Posted on November 26, 2024

Estate planning is often considered a daunting topic, but it’s essential for ensuring that your loved ones are cared for and your hard-earned assets are distributed according to your wishes. As an experienced estate planning attorney, I’ve seen firsthand how missteps—or outright neglect—in estate planning can lead to unintended consequences. Below, I’ll share five things I would never do when it comes to estate planning, along with tips to help you avoid these pitfalls.

1. Leave Everything to My Spouse Without a Trust Plan

While it may seem natural to leave everything to your spouse, it’s critical to think ahead to the “what ifs.” If I were to pass away and my spouse remarried, there’s a real possibility that my assets could ultimately benefit someone outside my intended circle—such as my spouse’s new partner or their children. This is not the legacy I would want to leave for my own children.

The Solution: A Trust
Instead of leaving everything outright to a spouse, consider setting up a trust to ensure your assets are used for your children’s benefit. Trusts provide control over how and when your assets are distributed, reducing the risk of them ending up in unintended hands.

2. Die Without an Estate Plan

Dying without an estate plan—also known as dying “intestate”—hands the reins over to the state to decide how your assets are distributed. This could result in decisions that don’t align with your wishes or values.

Why This Matters:
When you fail to create a will or trust, the state follows its own rules to distribute your estate. This can be time-consuming, expensive, and may exclude individuals you would have wanted to benefit. Worse, it often leads to family disputes.

What You Can Do:
Take control by drafting a comprehensive estate plan that includes a will, trusts, powers of attorney, and healthcare directives. This ensures your wishes are followed and spares your family unnecessary stress during a difficult time.

3. Add My Children’s Names to a Deed to Avoid Probate

On the surface, adding your children’s names to your home’s deed seems like a clever way to avoid probate. However, this can create more problems than it solves.

Why This Is Risky:

1. Loss of Control: Once your children are on the deed, you need their input and signatures for any decisions about the property, such as selling or refinancing.
2. Tax Implications: Your children could face significant capital gains taxes when they sell the home. This tax is calculated based on the difference between the home’s original purchase price and its current market value—a potentially huge sum if you’ve owned the property for decades.
3. Exposure to Liability: If your child encounters legal issues, such as divorce or debt, your home could be considered part of their assets.

A Better Approach:
Use tools like a transfer-on-death deed or create a living trust. These options avoid probate while keeping control and minimizing tax burdens.

4. Name Family Members as Life Insurance Beneficiaries Without a Backup Plan

Naming a family member—such as a sibling or parent—as a beneficiary on a life insurance policy, with the hope they’ll manage the funds for your children, may seem like a simple solution. But life is unpredictable, and this approach is fraught with risks.

The Problem:
If the named beneficiary faces financial struggles, health issues, or simply decides not to follow your wishes, there’s little you can do to rectify the situation. Worse, the funds could be mismanaged or misused entirely.

The Solution:
Establish a trust and make the trust the beneficiary of your life insurance policy. The trust will have clear instructions on how the money should be used, ensuring your children are taken care of according to your plan.

5. Fail to Communicate My Estate Plan to Loved Ones

Creating an estate plan is only half the battle; the other half is making sure your loved ones understand your plan and their roles within it. Failure to communicate can lead to chaos and confusion during a time of grief.

Why This Is Important:
Without clear communication, your family may not know:

• Where to find your estate plan documents.
• What your intentions were for certain assets.
• Who is responsible for carrying out your wishes.

What You Should Do:
Treat estate planning as a collaborative effort. Schedule a family meeting to discuss your plans and ensure everyone is on the same page. This doesn’t mean revealing every detail of your finances, but providing enough information to prevent misunderstandings and disputes.

Estate Planning Is a Lifelong Responsibility

Estate planning is not a one-and-done task—it evolves with your life circumstances. Milestones such as marriage, children, divorce, or the purchase of significant assets should prompt you to revisit and update your plan.

Final Thoughts

Creating a solid estate plan isn’t just about avoiding mistakes; it’s about securing peace of mind for you and your loved ones. By proactively addressing these five common pitfalls, you can create a legacy that reflects your values and protects your family’s future.