Top 10 Estate Planning Mistakes to Avoid
Estate planning often gets tucked away in the corners of our minds, filed under the category of “important but not urgent.” It’s one of those things we’ll get around to some day. Unfortunately, neglecting your estate plan has profound consequences for those you leave behind.
As we help clients build a comprehensive financial plan, we often see issues that can cause serious headaches – or in some cases great financial loss – for heirs and beneficiaries. One of our Sound Stewardship Principles™ is “think beyond yourself.” A key way to do that is by setting up an estate plan that blesses those around you.
These are the most common estate planning mistakes we see:
1. The Cardinal Sin: Not Having an Estate Plan
One of the most prevalent estate planning mistakes is simply procrastinating. A recent survey found only 32% of Americans currently have a will. Many individuals delay creating a comprehensive estate plan, assuming they have plenty of time. Unfortunately, life can be unpredictable, and not having a plan in place can lead to serious complications in the event of either incapacity or unexpected passing. It may not be fun to think about death or disability, but a good estate plan reduces your family’s emotional and financial trauma.
2. Who’s on Your List? Beneficiary Blunders
It’s not enough to have documents gathering dust in a binder somewhere. If accounts or insurance policies point to the wrong people, even the most carefully constructed will or trust unravels. We see this often with old insurance policies. But it’s even more common when new accounts get set up after the estate plan was created, such as when an employer’s 401(k) moves to a new custodian. And don’t forget to name Contingent Beneficiaries!
3. Trust Troubles: Unconnected or Unfunded Trusts
A trust is a powerful tool, but only when properly connected and funded. Just like the beneficiary issue above, many families assume having a trust document in a binder is enough. If assets don’t get pointed to it, either through beneficiary designation or retitling, a trust might be completely unused. One of the key services our Wealth Advisors provide is making sure assets are connected correctly to trusts.
4. The Sound of Silence: Not Communicating Your Plan
You’ve diligently put together an estate plan, but have you shared it with anyone? Keeping your plan a secret can lead to confusion and disputes among your loved ones. Communication is important, and transparency prevents unintended complications down the road. Each person needs to determine how much detail to share. But some key things to ask:
- Does your Executor or Power of Attorney know where to find your original documents?
- Do the guardians of your minor children know they’ve been given that role?
- Do your adult children know who & why you’ve selected as executor or trustee when you’re gone?
- Is there an inventory of documents, assets, and accounts?
- Do you have any specific funeral or burial requests?
Some of these items might be difficult topics to discuss with family. If you cannot share everything now, can you include a letter with your estate plan that explains your rationale?
5. The Gift of Giving: Forgetting About Charity
Many of our clients are intentionally generous with their wealth. So it can be a surprise to learn that most completely forget to include charity in their wills and trusts. However, giving at death can mean some of the biggest gift opportunities ever. This could be done as a tithe, a “child called charity” strategy, or even just the Remote Contingent plan (if your other heirs are gone). A Donor Advised Fund is often the best way to incorporate giving into an estate plan.
6. Tax Time Bomb: Giving Too Much to Uncle Sam
Most people assume they don’t have to worry about estate taxes, because the “death tax” only applies to large estates ($27.22 million or more per couple, in 2024). However, there are many other ways taxes can hit beneficiaries. For instance, clients with large HSA balances may be surprised to learn that the entire amount immediately becomes taxable to non-spouse beneficiaries when they die. After the SECURE Act, IRA beneficiaries are given only 10 years to distribute account balances.
Many times, an estate can be optimized to avoid these taxes – such as having the charitable portion (see Mistake 5) come from an IRA to avoid the associated tax. Don’t be like my Uncle Hank, who cost my family millions by making this mistake!
7. Dusty Documents: They’re Too Old! (And Maybe Wrong State)
Having an estate plan is better than not having an estate plan. However, some plans we see are so old that they actually cause additional issues. Since estates are ultimately an issue of state law, someone who built a plan in Kansas may need to make significant revisions if they later move to Florida. Also, both state and federal laws change often enough that documents drafted a while ago may be unintentionally broken. Most attorneys recommend a review at least every 3 years for issues such as these. It’s especially important to update the plan after big life changes, such as a move, divorce, or death of a spouse. Estate planning is not a “set it and forget it” endeavor.
8. Uncharted Territory: Forgetting Digital Assets
In an era where much of our lives are lived online, it’s surprising how often digital assets and accounts are overlooked in estate planning documents. Most people don’t realize how difficult it will be for their heirs to claim items like digital photos, music, or digital book libraries. These may have more emotional value than financial, but even cryptocurrencies and mileage rewards points can easily get left out of a plan. These need to be specifically spelled out in estate plan documents to ensure they pass to your intended heirs.
9. The Treasure Hunt: Redundant or Forgotten Accounts
Our role as Wealth Advisors can sometimes make us feel like “private investigators” if an heir or surviving spouse hires us after the death of a loved one. It’s common to find forgotten policies, accounts, or documents years after someone has died. This causes confusion and hours of extra work for your heirs. Do them a favor: close unused accounts, document whether those old share certificates have any value, and make sure all items are listed in your inventory (see Mistake #4).
10. The Weight of Wealth: Overlooking the Impact of an Inheritance
During the estate planning process, we put on paper how much a client’s heirs are projected to receive. Many have never asked themselves how an inheritance will impact their family, but seeing the number spelled out raises important questions:
- Is the next steward prepared for the amount or type of asset(s) they’ll receive?
- Am I passing down too much at death? How will this money affect their life/relationships/identity?
- Could life changes (such as a disability, divorce, or remarriage) cause issues for my heirs later in life?
- Will their creditors have access to my beneficiaries’ wealth after I’m gone?
- Would it be beneficial for me to give more family or charitable gifts while I’m living?
There is no perfect estate plan. However, an experienced estate planning attorney (in conjunction with your financial planning team) can help you customize your estate plan to fit your situation well.
If you’re not sure where to begin with an estate plan, read our 6 Tips for Getting Started or reach out to a Wealth Advisor today!
