10 Common Estate Planning Mistakes—Part 2

Because estate planning involves actively thinking about and planning for uncomfortable topics like death, old age, and disability, many people put it off or simply ignore it all together until it’s too late. Sadly, this unwillingness to face reality often creates serious hardship, expense, and trauma for those loved ones you leave behind. 

To complicate matters, the recent proliferation of online estate planning document services, such as LegalZoom®, Rocket Lawyer®, and Trustandwill.com, may have misled you into thinking that estate planning is a do-it-yourself (DIY) affair, which involves nothing more than filling out the right legal forms. However, proper estate planning entails far more. 

In fact, without a thorough understanding of how the legal process works upon your death or incapacity, along with knowing how it applies specifically to your family dynamics and the nature of your assets, you’ll likely make serious mistakes when creating a DIY will or trust. And the worst part is that these mistakes won’t be discovered until you are gone—and the very people you were trying to protect will be the ones stuck cleaning up the mess you created. 

Estate planning is not a one-size-fits-all endeavor. Even if you think your particular situation is simple, that turns out to almost never be the case. To demonstrate just how complicated estate planning can be, last week in part one, we highlighted the first five of 10 of the most common estate-planning mistakes, and here we wrap up the list with the remaining five mistakes.

6. Not Updating Beneficiary Designations

In addition to reviewing and updating your core estate planning documents like your will, trust, and power of attorney, it’s crucial that you also update the documentation for your other assets, especially those with beneficiary designations. Some of your most valuable assets, like 401(k)s, IRAs, and life insurance policies, do not transfer via a will or trust. 

Instead, these assets have beneficiary designations that allow you to name the person (or persons) you’d like to inherit the asset upon your death. Oftentimes, people forget to change their beneficiary designations to match their estate planning goals, which can lead to disaster. For example, if you get remarried and forget to update your 401(k), your ex-spouse from 20 years ago could end up inheriting your retirement savings.

Additionally, some people assume that because they’ve named a specific person as the beneficiary of their IRA in their will or trust that there’s no need to list the same person again as beneficiary in their IRA paperwork. Because of this, they leave the IRA beneficiary form blank or list “my estate” as the beneficiary. But this is a major mistake—and one that can lead to serious complications and expense for your loved ones.

It makes no difference who is listed as the beneficiary in your will or trust; you must list the person you want to inherit the asset in the beneficiary designation, or your heirs will have to go to court to claim the asset. 

And you should never name a minor child as a beneficiary of your life insurance policy or retirement accounts, even as the secondary beneficiary. If a child inherits assets, the assets become subject to the control of the court until they reach the age of 18, and then, the assets are distributed outright without any protection or direction.

If you want a minor to inherit assets, you can create a special trust to hold the asset until the child comes of age, and name someone you trust to serve as a successor trustee to manage the assets until that time. We can support you to choose the appropriate trust for this purpose to ensure your child gets the maximum benefit from their inheritance.

7. Improper Execution

You could have the best estate planning documents in the world, but if you fail to sign them, or sign them improperly, they will fail. This might seem trivial, but we see it all the time. A loved one dies, their family brings their estate planning documents to us, and we can’t help them because the documents were either not signed or were signed improperly.

To be considered legally valid, certain estate planning documents like wills must be executed (i.e. signed, witnessed, and/or notarized) following very strict legal procedures. If your DIY service doesn’t mention that condition (or you don’t read the fine print) and you fail to follow this procedure, the document can end up worthless.

8. Choosing The Wrong Executors Or Trustees

Another common mistakes involves naming improper people to serve in the various roles in your estate planning because of failure to understand what is involved with these responsibilities. The responsibilities of a successor Trustee to serve during your incapacity is different than those involved with serving as your successor Trustee after your death or your Executor, for example, and while for some families the same person may serve in both roles, for other families, that alignment does not make sense.

Working with a knowledgeable attorney means that you will get thorough explanations of what is expected in each of these roles, what qualities to consider when nominating someone for them, and counsel regarding who might be a good fit for you among trusted family and friends. Failing to truly grasp all of these elements could lead to conflict and chaos for you and your family if you appoint the wrong person.

We have seen countless clients come to us seeking to nominate their eldest child for everything in their estate planning on the sole basis of birth order. This can lead to disaster if the eldest is a bad money manager, disorganized, or unreliable.

We can guide you to choose the most appropriate and qualified executors and/or trustees to manage your estate and assets.

9. Unintended Conflict Between Family Members

Family dynamics are—to put it lightly—quite complex. This is particularly true for blended families, where spouses have children from previous relationships. If you try to go it alone using a DIY document service, you won’t be able to consider all of the potential areas where conflict might arise among your family members and plan ahead to avoid such disputes. After all, even the best set of documents will be unable to anticipate and navigate these complex emotional matters—but we can.

Every day we see families end up in lifelong conflict due to poor estate planning. Yet, we also see families brought closer together as a result of handling these matters the right way. When done right, the estate planning process is actually a major opportunity to build new connections within your family. 

In fact, preventing family conflict with proactive estate planning is our special sauce and one of the many reasons to work with us rather than relying on DIY planning documents, which will not identify nor prevent unforeseen family disputes. 

10. Failing To Properly Name Guardians For Minor Children

If you are a mom or dad with children under the age of 18 at home, your number-one estate planning priority should be selecting and legally documenting both long and short-term guardians for your kids. Guardians are the people legally named to care for your children in the event something happens to you.

If you haven’t named guardians for your kids yet, use the link  below to find out how you can take care of this critical task right now. And if you’ve named guardians for your minor children in your will—even with the help of another lawyer—your kids could still be at risk of being taken into the care of strangers. 

For instance, if you’ve named guardians for your kids in your will, what would happen if you became incapacitated and were no longer able to care for them? Does your estate plan specifically nominate guardians in the event of your incapacity?

Or perhaps the guardians you named in your will live far from your home and it would take them several days to get to your children. If you haven’t made legally-binding arrangements for the immediate care of your children, it’s highly likely that they will be placed with someone you didn’t choose until those guardians arrive. 

And does anyone even know where you will is located and how to access it? How can they prove they are your children’s legal guardians if they can’t even find your estate plan?

These are just a few of the potential complications that can arise when naming legal guardians for your kids, whether in your will or as a stand-alone measure. And if just one of these contingencies were to occur, your children would more than likely be placed into the care of strangers. Sadly, we see this happen even to those parents who’ve worked with lawyers to name legal guardians for their children, and that’s because most lawyers simply don’t know what’s necessary for planning and ensuring the well-being and care of minor children.

Life & Legacy Planning: Do Right By Those You Love Most

The DIY approach might be a good idea if you’re looking to build a new deck for your backyard, but when it comes to estate planning, it’s actually one of the worst choices you can make. Are you really willing to put your family’s well-being and wealth at risk just to save a few dollars?

If you’ve yet to do any planning, contact us to schedule a Family Wealth Planning Session, which is the first step in our Life & Legacy Planning Process. During this initial meeting, we’ll take you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you die or if you become incapacitated.

If, as a result of this process, we determine that you really do have a very simple situation and you want to create your own estate planning documents yourself online, we will support you to do that. However, if as a result of the process, you decide you would like us to create a plan for you, we’ll support you to find the optimal level of planning for a price that’s right for you.

And if you’ve already created an estate plan—whether it’s a DIY job or one created with another lawyer’s help—we are happy to review that as well and let you know if your plan is properly drafted and executed, and whether it has all of the protections necessary to prevent your children from being placed in the care of strangers.

In either case, working with us will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. We see estate planning as far more than simply planning for your death and passing on your “estate” and assets to your loved ones—it’s about planning for a life you love and a legacy worth leaving by the choices you make today—and this is why we call our services Life & Legacy Planning. Contact us today to get your plan started.