Top Estate Planning Mistakes (And How to Avoid Them)

We all hear stories of celebrities such as Prince dying without proper estate documents. It’s natural to wonder how they could be so irresponsible. But estate problems are not limited to irresponsible people. In fact, even people who had a formal estate plan created may still be leaving their family with problems – especially if it’s been many years since the plan was last reviewed and updated. As we go through the financial planning process with our clients, we frequently discover issues that if left unaddressed, could cause big problems for their families.

Here are the top estate planning mistakes we commonly see.

1) No Estate Documents

Estate planning is something we all need to do, but many people avoid it at all cost. Either it’s something we don’t want to think about, don’t have the time to do, don’t understand it or think we don’t have a large enough estate to warrant it. In fact, as revealed in a recent , only four in 10 American adults have a will or a living trust.

Estate planning documents do more than just decide where your assets go when you die. They spell out end-of-life medical care wishes, decide who takes care of minor children if something happens to you or helps take care of general private affairs if you become incapacitated or die.

If you don’t have an estate plan, your state has one for you. This is called dying “Intestate.” And more times than not, what the state has in plan for you is not how you want it to be done. This makes estate planning documents all the more important.

By putting your documents in place, you will ensure your assets pass on how you want them to. Your beneficiaries will thank you!

2) Out of Date Estate Documents

Many times estate planning documents are completed, put in a safe place and forgotten. However, because of changes in the law, your family circumstances and viewpoints, estate plans should be reviewed periodically. Most attorneys recommend reviewing and updating your estate plan every three to five years.

Other life events trigger a need for a review. These include:

  • Changes in federal or state estate laws
  • Moving to a different state
  • Marriage/ Divorce
  • Having children
  • Children are now adults
  • Changes in your financial situation

What is important to us, who we want to take care of our affairs, who we want to leave our things to and our end of life decisions can all change. Having your documents reviewed periodically will keep them up to date and relevant to your current situation.

3) Assets Not Titled Correctly

Account titling refers to whom is listed as the owner of an account or property. The most common mistake here is not changing the title of major assets to a trust after having a trust created. You may have a trust, but if the assets are not titled in the trust, the trust does not own the assets and the assets may not pass on how it is dictated by the trust.

4) Beneficiaries Missing or Not Up to Date

Life insurance and retirement accounts do not pass under your will or trust but are governed by beneficiary designations. While reviewing beneficiary designations with our clients, we have seen mistakes ranging from no beneficiaries named to incorrect beneficiaries such as ex-spouses named.

The beneficiary named on a life insurance policy or retirement account is the person who will receive the asset. If no beneficiary is named, it can trigger the probate process, and the assets may go to the estate rather than directly to the intended beneficiaries. This can result in unintended income tax consequences for your estate and your beneficiaries.

Reviewing your beneficiaries periodically to ensure they are named correctly is an important exercise to go through every few years.

Even though making sure your estate is in order may not be an enjoyable exercise, it is an important part of financial planning, and one that will bring you peace of mind. Surely your family will be grateful for not being left with a messy estate settlement process. If you feel you are in need of an estate planning review, let us help you go through this exercise.

About Teresa Kakadelas

Teresa Kakadelas, CFP®, CDFA™ is a lead advisor and a member of the firm’s Executive Committee. Teresa heads up the firm’s Financial Planning Team, continually identifying and helping solve financial planning issues for clients. Teresa started the firm’s “Wise Women” luncheons, designed to help clients with financial education. Teresa and her family live in Carlsbad. She enjoys traveling, cooking and spending time with her family.

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