Dental and Medical Counsel Blog

10 Estate Planning Mistakes to Avoid

September 1, 2021
Estate Plan

Creating a complete and comprehensive estate plan is one of the best ways you can protect your assets, your loved ones, and even yourself. Estate planning, however, can be a complex and confusing process. Mistakes are easy to make and those mistakes can cost you and your loved ones a considerable amount of time and money. Being aware of some of the most common estate planning mistakes can help you avoid them.

Putting Off Your Estate Plan

The first estate planning pitfall to avoid is failing to create a plan. There are several common reasons why you may have put off creating an estate plan. You may be under the common misconception that an estate plan is only necessary if you own substantial assets or if you have started a family. It could also be that you have simply avoided estate planning because you do not know where to start. Regardless of the reason, failing to create at least a basic estate plan leaves you vulnerable and allows the state to decide what happens to your assets if something happens to you. The bottom line is that every adult can benefit from having an estate plan in place.

DIY Disasters

In the age of the internet, it can be tempting to turn to “Do-It-Yourself” estate planning forms instead of consulting with an experienced estate planning attorney. Using DIY forms, however, can lead to disastrous results when it comes time to probating your estate. DIY estate planning forms often include outdated legal terms and/or are based on out-of-date laws. They also frequently fail to consider state-specific laws and procedural requirements. More importantly, using DIY estate planning forms may lead to a failed interaction between forms. For example, you may create a testamentary trust that is intended to be activated upon your death; however, the Last Will and Testament you created using a DIY form failed to include a clause that references your trust. Finally, it is easy to leave out assets when using DIY forms that will cause you to leave behind an intestate estate – something any well-thought-out estate plan aims to avoid. The good news is that this mistake can easily be avoided by working with an experienced estate planning attorney when you decide to create your plan.

Naming the Wrong Fiduciaries

When creating your estate plan, you will likely need to appoint more than one person (or entity) to a fiduciary position. These are important positions of trust within your plan. The Executor of your Will and the Trustee of a trust are among the most common estate plan fiduciaries. People often appoint a family member or close friend to these positions without giving the appointment much thought. Appointing the wrong fiduciary, however, can be a serious mistake. The Executor of your Will, for example, is responsible for overseeing the probate of your estate after you are gone. The right Executor will lead to a swift and efficient probate process whereas the wrong one can hold up probate for months and drain your estate of assets. Likewise, a Trustee handles the administration of the trust you create. Appointing someone who does not have the necessary legal and financial knowledge will dramatically increase the possibility of your trust failing to achieve its intended purpose.

Beneficiary Mistakes

An important goal for your estate plan is likely to ensure that you get to decide who receives your assets as well as how and when they are distributed. This seemingly simple goal can lead to several common beneficiary blunders. The first of those is to gift assets directly to a minor beneficiary. Minors cannot legally inherit from your estate. Gifts bequeathed to a minor in your Will must be managed by an adult until the minor reaches the age of majority. That means a judge may get to decide who manages the assets you intended to pass down to your minor children if you make the mistake of gifting them directly in your Will. A better option is to use a trust which allows you to decide who will manage those gifted assets. Other beneficiary mistakes to avoid include failing to name a contingent beneficiary and failing to update a beneficiary when necessary. Both mistakes can result in assets winding up in the hands of unintended beneficiaries.

Failing to Plan for Incapacity

Your estate plan should plan for the possibility of your incapacity as well as the eventuality of your death.  Furthermore, incapacity planning should be part of your estate plan when you are young because incapacity can happen to anyone at any age. Failing to consider the possibility of your own incapacity can lead to a judge deciding who will make personal and healthcare decisions for you as well as who will take over control of your assets and finances if you suffer a period of incapacity. Executing a power of attorney, creating a revocable living trust, and making sure you have an advance directive in place will help ensure that you decide who will step in and make decisions for you if you become incapacitated.

Ownership Errors

Probate avoidance is a popular estate planning goal, yet many people fail to take simple steps to help an estate avoid probate. Titling real property and other assets correctly is one of those steps you can take to help ensure that your estate avoids probate. Co-ownership of real property, for instance, should include rights of survivorship. When titled appropriately, your interest in the property will automatically transfer to the co-owner(s) upon your death without the need to go through probate. Likewise, designating financial accounts as “payable on death (POD)” means that ownership of the account will automatically transfer to your designated beneficiary upon your death, once again avoiding probate.

Creating a Tax Burden

Every estate is potentially subject to federal gift and estate taxes. Some states also impose a state-level estate tax. At a 40 percent tax bracket, avoiding federal gift and estate taxes should be a primary goal of your estate plan. Nevertheless, leaving behind a tax nightmare is a common estate planning mistake. This pitfall is particularly important to recognize because it can so often be avoided with careful planning. Making use of the yearly exclusion to transfer wealth tax-free while you are alive is one way to avoid a hefty estate tax bill after you are gone. In addition, you also want to ensure that your estate has sufficient liquid assets available to pay any taxes due to avoid the need to sell estate assets intended for loved ones.

Leaving Your Business in Limbo

If you are a doctor, dentist, optometrist, or veterinarian, you likely own an interest in a professional practice. For you, a crucial estate planning mistake to avoid is failing to include business succession planning in your estate plan. You need to make sure that the value of your interest in the business is passed on to your loved ones upon your retirement, incapacity, or death. You may do this by planning to pass down the practice in its entirety to the next generation or by creating a buy-sell agreement that ensures your beneficiaries will receive the fair market value of your interest in the business. Absent a plan, however, the business could fail entirely, or your loved ones may receive only a fraction of what your interest is worth.

Forgetting to Update

Potential estate planning pitfalls to avoid do not end when your plan is in place. On the contrary, among the most common mistakes is failing to review and revise your plan. A routine review every few years ensures that your plan remains current and covers all your needs. Certain life events, however, should prompt an immediate update to your estate plan. The death of a beneficiary or fiduciary, marriage, or divorce are all things that call for updates within your estate plan. Failing to make the necessary changes to your estate plan can result in beneficiaries being left out or assets ending up in the hands of the wrong people.

Going At It Alone

Not only is it in your best interest to avoid the temptation to use DIY estate planning forms, but you should take it one step further and work closely with an experienced estate planning attorney when you create your initial estate plan and every time you make changes to that plan. Consulting with an experienced attorney is the only way to ensure that your estate plan will work as intended and will not result in unintended negative consequences.

If you have questions regarding your estate plan or need help reviewing or amending your estate plan, contact Dental & Medical Counsel to schedule a complimentary consultation with attorney Ali Oromchian.

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