One of the most common New Year's resolutions is to finally "Get Estate Plan Drafted." It's a proverbial bit of advice on personal finance blogs and podcasts and if you've met with your financial advisor recently, they've likely been recommending that you get one put together as well.
As you get started, there are some common mistakes that I've encountered with my clients over the years. The good news? These are all avoidable and by taking the time to review and understand them, you can save yourself and your family from unnecessary costs, stress, and sometimes even family conflict.
So let's look at these mistakes and also some tips and suggestions on what you can do to avoid them.
1. Procrastination
One of the most common mistakes is putting off estate planning altogether. Life is unpredictable, and delaying this important task can leave your family unprepared in case of unexpected events. If you aren't sure where to start, feel free to reach out to my office and we can get you on the right path. Maybe you aren't ready for a full trust-based estate plan, maybe all you really need is some powers of attorney in case you become sick. Whatever your stage in the process, the best thing you can do is to take that first step.
Pro Tip: Use 2025 as your year to get organized. Create a checklist and set deadlines for completing various aspects of your estate plan.
2. Failing to Update Your Plan
I recommend every three years, you should be reviewing your estate plan documents. These are not “set it and forget it” documents. Major life changes, such as marriage, divorce, the birth of a child, or acquiring significant assets, necessitate updates to your plan. Laws surrounding taxes and estate planning may also change, making it essential to review your documents regularly.
Actionable Tip: Schedule an annual review of your estate plan to ensure it’s still relevant to your current situation and complies with the latest laws.
3. Overlooking Digital Assets
In our increasingly digital world, online accounts, cryptocurrencies, and other digital assets often go unaddressed in estate plans. Without proper documentation, your family might face challenges accessing or managing these assets after your passing.
What to Do: Include a list of your digital accounts and assets in your estate plan, along with login credentials and instructions on how they should be handled. If you need an inventory for your cryptocurrency, click here and you can download one for free.
4. Ignoring Beneficiary Designations
Beneficiary designations on accounts like life insurance policies, retirement funds, and bank accounts supersede your will. Failing to update these can lead to unintended consequences, such as an ex-spouse receiving benefits.
Quick Fix: Periodically review and update beneficiary designations to align with your current wishes.
5. Not Planning for Incapacity
An estate plan isn’t just about distributing assets after your death. It should also prepare for the possibility of incapacity. Without documents like a durable power of attorney and healthcare directive, your loved ones may face legal hurdles to manage your affairs or make medical decisions on your behalf.
Essential Documents:
6. Underestimating Estate Taxes
The future of the federal estate tax is up in the air, with a large downsizing coming soon unless Congress makes changes. In addition to the federal estate tax, some states have a state estate tax, some have an inheritance tax, and Maryland actually has both. So, you want to make sure if you have a sizable estate (usually above 3 million dollars), you're speaking to professionals to get advice about the estate tax implications.
Solution: Work with a tax professional to explore strategies like trusts, gifting, or charitable donations to minimize tax liabilities.
7. Relying on DIY Solutions
The rise of online templates and DIY estate planning tools has made it easier to create basic documents. However, these often fail to address complex family situations, tax laws, or unique asset distributions. Instead, what you'll normally get is your information mail-merged into a general document that may not be suitable for your needs. This is why these are always cheap - there's very little work that the website is even doing to assist you.
Why It Matters: Consulting an experienced estate planning attorney ensures your plan is legally sound and customized to your needs.
8. Forgetting About Guardianship for Minor Children
If you have young children, naming a guardian in your will is essential. Without this, the court will decide who takes care of your children, which may not align with your preferences.
How to Choose: Select a guardian who shares your values and can provide the stability your children will need.
9. Leaving Assets Directly to Minors
If your kids (or other family members who are inheriting) are under 18, they cannot legally manage those assets. You'll need a trustee to be appointed to assist them, and this can cause a major headache if it's missing from your documents.
Alternative: Establish a trust to hold and manage assets for your children until they reach a specified age.
10. Overcomplicating the Plan
Depending on where you get your information, many personal finance gurus will tell you that everyone needs a trust. If you need permission from someone to disagree, then I'll give it to you. Many people can benefit from a trust, but there are also many others who can use other estate planning tools to accomplish the same goal without the need for a trust.
Tip: Speak to your estate planning attorney and determine what are the best tactics you can use, you don't have to default to a trust every time.
11. Neglecting Business Succession Planning
For business owners, failing to plan for succession can jeopardize the future of the company. A lack of clear directives can lead to disputes among heirs or even the dissolution of the business.
Next Steps: Work with a professional to create a succession plan that outlines ownership transfers, leadership roles, and financial strategies.
12. Forgetting to Name a Backups for your Personal Representative or Trustee
Naming a single personal representative or trustee without a backup can create problems if that person is unable or unwilling to serve.
Best Practice: Always name an alternate personal representative or trustee to ensure continuity.
13. Disregarding Family Dynamics
Every family has unique relationships and challenges. Ignoring potential conflicts can lead to disputes that undermine your intentions. You don't have to have discussions with your family about your estate plan, but often times, doing so can help clarify the decisions you're making and minimize some of the conflict.
How to Avoid This: Address sensitive issues head-on and consider mediation if you anticipate disagreements among heirs.
14. Not Funding Your Trust
If you are creating a trust-based estate plan, this should be top of the list. This is the #1 mistake I run into with people who create a trust.
What to Do: Work with your attorney to ensure all relevant assets are retitled in the name of the trust.
15. Assuming Estate Planning is a One-Time Task
Estate planning is an ongoing process that evolves as your life circumstances change. Treat it as a living document that requires regular updates.
Final Reminder: Keep communication open with your family and advisors to ensure your estate plan remains effective.
Avoiding these common estate planning mistakes can provide peace of mind and protect your loved ones from unnecessary challenges. With careful planning and professional guidance, you can create a comprehensive estate plan that reflects your wishes and secures your legacy.
Do You Need an Estate Planning Attorney?
If you need a full estate plan, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.
