Many people believe that a simple will is all they need to accomplish their goals for the future. However, a flawed estate plan can create significant complications, expenses, and challenges for your loved ones. Life changes, laws evolve, and even the best intentions can fall short, potentially leaving family members facing court battles, unexpected taxes, or difficult disagreements. Here are 12 common mistakes in estate planning that may jeopardize your hard-earned wealth and property, impact your legacy, and place unnecessary burdens on your loved ones. Ask yourself: Is my current plan truly ready for the future, or is it time for a review?
- Lack of Healthcare Planning
Many deaths occur in hospitals or other healthcare facilities, where patients near the end of their life may be unable to make or communicate their decisions. Without a plan, families and providers can be left guessing. Advance directives outline your preferences for end-of-life care; healthcare powers of attorney appoint a trusted person to make decisions on your behalf when you cannot. Together, these documents are designed to help honor your medical wishes and can be paired with financial powers of attorney to help protect your property and finances during incapacity.
- Failure to Appoint Financial Decision-Makers
There may come a time when you need someone to manage your financial and legal affairs, either because you are incapacitated or simply unavailable for a specific transaction. A financial power of attorney allows you to appoint a trusted person to act on your behalf, helping to address bills and important matters without the need for court intervention.
- No Will or Trust
Without proper planning, your estate may be held up in the often long, public, and costly probate process for months or even years after your death, at a great emotional and financial cost to your family. If you have no will, a judge will apply the state’s statutory default distribution plan to determine who will receive an inheritance from you and how much they will receive. This plan may not match your wishes.
- Lack of Attention to Digital Assets
Without a plan for your digital assets (such as digital photos, cryptocurrency, nonfungible tokens, social media profiles, content creation accounts, and accounts associated with e-commerce businesses) your loved ones may lose access to critical documents, photos, memories, and other important family records. They may also be unable to access any bank accounts or money associated with or generated by your digital assets or accounts.
- Failure to Anticipate Your Children’s Possible Future Divorces, Creditors, or Lawsuits
Although it is not pleasant to consider, if your children divorce, accumulate significant debt, or face lawsuits at some point in the future, their inheritance could be at risk and may end up in the hands of unintended people. A trust may help protect your legacy and your children’s inheritance.
- Failure to Provide for an Intentional Transfer of Family Values
Do you want to pass on more than just money to your loved ones? A comprehensive estate plan can include provisions regarding family meetings, a family mission statement, and custom planning for your loved ones so that your values may continue into the next generation. Your custom plan may include allowing loved ones to choose a charity to receive part of your accounts or property, setting money aside for future family reunions or travel, or building in provisions to incentivize major milestones such as getting married or graduating from college.
- Suboptimal Individual Retirement Account (IRA) Planning
Retirement account beneficiaries generally have the option to receive funds in a lump sum, which could result in a substantial income tax bill for them. If this is not your intent, it may be important to plan these accounts properly to minimize potential tax consequences. A standalone retirement trust, sometimes called an IRA trust, can help safeguard retirement funds from premature or imprudent withdrawals as well as from beneficiaries’ creditors and financial predators while still making those assets available to support your beneficiaries.
- Disorganized Record-Keeping
Proper planning will help prevent your loved ones from spending months or years trying to piece together your finances or interpret your wishes. A comprehensive estate plan enables you to organize your finances and create a clear system for keeping your important documents, financial information, and instructions about your wishes in one place, readily accessible to your loved ones when they need them most.
- Failure to Consider a Surviving Spouse’s Remarriage, Creditors, and Predators
If your surviving spouse remarries, your estate could end up in the hands of people you never intended. Likewise, if financial predators victimize your surviving spouse—something increasingly common with an aging population—your family may discover too late that your legacy is at risk. A trust may help protect your assets after you are gone.
- Family Feuds Over Sentimental Items
Sometimes conflicts are not just about money. Disputes among your loved ones can occur over items that have little monetary value but high sentimental value. You can help avoid such conflict with a personal property memorandum that lists who will receive special items, such as artwork, family heirlooms, and jewelry. In addition to financial accounts, your plan should include careful consideration of important family items.
- Health Insurance Portability and Accountability Act (HIPAA) Privacy Lockout
If incapacity leaves you unable to communicate, family members—even your spouse—may be unable to access your medical records or talk to your doctors because of HIPAA privacy rules. Signing a HIPAA authorization form helps the people you choose access your medical information.
- Outdated Estate Plan
Does your estate plan reflect your current circumstances, goals, and needs? Have you, your beneficiaries, or your trusted decision-makers had any significant life changes (such as getting married, having a child, passing away, divorcing, receiving an inheritance, or moving to a different state)? A comprehensive review by an estate planning attorney helps determine whether your estate plan reflects current laws and tax rules and may better carry out your wishes based on your and your loved ones’ lives today.
Moving Forward with Confidence
Don’t leave your family vulnerable to these common oversights. A well-structured estate plan may provide peace of mind, knowing that your loved ones are better protected and your wishes have a greater chance of being honored. If you recognize any of the above issues in your own plan, or if it has been years since your last review, now may be the time to act.
Ready to review your estate plan? Contact our Los Altos office at (650) 405-0711 for a comprehensive review designed to create a plan that better reflects your life and legacy.
