5 Common Estate Planning Mistakes to Avoid

Sadly, many Americans put off estate planning or ignore it altogether. When it comes to protecting your family and assets, however, there are some estate planning mistakes you cannot afford to overlook.

Below are five of the most common estate planning mistakes and what you can do to help avoid them.

1. Not Having an Estate Plan

This is one of the biggest estate planning mistakes, especially among younger professionals and young parents who assume they do not need a plan yet.

If you pass away without an estate plan, known as dying intestate, state law generally determines how your estate is distributed. The rules vary by state and may not reflect what you would have chosen for your family.

Without proper planning, you may also lose the opportunity to clearly nominate the people you want to manage your estate or express your preferences regarding guardianship of your minor children. Court involvement may become necessary depending on your circumstances and state law.

Creating an estate plan gives you an opportunity to put your wishes in writing and make important decisions before a crisis occurs.

2. Failing to Properly Handle Beneficiary Designations

Estate planning involves more than preparing a will or trust. You also need to review the beneficiary designations on accounts such as life insurance policies and retirement accounts.

In many circumstances, a beneficiary designation determines who receives an account or benefit, regardless of what your will says. That means an outdated beneficiary designation can undermine an otherwise carefully prepared estate plan.

Review your beneficiary designations whenever you experience a major life change, such as marriage, divorce, the birth of a child or the death of a beneficiary.

3. Not Reviewing Your Estate Plan Regularly

Creating an estate plan is not a one-time task. Your circumstances can change, and your estate plan should change with them.

As a general planning practice, consider reviewing your documents every three to five years and whenever you experience a major life event, such as:

• A new child or grandchild
• A significant increase or decrease in your assets
• Marriage or divorce
• The death or incapacity of a beneficiary or decision-maker
• Moving to a new state
• Major changes to your family or financial circumstances

Regular reviews can help ensure your estate plan continues to reflect your wishes and protect the people you care about.

4. Not Funding Your Trust

If your estate plan includes a trust, creating the trust document is only part of the process. You also need to make sure the appropriate assets are properly transferred to or otherwise aligned with the trust.

A trust generally only controls assets that are actually held in the trust or otherwise connected to it through an appropriate transfer or beneficiary designation. An unfunded or improperly funded trust may therefore fail to accomplish some of the goals you intended.

In some circumstances, assets that remain outside the trust at death may need to go through probate. This is one reason proper trust funding and ongoing estate plan maintenance matter.

Learn more about wills and trusts and how they can fit into an overall estate plan.

5. Giving Too Much Away, Too Soon

Leaving an inheritance is an important part of estate planning, but simply giving a beneficiary unrestricted access to a large inheritance may not always achieve your goals.

Depending on the beneficiary and your circumstances, you may want to consider how and when an inheritance should be distributed. Trust planning can sometimes provide a way to structure distributions over time and give beneficiaries additional protection and guidance.

The right approach depends on your family, assets and goals. An estate planning attorney can help you evaluate your options rather than relying on a one-size-fits-all approach.

Key Estate Planning Considerations

When reviewing your estate plan, consider whether your current documents and arrangements address:

• Who should inherit your assets
• Who should manage your estate
• Who should make financial or health care decisions if you become incapacitated
• Who should care for your minor children if necessary
• Whether your beneficiary designations remain current
• Whether your trust has been properly funded
• Whether your assets and account ownership align with your estate planning goals
• Whether your plan still reflects your family’s current circumstances

How to Avoid Common Estate Planning Mistakes

The best way to avoid these mistakes is to treat your estate plan as an ongoing process rather than a document you create once and forget.

Take some time to review your current documents, beneficiary designations, trust funding and overall goals. If you are unsure whether your existing plan still works for your circumstances, an estate planning attorney can help you identify gaps and determine whether updates are needed.

Protect Your Family With a Thoughtful Estate Plan

No one wants to think about their own incapacity or death. That discomfort is one reason many people avoid estate planning altogether.

Taking action now can help you make important decisions while you are able to do so and give your family clearer instructions for the future.

Ready to review your estate plan? Contact Littleton Legal to discuss your goals and learn how a carefully prepared estate plan can help protect you, your family and your assets.

Frequently Asked Questions About Estate Planning Mistakes

What is the biggest estate planning mistake?

One of the biggest mistakes is failing to create an estate plan at all. Without an appropriate plan, state law may determine how certain assets are distributed, and court involvement may become necessary in matters such as probate or guardianship.

How often should I review my estate plan?

Many people benefit from reviewing their estate plan every three to five years. You should also consider a review after major life events, such as marriage, divorce, the birth of a child, a significant change in assets or a move to another state.

Why are beneficiary designations important?

Beneficiary designations can determine who receives certain retirement accounts, insurance proceeds and other benefits. An outdated designation can therefore conflict with the intentions expressed elsewhere in your estate plan.

What happens if my trust is not funded?

A trust generally only controls assets that have been properly transferred to it or otherwise connected to it through an appropriate legal mechanism. Assets left outside the trust may not receive the same treatment and could require probate depending on the circumstances.

Can I change my estate plan after creating it?

Many estate planning documents can be amended or updated, although the rules depend on the document and applicable state law. Reviewing your plan after major life or financial changes can help ensure it continues to reflect your wishes.