10 Estate Planning Mistakes to Avoid: Protect Your Family and Assets

Protect Your Family’s Future: Avoid These 10 Common Estate Planning Mistakes

Estate planning is often misunderstood and mistakenly seen as something only for the wealthy or that you can postpone. Real estate planning is about ensuring that your assets go to the right people in the most cost-effective and efficient way after your death. It also ensures that your preferences for medical and financial decisions are honored in the event of incapacity. Many people overlook key estate planning steps, leading to common estate planning mistakes in their arrangements.

Failing to plan or making mistakes in your estate planning can lead to serious consequences, such as unintentionally disinheriting loved ones, overpaying taxes, and triggering costly, lengthy legal disputes—common estate planning mistakes to avoid. These issues can result in family conflicts and legal battles that may persist for generations.

Estate planning strategies may vary by state, particularly regarding estate or inheritance taxes, probate, and the effects of dying without a will. However, several key guidelines and common mistakes apply to most situations.

In this article, we’ll explore the top 10 estate planning mistakes to avoid, along with an 11th bonus mistake you’ll want to avoid.

1. Delaying Estate Planning

One of the most critical estate planning mistakes to avoid is delaying the process. Putting it off can create unnecessary challenges for your loved ones after you’re gone. While it’s natural to avoid considering mortality, postponing your estate planning can lead to unforeseen issues that have lasting consequences for your family. Unfortunately, sometimes tomorrow never comes, and without a plan, your loved ones may face unnecessary difficulties during an already challenging time.

Another common reason people postpone estate planning is that we don’t think we have an “estate.” This thought is particularly true for younger individuals or couples who don’t realize that whatever you own, your car, bank account, or even your bitcoin, are assets that can pass to who you would want to get them by some simple planning.

Estate planning is essential to have a say in how to divide your property after you pass away. If you die without a will, the state decides how to distribute your assets. The laws differ from state to state and can vary greatly depending on whether you were married, single, or had children.

2. Believing a Will Can Avoid Probate

A common misunderstanding and one of the mistakes in estate planning to avoid is assuming that having a will alone would help your family avoid the probate process. A will is a legal document that doesn’t have any legal effect until it goes through probate. In most states, the executor you name–the person responsible for carrying out the wishes in your will–gains power only after the probate court files and accepts your will. The courts’ job is to oversee the process to ensure your wishes are honored, and your assets are distributed to those that you intend for them to be.

So why would you want to avoid the probate process then? Because it can be expensive and time-consuming (often a year or more), and it creates a public record that anyone can see. Not to mention that a disgruntled heir can contest your will. That, if nothing else, will dramatically slow down the probate process, or worse, have your will tossed out altogether.

3. Missing or Incorrect Beneficiary Designations

Failing to review and update beneficiary designations is another common estate planning mistake to avoid. Many assets allow you to name beneficiaries that, if recorded properly, avoid the probate process altogether. These include life insurance policies, IRAs, 401(k)s, and other retirement accounts. Bank and brokerage accounts, savings bonds, and other assets can also name a beneficiary by establishing a “TOD” or transfer-on-death beneficiary designation.

However, you can only avoid probate if you designate a person or trust to receive the asset. Naming your ‘estate” as the beneficiary or failing to name a beneficiary can mean a lengthy and potentially costly probate process.

4. Forgetting to Fund a Revocable Trust

Unlike a will, having a revocable living trust can help you avoid probate; although some wills will create a trust within them, called a testamentary trust, your assets will have to go through probate first before making their way into the trust.

A living trust is a legal document that spells out how your assets are handled after you pass away or if you become incapacitated. In a trust, you name a trustee to oversee that your wishes are carried out versus the probate court, and as such, if adequately funded before death, it means skipping the probate process altogether for assets you “put into” the trust before you die.

Funding your trust simply means retitling assets such as real estate, bank, and investment accounts, vehicles, or other valuable possessions into the name of your trust or having your trust named as a beneficiary on certain assets. Without “funding” your trust before you die, your assets will have to go through the probate process first before making their way into your trust, somewhat defeating one of the primary purposes of establishing the trust in the first place.

5. Leaving Assets to a Minor

If you’re a young family with minor children, leaving property, insurance proceeds, or other assets to them can be tricky. The trouble is that minors can’t legally take ownership of assets left to them because they’re underage. You will need to instead name a trusted person who will handle the money for them until they can do it themselves, and better still, establish a trust for their benefit that spells out exactly how you would want your assets used for their benefit. Failure to do so could result in the court deciding who should watch over these funds until they reach the age of legal majority.

6. Ignoring the Unique Needs of Your Beneficiaries

Many estate plans and beneficiary designations divide assets equally amongst family members, particularly when it comes to leaving assets to one’s children. Depending on the size of the estate, this may not always be the best course of action, particularly if one or more family members are not very good at managing money, are now, or have had a drug dependency in the past, have a spouse who is a spendthrift, or who may be contemplating a divorce.

Often, leaving assets in a trust for these family members may be a better way to ensure they are receiving their share of your estate, but in such a way that ensures the assets left for them aren’t squandered, lost in a divorce to that son or daughter-in-law you were never too fond of or used in a manner that is harmful to their well-being when you’re gone.

Leaving assets directly to a child or family member who is receiving Supplemental Security Income (SSI) is also not recommended as it may jeopardize their benefit payments until such time the funds left to them are depleted. As such, a Special Needs Trust may be a more suitable way to leave assets behind so that they can help meet their specific needs without losing their SSI benefits.

7. Believing a Will is Sufficient for Estate Planning

Certainly, having a will is better than not having one, but a will is only one of the documents you need to cover all your bases.  A will and the instructions you included therein only take effect after you are gone; what if you become incapacitated before then?

Not having a Durable Power of Attorney (DPA) in place, naming someone (a spouse, child, or trusted family member typically) who can help you manage your financial affairs if you are unable to do so, can be a major problem. Without having a DPA in place, a spouse or other family member would need to go to the local probate court to file a guardianship petition to be appointed as a guardian over your affairs, which often includes periodic reporting requirements to the court on how the guardianship was utilized.

In the event that you are incapacitated and unable to make medical decisions on your behalf, a Health Care Proxy (HCP), also sometimes referred to as a living will, is needed. An HCP can appoint your spouse or other trusted family member to act as your agent for medical decisions. The HCP ensures that your medical treatment instructions are carried out.  Without an HCP in place, your family may disagree on what you would have wanted, and like not having a Durable Power of Attorney, it may require a family member to go to court to gain specific court authority to make certain medical decisions on your behalf.

8. Not Updating Your Estate Plan After Major Life Changes

Forgetting to change beneficiaries on one or more accounts and insurance policies after a death or divorce, in addition to updating your will and other legal documents, is quite common. If your will removes your ex and leaves everything to your children, but you don’t update your beneficiary designations on life insurance or retirement plans, your ex may still receive the proceeds, regardless of your will.

You should always update your estate plan if you remarry or move to a new state or if there’s a birth, death, or marriage of one of your beneficiaries.

9. Adding Your Child as a Co-Owner of an Asset

You may add your child’s name to a bank account or on real estate to avoid probate without realizing the risks involved. When you add a child or family member as a joint owner, the asset automatically passes to them at your death. This can bypass your wishes to divide the asset among other family members. As joint owners, the asset becomes vulnerable to your co-owner’s creditors, judgments, liens, or divorce. Additionally, they may withdraw the funds for their benefit before your death.

I’ve heard clients say many times that they trust their child or family member to divide an account among siblings after their death. While that may be the intention, the child has no legal obligation to follow through. I’ve seen how money can change people, and it’s heartbreaking to witness families torn apart when a joint owner, child, or other family member refuses to divide the proceeds as intended.

10. Ignoring the Financial Impact of Nursing Home Care

Many people plan their estates without considering the potential financial burden of nursing home care. Failing to plan for long-term care costs can result in spending down assets intended for your heirs. This leads to one of the most significant estate planning mistakes. All too often, estate plans don’t adequately address the financial impact of losing one’s health.

If you do not anticipate the cost of long-term care, your estate may not have enough resources left to provide for your family or legacy. Mitigate this risk by planning ahead to ensure that your estate still provides for your needs while avoiding the depletion of assets that could otherwise pass to your loved ones.

11. Leaving A Tax Burden for Heirs

Finally, here’s an essential common estate planning mistake to avoid: Leaving a tax burden for your heirs.

Improper estate planning can create a significant tax burden for your children, grandchildren, or other heirs. This could potentially drain a large portion of your estate through taxes. Assets like retirement accounts, life insurance, and certain investments may be subject to income and estate taxes, leaving your loved ones with less than you intended.

Don’t overlook the potential estate and income taxes that could arise upon your death, particularly if you own non-qualified annuities, savings bonds, or retirement plan assets. These can be subject to double taxation. Prevent this by working with an estate planner and financial advisor alongside your attorney to structure your estate efficiently, minimizing tax liabilities for your heirs. A financial planner can help you reduce or even eliminate these taxes.

Conclusion

Many assume their estate planning is complete once their documents are signed and trusts are funded, only to discover too late that taxes, fees, and nursing home costs can quickly deplete their estate. 

If you’re concerned about common estate planning mistakes to avoid, consult with a Fee-Only Financial Planner who specializes in estate planning and asset protection strategies, working alongside your attorney. This partnership ensures you understand all available options and methods to protect your assets if your health declines. 

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