Estate planning mistakes can upend your best efforts to protect your family's finances after your death. Everyone can benefit from learning the basics of estate planning, a process that entails getting your financial affairs in order so that your assets and possessions get passed on to the people or organizations you want to inherit them.
Having a comprehensive estate plan will also spare your loved ones the pain and expense of determining how to allocate your money and property while they’re grieving your loss.
What is an estate plan?
An estate plan consists of several legal documents that lay out what happens to your assets and liabilities when you die or become incapacitated. At the very least, it will consists of a last will and testament, a living trust, an advance directive and power of attorney.
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While you may feel an estate plan is unnecessary because you lack sufficient assets to pass along to your family, it isn't all about the money. It also entails making sure your wishes about future medical care are understood and can drastically reduce the potential for family disagreements.
One of the biggest disadvantages to not developing an estate plan while you’re healthy and of sound mind is that you remove the ability to make hard decisions on your own. In this case, the court may determine how to distribute your assets, or worse, your entire estate can go to the state. That's why it's so critically important to make smart estate planning moves now, and why everyone, including millionaires to anyone just starting out, should have an estate plan.
Common estate planning mistakes to avoid
Creating an estate plan can be complex and emotionally challenging, which may explain why less than one in three Americans have a will or any estate planning documents, according to Caring.com’s 2024 Wills and Estate Planning survey. Around a quarter of those without a will said they don’t ever plan on creating one and over 40% of respondents said they would not execute a will until they face a major health crisis.
Here are eight common estate planning mistakes to avoid.
1. Procrastinating
You certainly don’t want to be without an estate plan if, perish the thought, you become incapacitated because of a health emergency, such as a stroke or heart attack. Yet 43% of Americans without a will said they plan on waiting for a medical diagnosis to create a will, the Caring.com survey found. What's more alarming is that 23% said that nothing would motivate them to create an estate plan.
2. Creating an estate plan on your own
Estate planning documents that are incomplete or contain errors can cause complications when you pass. Consider hiring an estate attorney who understands the legalese to help you craft a comprehensive estate plan.
Generally, estate lawyers charge between $1,000 and $5,000 for an estate plan, depending on the complexity of the client’s assets, according to Legal Match. However, many estate attorneys offer free initial consultations. You can find an estate attorney in your area using an online directory, such as Justia, Legal Match, or the American College of Trust and Estate Counsel (ACTEC).
3. Leaving loved ones uninformed
Sharing your estate plan with your family and heirs can help prevent confusion, conflict, and unnecessary stress. Although the conversation can be difficult as you face your own mortality, it is important to sit down with the relevant people and have an open conversation about your intentions while you still can.
4. Keeping estate planning documents in a safe or safe deposit box
Estate documents kept tucked away in a safety deposit box or a safe in your home might be difficult to access. Instead, provide copies of your estate plan to your appointed executor or trustee, a trusted family member, and your estate lawyer. And make sure family members have contact information for each of these people.
5. Missing key documents
An incomplete estate plan can create confusion — and the potential for disputes among heirs when you pass. Make sure your plan includes these essential documents:
- Last will and testament. Often simply referred to as a "will," a last will and testament outlines your final wishes and instructions for the distribution of your assets and the management of your affairs after you pass.
- Beneficiary designations. Make sure to assign beneficiaries for bank accounts, 401(k) and IRA accounts, pensions, and life insurance policies.
- Durable power of attorney for medical care. This appoints a person to make medical decisions for you, on your behalf, should you become mentally or physically incapable of making them yourself. It often includes an advanced healthcare directive, which instructs your family and doctors to use or not to use life support.
- Durable financial power of attorney. This assigns an individual to manage your assets if you become incapacitated.
- Funeral instructions. Specify whether you’d like a burial or a cremation and the type of funeral service you want.
- Proof of identity. Gather your social security card, birth certificate, marriage and/or divorce certificate, and any prenuptial agreements.
- Deeds or loans for large assets. Collect this paperwork for homes, boats, and other big assets.
6. Overlooking digital assets
Many people forget to account for their digital assets, such as cryptocurrencies, social media accounts, cloud storage, and digital files when creating an estate plan. Consider assigning a digital fiduciary in your estate plan who has the right to access your digital assets when you pass.
7. Not updating your plan
Don't worry about updating your estate plan every month, or even every year. However, reviewing and revising your estate plan after major life events — a marriage, divorce, birth of children or grandchildren, or the acquisition of new assets — can prevent unwanted consequences, such as your assets being passed to unintended beneficiaries.
Because your assets may change, as well as your personal options, beliefs and relationships, it’s still a good idea to go over your estate plan about every three to five years.
8. Appointing the wrong executor or trustee
No matter how much time and effort you put into planning your estate, your wishes may backfire if the wrong executor is chosen. Choosing someone who may have a conflict of interest can lead to problems when it comes time for them to administer your estate. Select an individual (or individuals) who are unbiased, and get their permission before you assign them as an executor or trustee.
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