A well-thought-out estate plan provides future financial security for yourself and your loved ones and preserves your legacy (often for decades to come). It’s critical, however, to work with a team of professionals to establish an estate plan that’s error-free and comprehensive enough to address every facet of your financial picture. Otherwise, you may be prone to making mistakes that have the potential to derail your plans or impact your loved ones’ inheritances.
Here are five common estate planning mistakes to avoid when establishing or updating your estate planning documents.
Mistake #1: Not Making a Plan at All
The biggest mistake anyone can make in terms of estate planning is neglecting to establish an estate plan at all. Unfortunately, accidents happen — meaning there’s no guarantee that anyone will make it to tomorrow. For that reason, there’s no time like the present to start making plans, checking beneficiary designations, and talking to your loved ones about your intentions.
Not only can passing without a plan be stressful for surviving family members to navigate, but it exposes your estate to certain risks as well. If you die without a will, for example, your estate must go through probate, which is a costly, time-consuming, and public legal process that puts the state in charge of distributing your assets.
Neglecting to establish an estate plan also means passing up certain tax-minimization opportunities. If you own a sizable estate that exceeds the federal estate tax exemption level, it could be hit with a large tax before passing to your beneficiaries. Finding ways to reduce your estate’s net worth during your lifetime can help preserve more of it for your loved ones to enjoy.
Mistake #2: Not Thinking Broadly About Your Legacy
Estate planning is about more than passing your assets on to the next generation. When created strategically and thoughtfully, your estate plan can help you build a legacy that leaves a lasting impact on many people and organizations for years to come.
Your estate plan could, for example, help you establish generational wealth for children or grandchildren. You may choose to establish trusts that provide your grandchildren with financial security at different milestones throughout their lifetime, such as when they graduate college, have a child, start their own business, etc.
If you’re especially charitably minded, you can also use your estate plan to share your good fortune with organizations that are near and dear to your heart. Many high earners opt to incorporate charitable giving into their estate plan through common tax-focused strategies like donor-advised funds or charitable trusts.
Mistake #3: Not Leaving a Full Inventory of Your Assets
As all of us age, we tend to accumulate more assets and accounts — and it’s easy to lose track over time. But just think, if you can’t remember what accounts exist, where they exist, or how to access them, how can you expect your family members to know after your passing?
As a part of your estate plan, it’s important to create a detailed inventory of all assets and accounts (and update it regularly). Having a full birds-eye view can help your estate executor streamline the settlement process and will significantly reduce stress for your loved ones.
Once you’ve created an inventory, make it accessible to a few trusted family members. Ideally, it should be digitized and stored on the cloud to maximize security and accessibility. Just as it’s important for the right people to have access to this list, it’s important to keep it away from the wrong people as well.
Mistake #4: Neglecting Your Online Assets
Your estate goes beyond physical property, as it’s likely you have a robust online presence and collection of digital assets as well. A common mistake people make when establishing and updating their estate plan is neglecting to consider how these digital assets should be handled after their passing.
Similar to creating an inventory of accounts and assets (as we mentioned earlier), make a document that includes any online accounts, their login information, and the answers to security questions (if applicable). Again, store it somewhere secure and accessible, and only share access to this document with a few trusted family members.
Your digital assets and accounts could include:
- Email
- Social media pages
- File sharing and storage (which may include photos, videos, and sound clips)
- Subscriptions or memberships to online publications or services
Mistake #5: Forgetting That Your Estate Plan Isn’t Just for After You Die
A common estate planning misconception is that your estate plan only pertains to your estate after your passing. In reality, a comprehensive estate plan can help you make arrangements and decisions in the event you become incapacitated or unable to advocate for yourself.
For example, you could become temporarily incapacitated due to a sudden accident. If you’re in the hospital in a coma, who do you want to make medical decisions for you? Do you have certain wishes, such as a “do not resuscitate” request? If so, you need to create a medical directive and healthcare power of attorney, both of which can help ensure your wishes are followed in the event you’re unable to communicate.
Estate planning can also help you prepare for the possibility of cognitive decline due to Alzheimer’s, dementia, or other diseases. Proactive planning gives you the power to continue living the life you want, even if you become unable to dictate your wishes.
It’s Time to Update Your Estate Plan
An estate plan is meant to be a living, ever-evolving piece of your financial picture. As you move through various stages of life and acquire more assets, you’ll need to update your plan to reflect your current circumstances.
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