Common Mistakes People Make When Planning Their Estate

Finance & Estate Planning Comments Off

Estate planning is one of the most important financial steps you can take to protect your loved ones and ensure your wishes are carried out. Yet, many people make critical mistakes that lead to unnecessary stress, legal battles, and financial losses for their heirs.

According to a 2023 survey by Caring.com, two-thirds of Americans don’t have an estate plan in place, often because they believe they don’t need one or they plan to “get to it later.” Unfortunately, delaying or making errors in estate planning can cause significant complications down the road.

Avoiding these common mistakes can save your family time, money, and emotional distress.

Mistake #1: Not Having a Will

A will is the foundation of an estate plan, yet 67% of Americans don’t have one, according to Caring.com. Without a will, your estate is distributed based on state intestacy laws, which may not reflect your wishes.

Why This Is a Problem:

The court, not you, decides who inherits your assets.
It can lead to disputes among family members.
If you have minor children, the court will determine their legal guardian.

How to Fix It:
Draft a legally valid will that clearly outlines how you want your assets distributed and who will care for minor children. Updating it every few years ensures it stays relevant.

Mistake #2: Forgetting to Update Beneficiary Designations

Many assets, including life insurance policies, retirement accounts, and bank accounts, allow you to name beneficiaries. These designations override anything written in your will.

Why This Is a Problem:

If you forget to update beneficiaries, an ex-spouse or unintended person could inherit your assets.
Missing or outdated designations can cause delays in asset distribution.

How to Fix It:
Review your beneficiary designations every few years and after major life events like marriage, divorce, or the birth of a child.

Mistake #3: Failing to Plan for Incapacity

Estate planning isn’t just about what happens after you pass away—it also involves protecting yourself if you become incapacitated due to illness or injury. Without the proper legal documents, your family may have to go through lengthy court proceedings to manage your finances or make medical decisions on your behalf.

Why This Is a Problem:

Without a power of attorney, no one can manage your finances if you’re unable to.
Without a healthcare directive, doctors and family members may disagree on your medical care.

How to Fix It:
Set up:
✅ A Durable Power of Attorney to allow someone to manage your financial affairs if you’re incapacitated.
✅ A Healthcare Power of Attorney to appoint someone to make medical decisions on your behalf.
✅ A Living Will to specify your medical treatment preferences.

Mistake #4: Assuming a Will Avoids Probate

Many people believe that simply having a will allows their assets to pass directly to their heirs. In reality, most estates must go through probate, a court-supervised process that can take months or even years.

Why This Is a Problem:

Probate can be expensive, with legal fees often ranging from 3% to 7% of the estate’s value.
The process is public, meaning anyone can see details about your estate.
It can delay asset distribution to your loved ones.

How to Fix It:
Consider setting up a revocable living trust to bypass probate. Unlike a will, a trust allows assets to transfer directly to beneficiaries without court involvement.

Mistake #5: Not Planning for Taxes

Many people assume estate taxes only affect the ultra-wealthy, but depending on where you live, your heirs could face unexpected tax burdens.

Why This Is a Problem:

While the federal estate tax exemption is $13.61 million per person in 2024, some states have much lower exemption thresholds.
Certain inherited assets, like traditional IRAs, may trigger income taxes when withdrawn by beneficiaries.

How to Fix It:

If you have significant assets, consider gifting money to heirs while you’re alive to reduce the taxable estate.
Use tax-advantaged accounts, such as Roth IRAs, which allow tax-free withdrawals for beneficiaries.
Work with a financial advisor or estate attorney to explore strategies like charitable giving or setting up an irrevocable trust for tax-efficient wealth transfer.

Mistake #6: Not Discussing Your Plan with Family

Many people create an estate plan but don’t communicate it with family members. This can lead to confusion, resentment, and even legal disputes after they pass away.

Why This Is a Problem:

If heirs don’t understand your wishes, they may contest the will or argue over asset distribution.
Family members may be caught off guard about responsibilities, such as being named executor or power of attorney.

How to Fix It:
Have a family meeting to explain the key details of your estate plan. While you don’t need to disclose exact amounts, letting your heirs know what to expect can prevent future conflicts.

Mistake #7: Relying Only on DIY Estate Planning Tools

Online estate planning tools can be useful, but they don’t always account for complex family situations, changing tax laws, or state-specific legal requirements.

Why This Is a Problem:

Generic templates may not be legally valid in your state.
They may not include important provisions for blended families, special needs heirs, or tax planning.
A simple mistake (like failing to sign properly) could invalidate your entire estate plan.

How to Fix It:
Consult with an estate planning attorney to ensure your plan is legally sound and tailored to your specific needs. Even if you use online tools, having a professional review them can prevent costly errors.

How to Get Your Estate Plan on Track

If any of these mistakes sound familiar, it’s not too late to make adjustments. Here’s how to get your estate plan in order:

✅ Review Your Will and Beneficiaries: Update any outdated information.
✅ Set Up a Power of Attorney and Healthcare Directive: Ensure someone can manage your finances and medical decisions if needed.
✅ Consider a Trust: If you want to avoid probate, a trust might be beneficial.
✅ Plan for Taxes: Work with a professional to explore tax-efficient wealth transfer strategies.
✅ Communicate Your Wishes: Talk to your family to avoid misunderstandings and disputes.

Conclusion

Estate planning isn’t just for the wealthy or elderly—it’s essential for anyone who wants to protect their loved ones and ensure their wishes are honored. Avoiding these common mistakes can save your family from unnecessary legal and financial challenges.

By taking the right steps now, you’ll create a plan that provides security, minimizes stress, and leaves behind a lasting legacy.