6 Common Estate Planning Mistakes (And How to Avoid Them)

Estate planning is crucial for efficiently transferring your assets and ensuring your wishes are honored when you’re no longer here. It can also save your loved ones from unnecessary legal challenges, financial burdens, and the distress of managing your estate under court supervision.

Many people believe estate planning is only for the wealthy, but everyone can benefit from a comprehensive and well-structured plan. To maximize the benefits of your estate plan, it’s crucial to avoid common pitfalls and costly mistakes that could jeopardize both your assets and your family’s future.

Avoid these 6 common estate planning mistakes:

Mistake #1: Not Having an Estate Plan

One of the most fundamental estate planning mistakes anyone can make is not having a plan at all. Nevertheless, only 32% of Americans have created basic estate planning documents, according to Caring.com’s 2024 Wills Survey. 

Without an estate plan, decisions about the distribution of your assets, the care of your dependents, and even your medical care may not align with your values or intentions. Instead, state laws determine these outcomes, often requiring stressful probate proceedings that can create financial and emotional strain for your loved ones.

Starting the estate planning process doesn’t have to be daunting, but it typically requires professional guidance due to its complexities. A trusted financial planner and estate planning attorney can offer invaluable advice tailored to your unique circumstances, helping to ensure your estate plan is comprehensive, legally sound, and accurately reflects your wishes. 

Mistake #2: Failing to Update Your Will

Like a sound financial plan, a last will and testament isn’t a static document; rather, it should evolve as your life does. Failing to update your will can lead to significant discrepancies between your current intentions and the legal directives that supersede them, potentially causing conflict and stress for your loved ones after your death. 

To avoid this common estate planning mistake, it’s generally advisable to update your will after major life events such as marriage, the birth of a child, a divorce, or the death of a beneficiary. It’s also wise to review your will periodically, even if you haven’t experienced any major life changes, to ensure it accurately reflects your wishes, is consistent with the current legal landscape, and provides clear guidance for your loved ones. 

Mistake #3: Overlooking the Need for a Living Trust

Another common estate planning mistake is overlooking the potential benefits of a living trust, relying solely on a last will and testament to guide the distribution of your assets. Like a will, a revocable living trust is a legal document that contains instructions for how to distribute your assets after your death. 

However, one of the key advantages of a living trust is its ability to avoid probate, thereby accelerating the distribution of your estate and ensuring its details remain private. A will, on the other hand, becomes a public document during the probate process, meaning anyone can access the specifics of your estate and beneficiaries. 

A living trust also allows you to designate control of your assets if you become incapacitated, preventing the need for court intervention. Additionally, a trust can be advantageous for those with complex family situations or who own property in multiple states, as it simplifies the management and disposition of assets across different jurisdictions. 

Despite these benefits, trusts are complex legal arrangements that can be difficult to navigate without professional guidance. It’s a good idea to consult with a fiduciary financial planner and experienced estate planning attorney to avoid potential missteps. 

Mistake #4: Ignoring Tax Implications

Ignoring tax implications is a common estate planning mistake that can substantially reduce the inheritance you ultimately leave your heirs. 

As of 2024, the federal estate tax exemption is $13.61 million. However, this amount is slated to fall by half when the provisions of the Tax Cut and Jobs Act (TCJA) sunset at the end of 2025, potentially impacting the estate plans of many high-net-worth families. 

Moreover, several states impose estate taxes, inheritance taxes, or both on the value of a decedent’s estate before it transfers to its heirs. The amount of this tax can vary significantly depending on the size of your estate and the specific laws where you live. 

Fortunately, there are a variety of strategies you can employ to minimize the potential impact of these taxes, preserving the overall value of your estate. Examples include:

• Gifting during your lifetime. The IRS allows taxpayers to gift up to a certain amount each year without incurring the federal gift tax or affecting their lifetime gift tax exemption. In 2024, this amount is $18,000 per donor, per beneficiary. Over time, these gifts can significantly reduce the size of your estate and the associated tax burden.
• Strategically donating to charity. Making charitable contributions doesn’t just reduce the size of your taxable estate; these donations can also provide immediate tax benefits while fulfilling your personal philanthropic goals. 
• Leveraging advanced estate planning strategies. For families with substantial wealth, sophisticated planning strategies like establishing trusts or setting up family foundations may help preserve the value of your estate long-term. 

Mistake #5: Not Planning for Disability or Incapacity

Failing to plan for potential disability or incapacity is a significant estate planning mistake that can jeopardize your financial and personal well-being. A durable power of attorney and advanced healthcare directive are two crucial documents that can prevent unnecessary complications and setbacks if you can’t communicate your preferences yourself.

• A durable power of attorney is a legal document that grants a trusted individual the authority to manage your financial affairs if you become incapacitated. This might include paying bills, managing investments, or making decisions about property.
• An advanced healthcare directive, sometimes called a living will, specifies your wishes concerning medical care if become incapacitated. These directives guide your healthcare providers and loved ones in making critical healthcare decisions aligned with your values and preferences. 

Without these documents, a court-appointed agent (who you may not have chosen yourself) will be responsible for overseeing your finances and healthcare if you become ill or incapacitated. Establishing these safeguards can provide peace of mind for both you and your family, knowing someone you trust will honor your wishes in a worst-case scenario.   

Mistake #6: Poor Communication with Family and Beneficiaries

Though often overlooked, one of the biggest estate planning mistakes you can make is failing to clearly communicate your intentions to your family and beneficiaries. This lack of communication can lead to misunderstandings and conflict that disrupt family harmony after your passing. 

Transparent communication about your plans is crucial for setting clear expectations and giving your loved ones a chance to express their concerns. When everyone knows the plan and supports it, the legal and emotional aspects of administering your estate plan can proceed more smoothly. 

To communicate your intentions, it’s often best to find a quiet, private time when everyone is relatively calm and not preoccupied with other stressful issues. This provides an opportunity to clearly explain the contents of your estate plan and the reasoning behind your decisions without emotions running high. 

It’s also important to allow your family members to ask questions and express their thoughts, so they feel heard and valued. Depending on your financial circumstances and family dynamics, you might want to consider having a trusted and knowledgeable third party facilitate the discussion to provide clarity and answer any technical questions that arise.

TrueNorth Wealth is here to help.

Estate planning can be a daunting process, but taking steps now to protect your legacy and your family’s future can provide long-term security and peace of mind. By working with trusted professionals and avoiding these common estate planning mistakes, you can establish a plan that supports your wishes and preserves your hard-earned wealth for generations to come. 

If you’re looking for personalized guidance regarding the management of your assets and their eventual distribution, TrueNorth Wealth is here to help. Our team of fiduciary CFP® professionals can help you incorporate your estate planning intentions into your financial plan, ensuring your wealth, values, and goals are in alignment. 

TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.

For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.