7 Estate Planning Mistakes to Avoid

When it comes to passing on what you've worked so hard for, avoiding common estate planning mistakes is crucial for a smooth transition. Think of it like securing your family's future: with a solid estate plan, you set a clear path to follow. Unfortunately, not everyone gets this right. Imagine all your life's work getting tangled up in legal issues just because you missed some crucial steps. It's important to be mindful of potential pitfalls that can derail your estate plan. This article outlines seven common estate planning mistakes that you need to avoid.

1. Procrastinating on Creating an Estate Plan

The most fundamental estate planning mistake is simply not having one. According to Caring.com's 2024 Wills Survey, only 32% of Americans have a will, indicating a decrease in estate planning compared to 2020. It's important to remember that an estate plan is essential for everyone, not just for those with significant wealth. Delaying the creation of this crucial set of instructions can result in assets ending up in unintended hands and potential conflict among survivors over these assets.

2. Hiding Your Estate Plan from Family

One of the most common estate planning mistakes is keeping your plan a secret from your family. Surprisingly, more than half of adults have no clue where to find their parents’ estate planning documents. This lack of communication can lead to complications when it's time to implement your financial plan. It's important to sit down with your family and share the location and details of your estate documents. This simple step can prevent a lot of trouble, maintain peace within the family, and ensure that your true wishes are well understood and ready to be fulfilled without a hitch.

3. Forgoing Professional Help

Creating a comprehensive estate plan ensures that your financial affairs align with your final wishes. While it might seem challenging, you don't have to shoulder that load alone. Bringing in a professional, such as a financial advisor or estate planning attorney, can lift a huge weight off your shoulders. 83% of people who team up with financial advisors report feeling less stressed about the ordeal. These professionals have the know-how to navigate the complex bits and help you put all the crucial pieces in place. So, rather than trying to figure it out alone, let a pro simplify the process for you.

4. Neglecting to Update After Major Life Events

Major life events like getting married, going through a divorce, or welcoming a new child are clear signs it's time to update your estate game plan. Don't overlook revising your life insurance policies and retirement account details during these times. Often, people miss out on informing their insurance company about changes in beneficiaries, which can lead to headaches later.

“Laws change, people change, wealth grows, and your outlook shifts as you walk through life. Your Will has to capture your intentions and wishes, not from 25 years ago but right now,” says Domenic Tagliola, Vice President, Tax and Estate Planner at TD Wealth Management.

Whether it's your IRA or other investment or bank accounts, keeping beneficiary designations up to date ensures your wishes align with your life's latest chapters. A quick check-in on these details can save your family uncertainty and stress in the future.

5. Missing a Designation for All Beneficiaries

Remember to designate a contingent beneficiary for your estate. This simple step is often overlooked, but it's important. If your primary beneficiary is unavailable to inherit, not having a backup can lead your estate into probate. This legal process can be costly and lengthy, consuming up to 10% of your estate's value and taking years to resolve. Appoint a trusted individual as a secondary beneficiary to avoid these expenses and delays.

6. Overlooking the Potential of Lifetime Gifting

It's important to remember that giving assets as gifts during your lifetime can be a smart strategy for minimizing estate taxes. By sharing your wealth within legal limits, you can reduce the size of your taxable estate. This way, you're not just leaving behind assets that could be subject to estate or state income taxes; instead, you're providing your loved ones with a tax-free gift. Incorporating gifting strategies into your estate planning can help ensure that more of your hard-earned assets go to the people you care about rather than being reduced by taxes.

7. Ignoring Advance Health Care Directives

Your estate plan should include a health care power of attorney and a living will to handle medical decisions if you can no longer express your wishes. Proper planning for these life-critical decisions ensures your medical care is handled the way you want it and relieves your family from making these tough choices on your behalf.

The Aligned Perspective: Estate Planning Mistakes

It's no secret: avoiding these estate planning mistakes now can save your legacy from becoming a cautionary tale later. A final piece of advice: involve a financial advisor in the process. These professionals can help you assess your situation, review your life insurance policy, understand tax consequences, analyze your investment accounts, etc.

Remember, creating estate plans is not a one-time task. It is an ongoing process that reflects the evolving script of your life. Providing a well-thought-out estate plan to your loved ones is the gift of peace of mind, knowing that you have taken care of everything—that's the true essence of a thoughtful legacy transfer.