Estate planning pitfalls

September 7 2023

Avoiding Common Estate Planning Pitfalls: Protecting Your Legacy

Introduction

Estate planning is a critical aspect of financial responsibility that often gets delayed or
overlooked. While it may not be the most comfortable topic to discuss, creating a well-thought-
out estate plan is essential for safeguarding your assets, ensuring your wishes are honored, and
leaving a lasting legacy for your loved ones. In this article, we’ll explore common estate planning
pitfalls and guide how to avoid them, ultimately helping you protect your legacy.

Pitfall 1: Procrastination

One of the most common estate planning pitfalls is procrastination. Many people delay creating
their estate plans because they believe they have plenty of time or that it’s something they can
address later. However, life is unpredictable, and unexpected events can occur anytime.
Failing to plan can lead to complications, stress, and disputes down the road.
Avoidance Strategy: Take action now. Begin the estate planning as soon as possible,
even if your estate is relatively modest. The sooner you start, the more comprehensive and
effective your plan can be.

Pitfall 2: Inadequate or Outdated Documents

Another significant pitfall is having inadequate or outdated estate planning documents. A will or
trust that hasn’t been reviewed or updated in years may not accurately reflect your current
wishes, assets, or family situation. Failing to keep your documents current can lead to
unintended consequences and legal challenges.
Avoidance Strategy: Regularly review and update your estate planning documents, especially
after significant life events such as marriage, divorce, the birth of children, or the acquisition of
substantial assets. Ensure that your documents accurately reflect your intentions.

Pitfall 3: Not Naming Beneficiaries

Failing to designate beneficiaries on your retirement accounts, life insurance policies, and other
financial assets is a common mistake. Without named beneficiaries, these assets may be
subject to probate, potentially delaying their distribution to your heirs.

Avoidance Strategy: Review all your financial accounts and assets to ensure that you have
designated beneficiaries where appropriate. Keep these designations up to date as your
circumstances change.

Pitfall 4: Neglecting Digital Assets

In our increasingly digital world, many people forget to account for their digital assets in their
estate plans. These assets can include online accounts, digital photographs, cryptocurrencies,
and more. Neglecting to address these assets can result in valuable digital property being lost
or mishandled.
Avoidance Strategy: Create a comprehensive inventory of your digital assets and specify how
you want them managed or distributed in your estate plan. Consider appointing a digital
executor to handle these assets.

Pitfall 5: Not Considering Taxes

Estate taxes can significantly reduce the value of your estate, potentially leaving your heirs with
a smaller inheritance than you intended. Failing to consider the tax implications of your estate
plan is a common pitfall.
Avoidance Strategy: Work with a qualified estate planning attorney or tax advisor to develop
strategies for minimizing estate taxes. This may include utilizing trusts, gifting strategies, and
taking advantage of the applicable exclusion amount.

Pitfall 6: Forgetting About Healthcare Directives

Estate planning isn’t just about distributing assets; it also involves planning for healthcare
decisions in case you become incapacitated. Neglecting to establish healthcare directives, such
as a living will or medical power of attorney, can leave your loved ones in a difficult position
when making healthcare choices on your behalf.
Avoidance Strategy: Create healthcare directives that outline your preferences for medical
treatment and appoint a trusted individual to make healthcare decisions for you if you cannot do
so yourself.

Pitfall 7: Overlooking Family Dynamics

Family dynamics can be complex, and failing to consider them in your estate plan can lead to
disputes and resentment among heirs. Ignoring potential conflicts or failing to communicate your
intentions can create a hostile environment for your loved ones.

Avoidance Strategy: Engage in open and honest communication with your family members
about your estate plan. While it may not always be easy, discussing your intentions can help
prevent misunderstandings and conflicts.

Pitfall 8: DIY Estate Planning

Attempting to create an estate plan without professional guidance is a common pitfall. While
DIY estate planning tools and templates are available, but they may not account for the intricacies of your unique situation or the latest legal changes. Avoidance Strategy: Consult an experienced estate planning attorney or use modern tools like PlanEasy. These digital platforms combine expert guidance
with user-friendly interfaces, helping you create a customized estate plan that complies with state laws and aligns with your specific needs. Whether you work with an attorney who leverages innovative technology, seeking professional assistance is crucial in avoiding the pitfalls of DIY estate planning and ensuring your legacy is protected.

Pitfall 9: Failing to Fund Trusts

If you establish a trust as part of your estate plan but fail to fund it by transferring assets into the
trust, it may not serve its intended purpose. Assets left outside of the trust could still be subject
to probate. Avoidance Strategy: Ensure your trust is fully funded by transferring assets as intended. Work with your attorney to complete this process correctly.

Pitfall 10: Not Planning for Contingencies

Life is unpredictable, and estate plans should account for unforeseen circumstances. Failing to plan for contingencies can lead to confusion and unintended outcomes. Avoidance Strategy: Consider various scenarios and plan for contingencies in your estate documents. For example, specify what should happen if a beneficiary predeceases you or your chosen executor is unable or unwilling to serve.

Conclusion

Creating an effective estate plan is essential for protecting your legacy and fulfilling your wishes. By avoiding these common estate planning pitfalls and seeking professional guidance, you can create a comprehensive and up-to-date estate plan that provides clarity, minimizes potential conflicts, and safeguards your assets for future generations. Remember that estate planning is ongoing; periodic reviews and updates are crucial to maintaining its effectiveness.