1. Not updating beneficiary designations. Forgetting to update beneficiary designations after a life event (e.g. divorce) and naming a minor child as a contingent beneficiary. You got divorced for a reason and an 18-year-old is probably not prepared to handle a potentially large sum of money responsibly. —
Jeff Wolniewicz, CFP, Complete Wealth, Buffalo, New York
2. Putting it off. 1. Putting it off all together! You would think that wealthy people have all of their ducks in a row, but you would be surprised. I have met with people worth well over $10 million that do not even have a will.
2. Being in a rush. Thinking about your mortality can be overwhelming, so some people hastily put their plans together just to get "something" together. When you reread their plans with them later, many times they do not match their goals.
3. Letting a perfect plan get in the way of a good plan. In many cases, a basic, thoughtful plan will do. But some people prefer to shoot for a perfect plan that covers all contingencies. This can be exhausting and counterproductive. —
Thomas Blower, CFP, Fiduciary Financial Advisors, Grand Rapids, Michigan
3. Tax "gotchas." 1. Adding an unmarried partner or a child to the title of an asset with great value, such as a house or real asset. Taxable event “gotcha.”
2. No health care powers of attorney in place for unmarried couples, particularly problematic for same-sex couples in certain jurisdictions; in emergency, partners can be denied ability to make healthcare directives for each other. —
John McGowan, CFP, Mandala Financial Advisors, Des Moines, Iowa
4. Probate problems. A client passed away last year and in reviewing their beneficiary designations they forgot about an old annuity that named the client's “estate” as beneficiary. Assets left directly or indirectly to the estate may be subject to probate. The probate process can cause delays, expense, access by creditors, and a potential disinheritance. Probate can be avoided by simply naming beneficiaries directly by name. —
David Deller, CFP, Deller Wealth Management, Royal Oak, Michigan
5. Leaving the details to the courts. The single biggest mistake clients make is not having a will/trust in place to protect their assets. A proper revocable trust can save client’s heirs thousands of dollars in attorney and court fees. Not to mention just the headache itself of having to track down any assets the decedent has not easily made identifiable. The probate process can take years in some states and the entire process is open to the public. This typically leads to interfamily fighting over who gets what (which would ultimately be determined by the courts). It can get messy without a will/trust for sizable estates. —
Jeff Branson, CFP, Branson Financial Planning, Biddeford, Maine
6. Not updating beneficiaries. Setting up a living trust and not retitling assets into the trust and not updating account beneficiaries. The living trust is worthless until this second (retitling) step is completed. —
Mark Wilson, CFP, Mile Wealth, Irvine, California
7. Not using a corporate trustee. Many of my clients have named trustees that they will personally outlive or they ask someone who is 2,000 miles away to be the trustee for them. What happens when they need to get their home prepped for sale, or interview a Realtor? How do they handle transfer paper work from multiple custodians when they are in different states? What about incapacity concerns? A corporate trustee will most always be able to manage better than a family member.—
Jamie Lima, CFP, Woodson Wealth Management, San Diego
8. Treating heirs differently. If you want your children to talk to each other after you're gone, make sure they are treated as equally as possible under estate planning documents. If there is a reason for different treatment, make sure you discuss it with them first. Several times a year I am introduced to people who will not talk to their siblings and/or curse their parents' names as they feel the documents proved mom and dad loved their siblings more. —
Mitchell Kraus, CFP, Capital Intelligence Associates, Santa Monica, California
9. Previous marriage trip-ups. Titling assets in joint tenancy when both spouses have children from a previous marriage. Effectively, the first spouse to die has disinherited his/her children. People don't think this through. —
Glenn J. Downing, CFP, CameronDowning, Miami
10. Conflicts between documents. Assets not titled correctly, i.e. house or brokerage accounts not titled in the name of their living trust. Also, conflicts in who is named in different documents. For example, the trust names child one as successor trustee, the will names child two as executor, and power of attorney names child one and two. —
Jon P. Beyrer, CFP, Blankinship & Foster, Solana Beach, California
11. Charity complexities. I have a client who has intentions to give half of their estate (about $6.5mm) to charity. Their (now former) estate planning attorney recommended giving their taxable accounts to charity and their IRAs to humans. This is backwards. Because charities are able to cash out IRAs free of tax, it makes sense to give those assets to charity. On the other hand, it makes sense to give the taxable accounts to humans as the beneficiaries currently get a step up in basis (which could change depending on tax proposals, but that’s another story). —
Doug Oosterhart, CFP, LifePoint Planning, Bloomfield Hills, Michigan
12. Misplacing documents. Misplacing estate documents so the executor or trustee can't find them after death. Having no estate documents at all. Naming multiple people as medical POA who have to agree on health care. —
Daniel Lash, Cetera Advisor Networks, Vienna, Virginia
13. Missed chances for tax savings. A common estate planning mistake we see clients make is not taking advantage of the (current) $15,000 annual exclusion amount for charitable gifts. While $15,000 may not seem to matter to an estate that includes large financial accounts and appreciated real estate, the limit is $15,000 per individual per beneficiary. This means a retired couple could gift $30k to each child, $30k to each grandchild, on down the line. —
Mike Hennessy, CFP, Harbor Crest Wealth Advisors, Fort Lauderdale, Florida
14. "I love you" wills. People have "I love you" wills, leaving everything to their spouse and then everything passes outright to their children without any thought about the potential future issues that could arise within their children's lives, such as being sued after an at-fault accident, a bankruptcy after a failed business venture, or a divorce that happens after the money is commingled. This money now becomes part of the settlement and is not creditor protected.
Or, more recently, the terrible tax implications after the Secure Act eliminated the stretch IRA, which is a ticking tax bomb for the children with large IRAs, especially IRAs that name trusts as beneficiaries. —
Michelle J. Gessner, CFP, Gessner Wealth Strategies, Houston, Texas
15. Tax penalties. A person died without updating beneficiary information on their 401(k) plan. As a result, the funds were distributed directly to the deceased's estate. Estates and trusts quickly jump up to extremely high federal income tax rates, so the heirs lost out on a significant amount of money. For instance, anything over $12,590 is taxed at a federal income tax rate of 37%!
If beneficiaries were set up properly, the heirs could have taken funds out slowly, controlling the flow of taxable income, and paying at substantially lower rates. —
Justin Pritchard, CFP, Approach Financial, Montrose, Colorado
16. Not looking beyond the documents. The biggest estate planning mistake I’ve seen is not preparing emotionally to say goodbye. Wills, beneficiary designations and the like are all critical. But thinking through how to prepare from a right-brain perspective gets overlooked. Pictures, audio, video and letters are all tools that can help us leave tangible legacy treasures. —
Ben Simiskey, CFP, Stegent Equity Advisors, Houston
For advisors, estate planning often is a matter of cleanup. Clients may have made estate plans through attorneys or other specialists and then turned to their advisor, perhaps years after the plan was made.
Many factors come into play, not just selecting a beneficiary or trustee. How an estate plan is set up, and updated, are important to successfully carrying out the plan for all parties.
We asked advisors about some of the key mistakes they’ve seen in dealing with estate plans. We got a huge response through the Financial Planning Association and the XY Planning Network. We only can present some responses here, but appreciate all the interest and comments we received. We’ve pulled from representative responses on various issues. See the above gallery for those responses.