4 of the Most Common Estate Planning Mistakes

The most common estate planning mistakes typically fall into one of four categories. While each estate plan consists of its own features and unique instructions, the same errors tend to occur regardless of their differences. Do your family and heirs a favor, learn about the most common pitfalls and make sure your affairs are in order. You can save your loved ones time and stress by giving this area of your finances some extra attention.

Mistake 1: Your documents are arranged out-of-state

Your estate planning documents such as, a will, trust, power of attorney, advanced directive, etc., should all be drafted by an attorney, who is familiar with the state laws in which you currently live, or where you have real estate. This is very important. A great example is the validity of a will in various US states. California honors a handwritten and unwitnessed will while the state of Oregon does not. If a will is drafted in Oregon, it’s important for the witness to sign an Affidavit of Attesting Witness in case the estate is probated. California courts do not require this extra document. You should also be aware of your state’s Estate Transfer Tax; reducing your estate’s exposure to this sort of tax might be important for you to consider.

If your legal advisor is not familiar with the laws of the state you are drafting your estate documents in, serious problems could arise. Don’t leave a mess for your heirs and loved ones. Ask your attorney or even fiduciary financial advisor to help ensure your plans are in order and will be executed as you intend.

Mistake 2: You rely on old documents

Keeping your documents up to date is so important—especially as laws change. If your estate plan is not updated appropriately after big life changes, your family might deal with that burden.

For example, you may have originally set up your estate to avoid estate taxation under federal laws when the free pass was only up to $1,000,000. In that case, your documents might need an update according to recent tax laws. 

Other situations might include the people you originally included in legal documents. Maybe you designated your ex-son-in-law to execute your estate plan. Since that relationship faded, you should find someone else for this role. Other documents might appoint a close friend to serve as a legal guardian for your children, but as relationships change, you are no longer close to this friend. You should appoint a new guardian and document the changes in your estate plan. Sometimes hiring a third-party administrator for your trust is a good option.

Mistake 3: You don’t understand your estate plan

The estate planning process can feel overwhelming for many clients. Others see it as a laundry list of things to check off as quickly as possible. You don’t need to understand all the legal language, but you should understand the fundamentals. You should know who your decision-makers will be, who will inherit your estate, and how your family will be taken care of. Preserving your family dynamics might be at the top of your wish list. Let’s talk about how to protect those relationships.

Mistake 4: You have outdated or confusing beneficiary designations

This is by far the most common area financial, legal, and tax planning advisors deal with estate planning mistakes. If your beneficiary forms are not up to date with your current wishes, you might cut your loved ones out of their inheritance. Intent means very little when it comes to legal documentation. You can read some examples of how this little piece of paper can cause a lot of heartache and drama between family members.

Update your wishes after any major life events or changes. It’s also important to clarify your intentions. No one can follow through on your wishes if they are difficult to understand and interpret. Think of multiple outcomes: what if you outlive your spouse? What if your divorced daughter passes away first? Do you have a special needs family member? Who will care for your aging parents? Help your family and estate executors carry out your wishes by keeping your documents updated and your instructions clear.

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