Estate Planning Mistakes and How to Avoid Them
Estate planning is critical for securing your future. However, there are common pitfalls to avoid, as these mistakes can undermine the best estate plan. Here are some of the most frequently seen mistakes to keep in mind.
Not having a will and estate plan. If there is no will and no estate planning has been completed, assets will be distributed according to the laws of the state. While you are living, you need a General Durable Power of Attorney and a Durable Power of Attorney for Health Care Decisions, so your family can act on your behalf without having to petition a court for authority.
Beneficiary designations supersede the will. Beneficiary designations tell the financial institution who should receive assets upon death. Check life insurance policies, investment accounts, pensions and some bank accounts to ensure they are up to date. Courts rarely overturn beneficiary designations when challenged.
Unfunded trusts will not perform as intended. Once a trust is created, the next step is to fund it. This typically means having the deed or title revised or renaming an investment account. Without funding, the trust serves no purpose.
Full, legal names matter. This is especially true if the family includes many people with the same first name. Use the person’s full name, including the middle name and any generational suffixes, like Jr., Sr., or their generational ordinal (II, III).
Estate plans require local guidance. A will prepared in one state may or may not be acceptable in another. Some states require one witness to execute a will, while others require two. This simple mistake can make a will invalid.
Never make changes by writing on the original document. Handwritten changes to a will or a trust are not acceptable in court. Changes may be made by adding a codicil, which must be properly executed and signed in the presence of witnesses. If the changes are significant, a new will or trust may be needed.
Neglecting to coordinate joint accounts or Payable on Death accounts. If one child is listed as a joint owner on the account, they own the asset after the other owner dies and have no legal obligation to share the asset. If the intention is for all siblings to inherit equally, keep this in mind.
Digital assets need to be part of an estate plan. Digital assets outlive their owners if no one manages the accounts. Name a digital executor and prepare an inventory of accounts, usernames and passwords. Online services, a secure spreadsheet, or a simple notebook can be used.
Inform the executor of where documents can be found. Tell the executor where the will can be found. Similarly, tell representatives where they can find Power of Attorney, Healthcare Proxy and Living Will documents.
Preventing simple estate planning mistakes isn’t difficult. Taking the time to review documents and ensure all steps have been followed will spare heirs the expense of costly proceedings and potential family conflict.
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