Posted in Probate & Trust Administration,Tax Law & IRS Defense,Wills, Trusts & Estate Planning

Estate planning plays a significant role in preparing for the future, yet it is often overlooked. For individuals at various stages of life—whether beginning a career, expanding a family, or nearing retirement—a comprehensive estate plan can provide clarity. However, errors in this process may result in challenges for surviving family members. Outlined below are seven frequent estate planning mistakes and approaches to avoid them.

1. Not Establishing an Estate Plan

A common misconception is that estate planning is exclusive to those with substantial wealth or advanced age. In reality, anyone with assets or dependents should consider having an estate plan. Without one, asset distribution will be determined by state law, which may differ from personal preferences.

Solution: Develop an estate plan appropriate to your circumstances, including documents such as a will, trust, power of attorney, and healthcare directives.

2. Relying Solely on a Will or Beneficiary Designations

While a will is a useful starting point, it does not address all situations, such as avoiding probate or managing incapacity. Furthermore, beneficiary designations can be a useful tool but are often too simple to handle distributions or contingent scenarios.

Solution: Evaluate the benefits of a revocable living trust to enable direct asset transfer to beneficiaries without probate. Accompany this with powers of attorney and healthcare directives for a more robust plan.

3. Failing to Update the Estate Plan

Significant life events, including marriage, divorce, the birth of children or grandchildren, or relocation, can affect an estate plan’s suitability.

Solution: Periodically review and update your estate plan—every three to five years or after major changes—to maintain accuracy regarding beneficiaries and other provisions.

4. Not Planning for Incapacity

Estate plans should account for scenarios where individuals become unable to manage their affairs due to illness or injury.

Solution: Incorporate a trust or at least a durable power of attorney and advance healthcare directives if you have a trusted individual to serve in this role.

5. Overlooking Tax Considerations

Estate and income taxes at the federal or state level may impact the value passed to heirs. Certain assets, such as life insurance or retirement accounts, can affect taxes. Basis for income tax purposes is an important consideration for your beneficiaries minimizing taxes.

Solution: Consult with legal and financial professionals to implement strategies for potential tax reduction.

6. Selecting an Unsuitable Fiduciary

The person assigned to oversee the estate or trust is responsible for managing its administration. Selecting someone unqualified or who cannot get along with others involved may cause complications or disputes.

Solution: Choose an individual who demonstrates responsibility and communicates well, or otherwise consider different strategies such as appointing a professional trustee.

7. Lack of Communication

Lack of communication regarding estate intentions can lead to misunderstandings or disputes among beneficiaries.

Solution: Discuss key aspects of the estate plan with relevant parties to promote clarity and reduce the likelihood of conflict.

Begin Planning

Estate planning is relevant to anyone aiming to clarify their wishes, support their loved ones, and streamline legal processes.