When doing your legacy plan, diligence pays off. Avoiding common pitfalls can save your loved ones from unnecessary confusion, financial burden, and legal disputes. While we all know this in theory, taking steps to prevent estate planning mistakes can be difficult to navigate if you’ve never done it before.
While there are many things that “can go wrong” in the estate planning world, certain types of mistakes make up the bulk of the problems. Here are four common mistakes that many people make in estate planning, and how you can avoid them.
1. Not Doing Your Estate Plan is a Big Mistake
One of the most common and significant mistakes is simply not having your own estate plan. Without a Will or Trust, Tennessee’s law of intestate succession determines the distribution of your assets. This may not align with your wishes.
Especially if you have minor children, this creates complexities in managing your assets. Those minor children may need guardianship estates set up and managed until they reach age 18.
Even during life, failing to have a plan is problematic. If you are incapacitated and cannot make decisions for yourself, who can step in? Who is going to help with paying your bills or making healthcare decisions?
Without a Durable Power of Attorney, there may have to be a conservatorship so that another person can handle your affairs. This is a difficult proceeding for everyone involved.
Regardless of wealth level, every adult needs even a basic estate plan in place. As the saying goes, failing to plan is planning to fail.
2. Failing to Update Your Estate Plan When Needed
Estate planning is inherently dynamic. As your life changes, your estate plan may also need to change. Major life events—such as marriage, divorce, birth of a child, or the acquisition of significant assets—can all warrant updates.
Failure to review and update your legal documents can leave outdated provisions in place. This means your loved ones may have to navigate confusing waters and spend a significant amount in attorney fees to figure things out.
For example, we have seen a situation where someone executed a Will and then never made any changes for 30 years. But during that time, this person divorced, moved states, and remarried. Sorting out this type of situation is an unnecessary and avoidable burden.
Regularly looking over your estate plan ensures that it always reflects your current situation and wishes. We recommend reviewing your legal documents every three years, or right after a major life change.
3. Not Properly Designating Beneficiaries
Another common estate planning mistake is failing to properly designate or update beneficiaries. Beneficiary designations apply to assets such as life insurance policies, retirement plans, and payable-on-death bank accounts.
A beneficiary designation overrides what is in a Will or Trust. This is because the designation is a contractual relationship between you as the account owner and the financial institution.
An all-too-common example of failure to update beneficiaries comes in divorces. After a divorce, one may neglect to correct beneficiaries so that the ex-spouse is not the primary.
If this happens, absent special provisions in a divorce decree or agreement, then the asset is likely going to the ex-spouse. Not a situation your family is going to be happy about.
We recommend verifying your beneficiary designations annually. Unlike executing estate planning documents, it’s much easier to change beneficiary designations. You may have made these designations and simply don’t remember. Check them frequently and correct quickly.
4. Using Cheap Computer Programs for Estate Planning Documents
Many people turn to inexpensive, DIY estate planning software to create their legal documents. While these programs might seem cost-effective upfront, they often fail to address the very real complexities of putting an estate plan together.
Estate planning is not a one-size-fits-all task. Using generic documents can result in costly errors or legal issues due to deficiencies.
Something we frequently see is computer-generated documents that are not properly executed. Just a quick look at the documents reveals critical deficiencies that leave them ineffective.
These computer-generated documents may also fail to appropriately plan for business owners or parents of minor children. Important provisions in Wills or Trusts may be absent without professional guidance.
These programs are cheap, and that’s part of the attraction. But being too cheap often ends up being quite expensive. Especially when it comes to legal matters.
Final Thoughts on Common Estate Planning Mistakes
Estate planning mistakes are tragically common. And they can have serious consequences for you and your loved ones. Avoiding these common pitfalls requires careful planning, regular reviews of your estate plan, and professional guidance.
Working with an attorney provides a dynamic opportunity to craft a plan that is free from these estate planning mistakes. If you’re ready to protect your assets and provide clarity for your loved ones, reach out to us to request your free estate planning consultation.
