself” (Calio, 2017, p. 27).
- Failing to structure gifts and inheritances appropriately. The needs and special circumstances of your heirs should always be considered. Proper trusts, for example, can then be established to match the specific needs of the heirs.
- Failing to properly handle an irrevocable life insurance trust. Some larger estates may benefit from creating “an irrevocable life insurance trust to hold [a life] insurance policy, thereby sheltering the proceeds from estate taxes at…death” (Calio, 2017, p. 28). However, this treatment is only available if it is “funded and administrated correctly” (Calio, 2017, p. 28).
- Failing to consider gifting strategies. “The most obvious way to reduce a client’s gross estate is to have the client give away assets during her lifetime in such a way that the gifted assets will not be included in the client’s gross estate” (Mannaioni, 2018, location 966). Creating a gifting plan can significantly reduce the taxes owed for larger estates.
- Failing to update the plan. Life changes happen regularly, so “estate plans should be reviewed periodically” (Calio, 2017, p. 28) to make sure they reflect those changes.
Why Do These Mistakes Occur
There are many reasons these estate planning mistakes appear so often.
First, estate planning is often thought to only be a concern for the “uber-rich” (Calio, 2017, p. 26), which is a false assumption. Every adult needs at least a basic estate plan. “Others find it morbid to think about and plan for their death” (Calio, 2017, p. 26).
Additionally, ignorance of potential probate and estate tax expenses may lead to plans not being developed and implemented.
Finally, “it is tempting to prepare an estate plan and put it on a shelf and forget about it” (Calio, 2017, p. 28). Considering an estate “complete” or “finished” may lead to problems as circumstances inevitably change.
Remedy for estate planning mistakes
The remedy for these estate planning mistakes is to set specific times of the year to review the estate plan.
While not a fun process, it is important to make sure your circumstances haven’t changed and that you are following through on your responsibility to be a good steward of the resources entrusted to you. Be sure to utilize a qualified estate planning attorney to assist you in this process.