Five Big Mistakes - Estate Planning

Roy S. Gilbert, JD*, CLU, ChFC

November 25, 2024

Over the years at the Family Wealth Decisions Group, we have observed many estate planning decisions which could have turned out better…and probably should have turned out better. We are limiting this discussion to only five – five we consider to be foundational errors.

The American Bar Association says estate planning is the process by which you describe the distribution of your property at death “…as well as a variety of other personal matters…¹”. In many cases these “other personal matters” are at least as important as the distribution of wealth at death.

Mistake #1: Not planning or postponing planning.

Failing to plan is perhaps the most common estate planning misstep we see. Benjamin Franklin said: “If you fail to plan, you are planning to fail.”² Aside from those who decide not to plan, the decision to postpone planning to a “better time” is a frequent response to an estate planning suggestion. This response may be a result of a lack of prioritization of estate planning because of a belief there are inadequate assets to justify planning or the belief that they may have plenty of time to address the issue in the future.

The statistics are eye-opening. Only 32% of Americans have a Will and 40% of those that don’t say it’s because they don’t have enough assets. Of those without a Will, 25% don’t plan on ever getting one and over 40% plan on waiting until there is a health crisis³. Waiting until there is a crisis may be inviting a paradox – a catch-22 situation – which then may result in a rushed decision. Good planning can anticipate crises and facilitate the design of potential responses in advance.

If you are not wealthy, the “other personal matters” alluded to in the American Bar Association’s description above may be more than adequate reason to engage in estate planning. What if you have minor children and you die? Would you like to have some influence over who the guardian of those children might be? What if you don’t die, but become incapacitated and need someone’s help to make financial and/or health care decisions? Would you like to have some influence over who will make those decisions for you and what they may be?

Mistake #2: Making a plan but not updating it.

Perhaps the next most common consequential estate planning mistake we see is the failure to update an existing estate plan. Wills, Trusts, Powers of Attorney and other estate planning documents are not like Ron Popeil’s “set it and forget it” Showtime Rotisserie⁴. They need to be reviewed in light of ever-changing conditions.

Certainly, there are triggers for an estate plan review including, among many others: the birth or death of a child, spouse or other close family member; the receipt of a large inheritance or prize; the change of a job or retirement; the purchase or sale of a home or moving to a new state; changes in inheritance and tax laws; and changes in your estate distribution goals or your choice of fiduciary.

Even if the above circumstances do not occur, the mere passage of time with increasing age, aging of children and potential changes in financial condition should trigger a periodic review. The frequency of reviews is highly individual. The Family Wealth Decisions Group suggests that absent any significant specific triggers for a plan update, it is useful to review your documents and plan informally annually and possibly in more detail with your attorney every 3 - 5 years.

Mistake #3: Not selecting appropriate fiduciaries.

A fiduciary is often described as someone entrusted with the management of property or money for another⁵. I’d like to add to this description for estate planning purposes those people you choose to entrust with making decisions for you which may not strictly involve the management of money or property. These additional fiduciaries may include the guardians of minor children and agents appointed to make health care decisions.

We often see family members chosen to fill all the estate planning fiduciary positions, and frequently many positions (sometimes all) are filled by the same family member. This is neither good nor bad; these are individual choices. However, a recurring planning mistake we see is the failure to designate appropriate successors if a chosen fiduciary predeceases or is unable or unwilling to serve in the appointed position. We have also seen fiduciaries and successors chosen who are older than the person appointing them. This may lead to an increased risk of failure just due to mortality considerations.

The nature of the duties of serving as an executor, trustee, power of attorney agent or guardian of minor children are often given short shrift when these appointments are being made. Certainly, trustworthy people with no conflicts of interest who are familiar with your wishes and values should be chosen. However, a more in-depth consideration may be called for in many cases, depending on the specific position and duties.

Consider the appointment of a guardian for minor children as one example. If you designate a married couple as guardian, what happens if they split up? What if you have several minor children, should they get split up? If not, did you provide adequate financial resources to facilitate their care by the appointed guardian?

Mistake #4: Not planning sufficiently for estate liquidity and creditor protection.

One of the major reasons for many to construct an estate plan is to provide for surviving family members – to help support their lifestyle and to help fund the process of achieving family goals. Liquidity refers to the ease in which an asset may be converted into cash. Therefore, a liquid asset is one that is easily, cheaply and quickly convertible to cash⁶.

Leaving wealth to your family is not necessarily the same thing as leaving liquidity. You may not want to force your family to move out of their house and sell it to raise money. You may not want to force your family to sell assets at an inopportune time to raise money and possibly realize losses or pay a lot of income tax in the process. Consequently, life insurance is often selected as a source of estate liquidity. Life insurance claims are usually paid within 60 days of death and sometimes as quickly as two weeks after the death of the insured⁷. However, there are many types of life insurance so all policies are not created equal just with different price tags. It is very important that you work with an experienced advisor to design one that fits your plan so you can maximize your family’s ability to achieve their goals.

In addition to leaving wealth and liquidity to surviving family members, is the goal of increasing the likelihood that the inherited wealth is actually used for the intended purposes. Should your entire estate be left to a surviving spouse outright? What if your spouse remarries and leaves her estate (including the assets you left your spouse) to her new spouse and not to your children? Should you leave significant estate wealth (in addition to other assets they may receive as beneficiaries) to your children unprotected - exposed to the potential risks of poor financial, business and marital decisions? Trusts are often recommended by advisors to address these issues and many others. However, there are many types of trusts and there is tremendous flexibility in what they may be able to do. It is very important that you work with your attorney and financial advisor to design one that meets your goals.

Mistake #5: Not coordinating estate planning with the rest of your planning.

Lack of planning coordination is an error we see with nearly every type of planning. Often, estate planning is done in a silo – in isolation of other financial planning decisions which may be made with different advisors at different points in time for different purposes. A lack of planning coordination may cause gaps through which wealth may be lost or which may cause goals not to be fully met.

You may intend to leave wealth to your family, but have you designed your use of income to provide for an inheritance? Perhaps you purchased life insurance. Have you coordinated your life insurance beneficiary designations with those in your Will or Trust? Have you coordinated your retirement plan beneficiary designations with those in your Will or Trust? Do you know where each of your buckets of assets will go on death and when they will get there? Does this big picture estate flow meet with your satisfaction? One of the areas of inquiry in periodic reviews should be the coordination of the estate plan and estate documents with the rest of your financial decisions such as asset titling and beneficiary designations.ow ofteb

Many equate estate planning with estate tax planning and very few of us are likely to have estate tax issues⁸. However, coordinating your estate planning with your other planning can help to address those “other personal matters” referred to by the American Bar Association.

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We consider the five mistakes addressed above to be foundational in estate planning. However, we have seen many others – some big and some small. Why do these mistakes occur? Sometimes decisions may be made emotionally, compulsively or rashly. Sometimes decisions may be made in the absence of good information or based on misinformation. Sometimes decisions may be made carelessly without consideration of the potential consequences in the mistaken belief that the decisions are not important.

Good planning decisions should be made not only considering their immediate consequences, but also those that may derive from them. Effective estate planning decisions are not made in a vacuum, isolated from all other planning decisions, but rather should be made in coordination with them. This is where an experienced credentialed advisor can be of assistance and value.

Making an estate plan now, updating an existing plan, reviewing fiduciary choices, estate liquidity, creditor protection and plan coordination are great topics of discussion with your advisors. Often mistakes, once discovered, can be reversed, repaired or overcome. Sometimes they cannot be corrected or ameliorated. This is why we offer a complimentary consultation to discuss estate, retirement or other financial decisions you may need to make. Contact us to arrange your consultation.

Osaic FA, Inc. and its representatives do not offer tax or legal advice. Individuals should consult their tax or legal professionals regarding their specific circumstances

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