The Most Common Mistakes in Estate Planning and How to Fix

Guest post by Bill Sherman of Robbins, Kelly, Patterson & Tucker of RKPT

While creating your Estate Plan is important, creating one that avoids common pitfalls and mistakes is essential! 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 most common estate planning mistakes along with solutions on how to avoid the mistakes.

1. Failing to Plan

The biggest mistake you can 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, 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.

2. 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 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.

3. Naming Just One Beneficiary

You should always have more than one beneficiary designated for any of your assets. If a beneficiary passes way 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.

4. 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.

5. 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 a beneficiary of an asset like the proceeds from an investment or life insurance policy.

6. Getting Too Specific

We normally advise you to be specific 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 it as soon as possible.

7. 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.

Unfortunately, Estate Planning is not a set-it-and-forget-it deal. You need to keep it current and ensure 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).

RKPT has been committed to providing excellent legal representation to individual and business clients for over half a century. Learn more by visiting them online at www.rkpt.com.