5 Ways to Mess Up Estate Planning

Maintaining a valid and current estate plan is vitally necessary in order to ensure the efficient and orderly dispersion of assets after a person dies. However, even a small mistake can create huge problems during the settlement process, and in many cases, these errors are impossible for anyone to correct. There are several key errors that can make an estate plan defective, most of which can be easily avoided by reviewing your or your client's plan periodically and keeping it up to date. In this article, we discuss five of the most common estate planning mistakes.

Key Takeaways

  • After a major life event (such as a birth, death, marriage, or divorce), review your estate planning documents to ensure your list of beneficiaries reflects who you want to receive your assets.
  • Omitting important legal documents in your estate plan could mean your estate will go through a lengthy and expensive probate process.
  • Poor recordkeeping will make it challenging for your estate's executor to track down and distribute your assets after your death.
  • Poor communication with your heirs can lead to fractured relationships and legal wrangling.
  • Failing to create an estate plan can cause heartache for your heirs, along with the high court costs and legal fees needed to resolve your estate.

1. Failing to Update Your Beneficiaries

Marriage, divorce, birth, and death can all affect who will receive your assets. Make sure that those to whom you intend to leave your assets are clearly listed as such on the proper forms. Whenever any one of these changes, remember to make the correct updates on all financial, retirement, and insurance accounts and policies as well as in your wills, trusts, and other legal documents.

2. Omitting Legal Documents 

Your will may be in perfect order, but it won’t exempt your assets from the probate process in most cases if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, such as life insurance, retirement plans, and annuities. Financial accounts that have a transfer on death (TOD) or payable on death (POD) beneficiary designation are also exempt from probate law, although there are benefits and drawbacks to these types of designations.

But all other assets are generally subject to the state-appointed process of settling your estate. Revocable living trusts are the primary instrument that is used to exempt all other assets from probate, a process that can drag on for a long time in the event that the will is contested and incur substantial court and legal fees.

32.9%

The percentage of American adults with a will in 2021, according to Caring.com’s "2021 Wills and Estate Planning Study."

3. Poor Recordkeeping 

There are few things that those who will settle your estate will enjoy less than having to spend a great deal of time and effort finding, organizing, and tracking down all of your assets and belongings without you there to direct them where to look.

The ultimate key to any successful estate plan is a concise letter of instruction that tells your executor where everything is located, the names and contact information of everyone they will have to deal with, such as your banker, broker, insurance agent, financial planner, attorney, landlord, or tenants, etc. You should also list all of the financial websites you use with their login information so that your accounts can be conveniently accessed.

4. Poor Communication 

Telling your heirs that you will do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure route to hurt feelings, fractured relationships, and legal wrangling in some cases. If your situation is somewhat complex and may require additional explanation, you may be wise to write a simple letter of explanation that outlines your intentions or tells them why you changed your mind about something. This could go a long way toward providing closure or peace of mind, even though it carries no legal authority. 

5. Failing to Create a Plan 

Although this error is easily the most obvious one in the list, it is also one of the most common. History contains many stories of very, very wealthy people who lost virtually all of their estates to court fees and legal costs because they failed to plan ahead in this area. Having a plan is especially important for those who may have to pay estate taxes

Why Is Estate Planning Important?

An estate plan allows you to choose who will inherit your assets and possessions after you die. It helps you protect your loved ones, such as a spouse and children, so that their needs can be taken care of after your death. A properly written estate plan can reduce or eliminate estate taxes, court costs, and legal fees. It can also reduce the amount of family fighting and tension that can occur if you die intestate.

What Does an Estate Planning Attorney Do?

Estate planning attorneys, also known as probate or estate law attorneys, are responsible for helping their clients develop a written estate plan. Estate planning attorneys are licensed law professionals knowledgeable in state and federal laws related to estates and the probate process. They can help with a variety of estate planning tasks, such as creating wills and trusts, designating beneficiaries, and establishing a durable power of attorney.

What Is the Role of an Executor in Estate Planning?

An executor's primary responsibility is to carry out the instructions of a deceased person as outlined in a will or trust. The executor is appointed by the person who made the will (known as the testator). In the event there is no executor, a court will appoint one.

An executor has many duties. This includes accounting for all assets listed in the estate planning documents, ensuring all the debts of the deceased are paid, and transferring assets to the correct beneficiaries.

The Bottom Line

These are just some of the common estate planning errors that frequently occur in the estate settlement industry. For more information on what you need to do to ensure that your assets are dispersed according to your wishes, contact a qualified estate planning attorney. 

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "IRM 5.5.1.5: Probate and Non-Probate Property." Accessed Nov. 27, 2021.

  2. Caring. "2021 Wills and Estate Planning Study." Accessed Nov. 27, 2021.

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