The Top 5 Pitfalls to Avoid in Estate Planning and How to Avoid Them

As a parent of school age kids, keeping track of everyone’s schedules and to-do lists could be a full-time job. Besides lists, there are planners, and random sticky notes of tasks because yellow notes are a higher priority (right?) Get the kids to school, go grocery shopping, and… and…there’s something else on the list and one day I’ll figure out how to set my smartphone to remember. While we juggle many hats, it is important to take a step back and don the “hero” hat to plan for the future. This is not the “save money for retirement” future plan, but the “what happens if we are gone” plan.

We understand that estate planning involves thinking about death and many people put it off until their senior years or simply ignore it until it becomes too late. Being unwilling to face reality can create major hardship, expense, and mess for your loved ones and assets. We want to help you be a Hero to Your Family™ by guiding you during your planning for your future. You become a hero by building a foundation for your future growth, so you and your loved  ones benefit from the plan. Remember, not all heroes wear capes.                                   

While plans are usually individually designed, the same mistakes may occur. Of course, the biggest mistake is not having a plan at all. Even those who do create a plan can run into trouble if they don’t understand exactly how estate plans function.

Here are 5 of the most common pitfalls that people need to be sure to avoid when planning for the future

  1. Not Creating a Will

A will is the bare minimum estate planning document that we recommend. A will designates who’ll receive your property upon your death. You can also name specific guardians for your minor children in your will. Without a will, your property will be distributed based on your state’s intestate laws (which are probably not in alignment with your wishes), and a court then chooses a guardian for any minor children. Oh, and then your kids will get whatever you owned outright, with no guidance, direction, or intention, as long as they’re over 18. That plan is sure to work, right? Let’s not forget that in probate cases, creditors come first. Yikes!

  1. Not Funding Your Trust

The most important step after creating your trust-based estate plan is funding it. Check out “Mistake Avoidance 101: Failing to Fund your Trust” where we go into depth on this subject. Many people assume that simply listing assets in a trust is enough to ensure they’ll be distributed properly. But this isn’t true. Funding involves changing the name on the title of the property or account to list the trust as the owner. Many assets—real estate, bank accounts, securities, brokerage accounts—must be “funded” to the trust in order for them to actually be transferred.

Without funding, those trust documents probably aren’t worth the paper they’re printed on. Crazy, right?!? But we see it all the time. And of course, when you acquire new assets after your trust is created, you must make sure those assets are also titled into your trust. This is why it is so important to review your trust every 3 years. If there’s one constant in life, it’s change.

As a client of the firm we work with you to ensure your assets are inventoried, titled properly, and correctly maintained throughout your lifetime. This way, your assets aren’t lost and do not get stuck in court upon your incapacity or death.

  1. Not updating beneficiary designations

Life changes after plans are completed. But people may forget to change their beneficiary designations to match their estate planning desires or changes in their life. Check with your life insurance company and retirement-account custodians to find out who receives those assets in the event of your death.

If you have a trust, you’ll likely want to designate the trust as the beneficiary. This does not happen automatically upon creating a trust. You actually have to make the changes necessary to fund the trust. This change is part of funding your trust.

And you almost never want to name a minor as a beneficiary of your life insurance or retirement accounts, even as the secondary beneficiary. If inherited by a minor, these assets usually become subject to control of the court until he or she turns 18.

  1. Not reviewing documents

Estate plans should not be a “one-and-done” deal. Over time, your life circumstances change, the laws change, and your assets change. Given these, you should update your plan to reflect these changes—that is, if you want it to actually work for your loved ones. Today’s well-crafted plan may not be optimal depending on future circumstances.

We recommend reviewing your plan annually or every third year (at the latest) to make sure its provisions are up to date. Also, be sure to immediately update your plan following major life events like divorce, births, deaths, and inheritances. We have built-in processes to make sure the reviews happen—ask us about them.

Moreover, an annual life review can be a calming ritual that puts you at ease knowing you’ve got everything handled and updated each year. As a bonus for the small business owners, have you reviewed your structure with the new section 199A – qualified business income deduction applied?

  1. Not leaving an inventory of assets

Even if you’ve properly “funded” your assets into your trust, your estate plan won’t be worth much if heirs can’t find your assets. Indeed, there’s more than $1 billion dollars worth of unclaimed assets in the Florida unclaimed property account right now. Can you believe that? This happens because someone dies or becomes incapacitated, but they and their assets cannot be matched.

That’s why we create a detailed inventory of assets, indicating exactly where to find each asset, such as your bank and credit statements, mortgages, securities documents, safe deposit box/keys, and even your cemetery plot deed. Don’t forget digital assets like social media accounts and cryptocurrency, along with their passwords and security keys are also accounted for. We cover all of this in our plans.

Beyond these common errors, there are many additional pitfalls that can impact your estate planning. At Yolofsky Law, we’ll guide you through the process, helping you to not only avoid mistakes, but also implement strategies to ensure your true Family Wealth and legacy will continue to grow long after you’re gone.