The 10 Most Common Estate Planning Mistakes
Estate planning is an intricate process—and mistakes happen all the time. Missing a single step due to poor planning or a simple oversight can completely disrupt your plan. The key to avoiding estate planning issues is getting educated.
Want to learn more about estate planning but don’t know where to turn? Read this guide! In it, we’ll discuss the 10 most common estate planning mistakes and teach you how to avoid them!
What Happens if There’s a Mistake in the Estate Planning Process?
Proper estate planning can give you the peace of mind that your loved ones stay protected after your passing. Unfortunately, errors occur all the time, and they are devastating. Estate planning mistakes could lead to family turmoil and your assets being distributed against your wishes. It’s too easy to get absorbed in the microscopic details of your estate and neglect the overall financial picture. Make sure this doesn’t happen by reading our 10 most common estate planning mistakes.
The 10 Most Common Estate Planning Mistakes
1: Not Planning for the Death of a Beneficiary
It’s difficult to grapple with, but your planned beneficiaries may pass away early. You must consider what needs to be done with the money in case this happens. For example, imagine you had two beneficiaries listed in your will. If one of them passes away, do you want the entirety of your estate to go to the surviving beneficiary, or should the deceased beneficiary’s family receive their share? Make a plan for this to avoid bitter conflicts within your family and an unsatisfactory outcome.
2: Not Including a Residuary Clause
A residuary clause covers everything you don’t explicitly name in your will or trust. This includes things you don’t own but eventually will, things you already own without realizing, and more. The best way of understanding a residuary clause is as a legally binding “oops” document. It gives you extra coverage around things traditional planning documents cannot anticipate.
3: Failing to Review Beneficiaries
Failing to thoroughly review beneficiary designations is the most common estate planning mistake. Estate planning isn’t something that can be rushed. Failing to select beneficiaries can lead to your estate being the default beneficiary, which is subject to probate, creditors, delays, and more.
4: Using Outdated Forms
When was the last time you updated your will or living trust? If you’ve started to dig deep trying to remember, it’s been too long. Estate planning legal documents aren’t a one-and-done deal. They should be living documents that adapt to your changing financial circumstances. We would recommend reviewing your estate planning documents on an annual basis, if possible. If nothing else, check your documents every 2-3 years, especially if there’s been a recent change in family status. Family status changes like births, deaths, divorce, or marriage can make your documents quickly outdated and invalid.
5: Leaving Assets Directly to a Minor
We understand the sentiment behind leaving assets directly to a minor. You want to secure their financial future and ensure they have the resources to pursue whatever future they want. However, large amounts of money can’t be legally given to minors, meaning that their parents or guardians will be responsible for the money. This is why you need to specify how your money should be spent. We’ve seen many situations where parents deliberately misinterpret will clauses to spend the money how they want—don’t let that happen to you.
Learn How to Prepare Your Heirs
Learn more about how a family meeting can prepare your heirs to take on your estate.
6: Not Thinking Through Gifts
Communication is key in the estate planning process. Many executors deliver gifts that end up inconveniencing or bothering trustees. That’s why you need to regularly communicate with your beneficiaries to ensure that they’re prepared to handle the responsibility of everything you’re leaving to them.
7: Failing to Plan for Everything
Things rarely go according to plan. Many unexpected issues could throw a wrench into your estate plan. Some examples of these mistakes include:
- Changes in Health or Living Status
- Changes in Marital Status
- Large-Scale Family Issues
Any of these issues can totally throw off your estate planning. One of the best ways to solve these issues is by directing these assets to a trust. A trust lets you control how, to whom, and when money is distributed. Where a will forces you to give an outright inheritance, a trust lets you have more control over what happens to the capital. This is an especially attractive option if you don’t fully trust your beneficiaries to get the full distribution of cash immediately.
8: Failing to Draft the Right Will
There are a lot of common mistakes made when writing a will. Here are some of our dos and don’ts of making a will:
Do: Make sure it’s written on time. Too many Americans don’t want to face their death until it’s too late.
Do: Find someone you trust to act as a witness. Make sure this person is not a beneficiary, as that could lead to a conflict of interest or claims of a conflict of interest.
Do: Work with a professional. Writing a will alone is difficult to do, especially if you have a large number of assets that you need to plan for.
Don’t: Rely on a joint will. Unfortunately, you and your spouse may pass away at different times. Furthermore, there will be items between the two of you that aren’t jointly owned that it won’t be able to cover.
Don’t: Leave out your pets! Pets are legally recognized as property and should be treated as such in your will.
Don’t: Make your will creative. While this may sound obvious, some people like spicing up their will with creative elements. While this is a great way to personalize your will, it may render it invalid.
9: Not Acknowledging Your Mortality
Thousands of Americans die every day without a will. Death rarely comes when it’s expected, and one of the biggest estate planning mistakes is assuming your death will be any different. It’s never too early to start drafting your will—start on yours today.
10: Not Partnering With the Right Professional
Partnering with the wrong estate planning attorney is one of the biggest mistakes you can make. While we’d never recommend handling estate planning on your own, working with the wrong professional can be just as bad. Not sure what to look for when researching financial planners that can help you with the estate planning process? Here are some qualities you should look for:
- Decades of experience and a track record of success
- A team of expert, Certified Financial Planners ®
- Federally insured, with clients across the country
For all of this and more, turn to Summit Wealth Partners! Summit has been helping individuals solve their financial concerns since 1982 and can do the same for you. We’re more than financial planners—we’re financial partners. We’ve helped generations of families meet their financial goals, contact us and see how we can do the same for you.