12 Estate Planning Mistakes to AvoidBy: Andrew Rosen, CFP®, CEP®

Talking about one’s own mortality, or the mortality of a loved one, is not something anyone really ever wants to do.  It can be depressing, morbid, or even gruesome planning the specifics of a tragedy’s aftermath.  Sadly, Estate Planning is one of the most commonly neglected areas seen in my financial planning practice on a day-to-day basis. Everyone needs a solid estate plan – which includes wills, living wills, trusts, health care & financial proxy.

It may not be fun to do or talk about; however, it doesn’t diminish the importance.   Because it is so important, I’ve put together this list of the top 12 estate planning pitfalls I see on a regular basis.

1.    No Estate Plan:  
This one seems obvious right?  Countless people walk in my office with no estate planning whatsoever.  I don’t simply mean the 22 year old, fresh-out-of-college individuals either.  Rather, I’ve seen well established families whose lives would be crushed should something unfortunate happen.

2.    The DIY Estate Plan:
I’ve seen many do-it-yourself estate plans, such as through a service like Legalzoom.  Believe it or not, I once saw an estate plan on a cocktail napkin!  Like many things in life, the costs saved doing it yourself usually are quickly erased by the mistakes often made.

3.    Not naming successors:
Many people mistakenly name their spouse as their only successor. When planning your estate, make sure you have contingencies for every assignment.  Typically, people don’t update their documents frequent enough; you certainly don’t want a situation where the courts (or state) appoint someone for you!

4.    Not updating your documents:
Now I certainly wouldn’t go overboard on this one.  Review your documents every 3-5 years (or sooner, if you’ve had a major life change).   In my experience people, laws, and preferences change.  In the documentation that is your final voice, you certainly want your wishes clearly and appropriately articulated.  This doesn’t have to be a costly thing either.  Often times estate plan updates can be done through a codicil, or addendum, which is quick and easy to do.

5.    Leaving assets outright to children regardless of age:  
This is my number one issue (even though I’ve listed it 5th). A typical plan sees a husband leaving everything to his wife, and vice versa.  At second death, everything is split evenly between their children.  Now I’m not suggesting this isn’t the proper order of asset flow; rather, I want to point out its how you leave these assets behind.  I know what you are thinking as you read this: “Andrew, my son/daughter is super responsible and can handle my dollars—no problem.”  I’ve even heard a client mention this to me about their 5 year old son.  I’ll repeat that for dramatic effect.  Andrew my 5 year old child is super responsible and at age 18 can handle my entire net worth!  Everyone hears how lottery winners and athlete’s go broke, which seems impossible.  What you don’t hear about is the beneficiaries of estates also blow through their assets at an alarming rate.

6.    Utilize Trusts:
Here is another item often left overlooked.  A beneficiary may be the most responsible person on earth; however, it doesn’t mean the world around them is the same.  Protect them from themselves, creditors in lawsuits, and bad marriages (50% still end this way)—use trusts.  The last thing anyone wants to do is leave their assets to someone they don’t know.  For your family’s sake, leave the bulk of your assets in trusts with different vesting periods for your loved ones.

7.    Not updating beneficiaries:
Many people don’t understand that beneficiary assignments supersede a will.  That’s right!  If your will states you leave all assets to one person, yet you have an old, out-of-date beneficiary setup on your work benefits (or old IRA), your assets will go to that beneficiary; NOT what is in your estate plan.

8.    Forgetting to inform the proper people of your documents:  
Notify your loved ones and appointed agents.  Make sure they know their roles in your plan.  In the face of a tragedy, the appropriate people can then mobilize with no ambiguity as to what is to happen and by whom.

9.    Not having a health care proxy in close proximity:
To handle your health care needs, it may be natural to choose someone that is close to you. But, what if that person doesn’t physically live close to you?  Your proxy may need to make a split lifesaving (or deciding) decision.  Typically this works best if that person lives nearby and not halfway across the country (or world).

10.    Having a corporate trustee:  
When setting up your trust, make sure you choose the right person.  When possible, don’t appoint a corporate entity.  The corporation knows nothing about you, your family, your needs, or your loved ones.  Besides, they are typically costly, too.

11.    Naming a guardian and trustee as the same person:
This isn’t an absolute, but sometimes it is hard to find the right person to fulfill both of these duties simultaneously.   These are two separate responsibilities, and generally work best as two separate individuals.  Your guardian raises your children in the manner of your wishing.  Your trustee is someone who will safeguard the dollars left behind for your loved ones.

12.    Making family members (or non-family members) durable vs. springing Power of Attorney:  
Essentially, “durable” means the agent takes action right away financially and medically.  A springing Power of Attorney only takes control once you are physically or mentally incapacitated.  It’s good to know the difference to help in your estate planning.

Now what?

Well, now you have 12 ways to better prepare a solid and appropriate.  My intent in sharing this article is to help you identify situations surrounding your own estate plan where you may need some guidance or assistance.  If something isn’t right, it’s worth fixing.  Feel free to share this blog post with family and friends so they can better prepare too.  Thanks!


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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

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