Key Takeaways:
Estate planning matters for everyone because it ensures your wishes—not a court’s—determine who receives your assets and can reduce family conflict.
The most common mistakes include procrastinating, failing to update your plan after life changes, or relying too heavily on DIY documents and edits.
Beneficiary designations and properly funding trusts are critical details that can override your will if they’re outdated or inconsistent.
Let's ask a question that seemingly has an obvious answer. Why is estate planning important?
First of all, when many hear the term "estate planning," they quickly envision those who own mansions, various real estate holdings, large stock portfolios, expensive toys, and priceless heirlooms.
Please, put that stereotype out of your mind. Everyone should have an estate plan or a will.
There are several reasons, but let's touch on the most important. Your wishes are carried out, and you can prevent or discourage fighting among potential heirs by spelling out what each beneficiary will receive.
You decide -- not a court, and thereby prevent the ugliness that could easily follow.
Many folks understand this, but common mistakes can surface, thwarting your intentions, and they can surface after it's too late for you to do anything about it.
Before we jump into some of the common missteps, let's acknowledge that estate planning can be complex. Much will depend on your estate and the assets you plan to gift to your heirs.
But mistakes, if not avoided, can lead to costly consequences that could have been circumvented with proper planning. That said, we'd be happy to entertain any questions or point you in the direction of an experienced estate planning attorney.
As always, feel free to consult with your attorney.
7 common estate planning mistakes to avoid
What are some common estate planning mistakes to avoid? Learn more below.
Not having an estate plan
Have you ever had a project you wanted to complete, but procrastination set in? Once completed, you feel a sense of satisfaction. It's like checking the box on your to-do list. What happens if you die without a will, which is known as dying intestate? For starters, you haven't legally documented how you want to distribute your assets.
If that happens, the courts will determine who gets what, and it will rarely coincide with your intentions. Besides, it can turn into a messy and expensive process if acrimony arises among potential heirs.
You set and forget your estate plan
Creating an estate plan isn't something you set up and forget about. You're not on autopilot after signing the document. If major life events occur, you should revisit your plan. You may have had additions to your family, a divorce can change the familial equation, or your net worth or assets may change over time. Have you moved to another state?
State laws impact how wills are drawn up, and a new address may require an updated legal document.
You create your estate plan yourself
Doing it yourself with a will won't cost you much, and there are plenty of online options. But are you comfortable navigating unexpected complexities that may crop up? For example, does the online site fully take the laws of the state where you reside into account? I sometimes like to say, "You don't know what you don't know."
Another way to frame it: Do you know the right question to ask? If not, your will might not have the proper language because it wasn't written in the correct manner. Saving money on the front end could be costly to your estate if the will you initially prepared hits unintended hurdles.
Your account-specific beneficiaries contradict with written intentions in your will
I've discussed the need to update beneficiaries, if appropriate. But what happens if a bank or brokerage account lists one beneficiary or beneficiaries and your will names another? For example, let's say an IRA account at ABC Brokerage has your two sons listed as your beneficiaries split 50-50, but the will explicitly states your daughter as the heir of the account. In this case, your sons will win the battle. Please be sure the wishes in your will line up with the beneficiary forms that are held with your financial institution.
You forget to fund your trust
There are complexities in settling up a trust, and we encourage you to seek a qualified professional, but let's review one of the unfortunate mistakes. While a living trust can ease the transfer of assets to beneficiaries without going through probate, it's not enough to simply create a trust.
You must transfer assets into the trust. If you fail to fund the trust, the assets you intended to pass smoothly to your beneficiaries won't pass smoothly at all. Instead, the situation will create headaches and needless legal fees for your heirs. In addition, your assets may not wind up in the hands of the intended beneficiaries, as you thought you had spelled out.
You make DIY changes
You know what changes you want. But adjustments executed improperly can lead to unwanted consequences that muddy your intentions. Once-valid legal documents may be inadvertently sullied by do-it-yourself changes that may only be straightened out in lengthy legal proceedings.
You forget to plan for your minor children
This is my last point, but it's definitely not the least important. A major reason for end-of-life planning is not only to properly bequeath your assets after you pass, but to be sure your minor children, if you have any, are taken care of.
Be sure to have a guardian in place. Make sure you inform the guardian and receive consent. Spell out instructions regarding financial matters to that person. Too often, the guardian has too much freedom with your money.
Final thoughts:
Creating and implementing an estate plan will allow your wishes to be carried out when you are no longer here. However, don't throw up roadblocks that can create complications, delays, or even thwart your plans.
If you have any thoughts, ideas, or questions, we're simply a phone call away.
I trust you’ve found this review to be educational and informative.
Let me emphasize that it is my job to assist you. If you have any questions or would like to discuss our wealth management services, please feel free to contact us.
As always, I’m honored and humbled that you have placed your confidence and trust in me to serve as your financial advisor.
John Gigliello, CFP®
John Gigliello, CFP®, is a fee-based fiduciary financial planner in Albany, NY, serving individuals age 50+ with comprehensive planning and investment management, centered around proactive and advanced tax planning. John earned a Certificate in Financial Planning from Boston University and, more recently, successfully completed the rigorous CFP® Certification examination to become a CERTIFIED FINANCIAL PLANNER™. John earned the Accredited Investment Fiduciary® Designation from the Center for Fiduciary Studies®, the standards-setting body for Fi360. The AIF® designation signifies specialized knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. John currently serves on the Albany County Investment Advisory Board, having been appointed by a unanimous vote of the County Legislature in January 2019. In this position, John advises the county on a strategy for making the best use of money available for investment.