Estate Planning Mistakes to Avoid

According to Caring.com’s 2023 Wills and Estate Planning Study, 60% of Americans have a retirement account, but only 34% of Americans have a will. Estate planning is one of the most important strategies for our clients when it comes to long-term financial planning. Your estate plan should complement your financial plan and be designed to ensure that your end-of-life wishes are followed and that wealth is transferred as seamlessly as possible to your designated beneficiaries.  

Whether you’re planning to transfer your assets to your children, your favorite charities, or a combination of the two, we encourage our clients to make sure they have an up-to-date will on file and to consider additional estate planning tools that might also be strategic for high-wealth investors. 

Regardless of how you decide to structure your estate plan, there are a number of mistakes to avoid, including:

Having a Will Rather Than Setting Up a Living Trust

Individuals with more than $1 million in assets should consider exploring the possibility of creating a living trust in order to avoid potential threats of litigation, including accusations of mental incompetence on the part of the testator. A trust is significantly more difficult to contest, compared to a will, which makes it a more robust and more effective estate planning tool if there is any possibility of a will contest. 

In the United States, approximately 1% of wills are contested through a costly, protracted legal process. Wills for testators who passed away without surviving children can be particularly contentious and subject to potential litigation. If appropriate, establishing a trust now can offer legal protections in the future, ensuring that your wishes are carried out and your wealth is transferred in accordance with your wishes.

Designating Your Kids as Trustees

If you have adult children who don’t get along or who are not financially savvy, it might make sense to designate a professional trustee who can act as a fiduciary and serve as an independent, unbiased representative. A fiduciary never “takes sides” and always puts client wishes first.   

One of the benefits of appointing a professional trustee is that distributions from the trust are approved by a neutral third-party, rather than family members, which makes it easier to say “no” to inappropriate or exorbitant distribution requests. In addition, a professional trustee is knowledgeable about tax laws and will work to make sure your trust funds are invested and/or disbursed responsibly and in accordance with your goals as well as applicable state or federal laws.

Not Making Updates After Major Life Events

Estate planning is an evolving process, not a static one. If you’ve recently re-married, divorced, had children or experienced other major life events, be sure to review and update your will, trusts, and beneficiary information associated with investment accounts, working closely with your financial advisor as well as your estate planning attorney.

The addition or death of a spouse can have a major impact on how your estate is divided. In addition, if you or any of your loved ones have recently experienced a major medical diagnosis, it might also be a good time to review your estate plan and make any necessary adjustments. 

Not Re-Evaluating Your Estate Planning Strategy Based on Changing Assets

If you’ve had a significant change in your net worth in recent years, it might be time to review your estate planning documents with your professional team. In addition, if your trust directs a significant portion of your estate to go to charity, but the value of your trust is significantly diminished, you may want to readjust your remaining allocation to make sure that your beneficiaries receive a larger share. 

If you created a trust when your assets exceeded $2 million, but home health care costs and medical bills have depleted the liquid assets in your trust below the $500,000 mark, a trust may no longer make financial sense. When you factor in the cost of the administrative fees, taxes, and other expenses associated with a trust, it may not be cost effective to maintain a trust if your assets have decreased significantly. It is possible to terminate a trust if assets change dramatically over time. Speak with your financial advisor and your estate planning attorney to determine the best course of action for your unique situation.

Making Verbal Changes to Your Estate Plan

Verbal changes to your estate plan are not legally binding, so telling your children about your wishes will not suffice under the law. Likewise, suggesting changes to your estate plan in an email to your financial advisor or your estate planning attorney is also not legally binding. Your estate planning documents must be updated, signed, and dated in compliance with the law in order to be effective. 

It’s acceptable to email a written memorandum for the distribution of your personal property to your financial advisor or estate planning attorney, but a will or trust must be updated through proper legal channels and in accordance with applicable laws. Work with your financial advisor and your estate planning attorney to make sure your wishes are properly documented and legally binding. 

At The Fiduciary Group, we’re here to help you take a strategic approach to estate planning and to assist you with creating solutions that meet your needs and fulfill your wishes. It’s never too early to plan for the future. Please reach out to us anytime for assistance.