5 Common Estate-Planning Mistakes and 5 Tips to Take

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Personal financial planning spans a wide range of topics. Scroll through my last dozen or so articles and you will see they run the gamut. That means the area is both complex and fraught with land mines that can trip you up. By the time you wise up, you may have lost the benefit of what that foresight could have—or even would have—provided. So pay attention, these are the most important, and they need to be done right!

Death and taxes are a certainty, but many of us don’t take the time or the forethought to prepare for what happens with everything in and around our lives when we cease to exist. With a $12.06 million estate tax exemption, most of us won’t have to worry about estate taxes.

Mistakes

1) Putting It Off

Estate planning—are you not getting around to it, procrastinating, or thinking about doing it from time to time but never quite committing to the task and making it your current priority? Drafting a will and planning your estate isn’t for those of us who have reached the point of one foot from the grave. The need applies to every adult making income and owning assets.

Lacking a proper and valid estate plan means state laws will prevail and preside over the distribution of assets. That may not align with your own desires, but you won’t be around to have a say in the matter. The results can be devastating and even tear apart families—no one wants that!

So, get started, sooner rather than later. Find, vet, and get references for an experienced estate-planning attorney to assist in the project. The lawyer can navigate the byzantine legal complexities, but you may also find experts who don’t necessarily have a J.D. degree but are subject matter experts nonetheless.

You will need to collect and collate documents that reflect your whole financial position at the time you create the estate plan. Later, we will also address the common mistake of forgetting to periodically revisit, review, and revise estate plans as marriage, divorce, children, and changes in financial position will necessitate.

2) Estate Planning Lite

The effort goes well beyond drafting a simple will and extends to several legal documents according to chosen strategies, all based on your personal needs and objectives. If you’re sloppy, you may invoke unforeseen and unfavorable tax consequences, for example. That means less for the heirs and beneficiaries, and perhaps another source for family squabbling that you don’t want to have occur. If you don’t take the time, energy, and effort to complete this at a thorough and comprehensive level, you are essentially—and perhaps unintentionally and unwittingly—delegating these crucial financial decisions to the discretion of the court.

What do I mean by “thorough”? You need a will, a trust, a durable power of attorney, a health care proxy, and even perhaps a living will. You need to address therein what your desires and intentions are when it comes to life insurance, gifts, and charities for example. The plan should have focused on needs that are current, but also your long-term goals and objectives. But don’t go too far down a rabbit hole and have so many conditions and specifics that family discord and lawsuits are needed to sort out the confusion.

3) Beneficiaries

The common mistake with beneficiaries is that they may need to be revised and updated as circumstances change and dictate. You probably don’t want assets being handed over to an ex-spouse or a charity that turned out to be involved in fraud. In addition, the beneficiary designations must align and be consistent with the language of the other documents such as the will or the trust.

It is probably a good idea to let the family know in advance how you have constructed your estate plan, although in certain cases that may create other problems, and thus you might want to avoid doing so. It is also a good idea to name secondary beneficiaries as well as back-up executors and trustees.

4) Missed Assets

Another common error is to overlook digital assets. Many of us have cryptocurrency, NFTs (non-fungible tokens), or other digital assets that could easily get missed. They not only need to be listed but you also must reveal how these digital assets can be accessed and what you want done with them. That means account numbers, online links to sites, usernames, answers to security questions, and passwords. If all this information is coming together in your estate plan, you can also clearly see the need to store this sensitive information safely, as well as provide the trusted individuals who will be managing the distribution information regarding how to both access and manage your digital assets.

Don’t forget your collectibles such as your coin collection, vintage wine, and artwork. While you can aggregate assets into categories such as vehicles, furniture, appliances, and apparel, the more granularity you provide in a list, the less will be potential confusion and arguments. Be careful with bank and brokerage accounts. If you named beneficiaries with the financial institutions and those are reflected in your financial institution profile, these designations would prevail over the names of the beneficiaries in the will. Common mistake!

Along with missed assets, we can easily overlook death-related expenses such as a grave plot, tombstone, coffin, urn for our cremated ashes, memorial service, disposition of any liabilities, and whether we allocate a fee to the named trustee who presides over all of this on our behalf. My sister has been one doing this for mom and dad and several others, so when I named her my trustee, I added language to pay her compensation for her work.

5) Long-Term Care

Home health care or other facilities or institutions such as a nursing home require preparation and a lot of thought. This can be both for emotional and financial—and affordable—reasons. Not knowing what will become of you if you’re incapacitated, leaving those decisions to others, will be a burden on your family, and perhaps the decisions that do get made are not at all what you had hoped for during the winter of your existence.

The range of alternatives and options is broad, so ensure you fully understand the costs involved, as they can quickly become astronomical. The last thing any of us wants to do is have our entire estate eaten up by our long-term care (LTC) wishes, and worse would be if the money runs out while we are still alive and kicking! That means you should study this carefully and investigate LTC insurance. With LTC insurance, the costs can be mitigated using health savings accounts, Medicaid, and various annuities.

Finally, becoming incapacitated is so abhorrent to our senses that we can easily just go on with our lives without considering how to plan for the possibility. That means we have a responsibility—in the case of incapacitation—to make certain our loved ones will know what steps to take in the event of dementia or an incapacitating stroke. List your decision-makers, discuss your plans and expectations with them, and create a power of attorney.

Tips

Here are some helpful tips and a summary reminder of what we covered above in the common mistake portion of the article:

1) Search, vet, check references, and hire the right estate-planning professional.

2) Outline the key components of the will you plan as a legal and binding document.

3) Identify your beneficiaries and periodically review, update, and change as required.

4) Just as the will is crucial and key in estate planning, so is the trust. Get that established with the same attention and due diligence.

5) Account for all your assets and reflect all your intentions to ensure that your plan will be executed smoothly and in accordance with your plans and wishes.

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