Estate planning is a crucial step in securing your family’s future and ensuring that your assets are distributed according to your wishes. However, many people either put off planning or make common mistakes that can leave their loved ones facing legal hurdles, unexpected taxes, or family disputes. As we head into 2025, it’s more important than ever to revisit your estate plan to ensure it’s up to date and avoids common pitfalls.
Here are the top 5 estate planning mistakes to avoid:
1. Failing to Update Your Estate Plan Regularly
One of the most common mistakes is creating an estate plan and then forgetting about it. Life is constantly changing, and your estate plan should reflect those changes. Major life events—such as marriage, divorce, the birth of a child, or the death of a loved one—should trigger a review and update of your estate plan. Changes in tax laws, financial circumstances, or even the growth of your estate should also prompt revisions.
What to do: Make a habit of reviewing your estate plan every year, or whenever there’s a significant life change, to ensure it aligns with your current wishes and family dynamics.
2. Not Planning for Digital Assets
In the digital age, many people forget to account for their online presence and digital assets in their estate plans. These can include everything from social media accounts and online banking profiles to cryptocurrencies and digital media libraries. If these assets are not properly managed after your passing, they could be lost or inaccessible to your loved ones.
What to do: Include a comprehensive digital estate plan in your documents. Appoint a digital executor who will have access to your online accounts and passwords, and outline how you want these assets to be handled. Some platforms, like Facebook and Google, offer legacy contact options to manage your accounts after death.
3. Ignoring Long-Term Care and Incapacity Planning
Estate planning isn’t just about what happens after you die—it’s also about planning for what happens if you become incapacitated and can’t make decisions for yourself. Many people overlook this crucial part of their estate plan, leaving their family in a difficult position to make healthcare and financial decisions without proper authority.
What to do: Establish powers of attorney for healthcare and finances to ensure that a trusted individual can manage your affairs if you’re unable to. Additionally, consider creating a living will or advance healthcare directive to outline your medical preferences, such as end-of-life care or treatment in the case of a severe illness or injury.
4. Failing to Consider Tax Implications
Estate taxes, income taxes, and capital gains taxes can significantly reduce the amount of wealth passed on to your beneficiaries if you don’t account for them in your estate plan. Without proper planning, your heirs could face unexpected tax liabilities, reducing the value of their inheritance.
What to do: Work with an estate planning attorney and tax advisor to create a strategy that minimizes tax liabilities. This might involve setting up trusts, gifting strategies, or leveraging tax exemptions. Estate tax laws can change, so keeping your plan current with tax laws is essential.
5. Overlooking Beneficiary Designations
Many people assume that a will covers all aspects of their estate, but certain assets—like life insurance policies, retirement accounts, and payable-on-death accounts—are passed on directly to the beneficiaries listed on those accounts. If your beneficiary designations are outdated or inaccurate, your assets may go to unintended recipients.
What to do: Review and update the beneficiaries on all your financial accounts regularly, especially after major life changes like marriage, divorce, or the birth of a child. This ensures that your assets are distributed according to your current wishes and not based on outdated information.
Estate planning is essential to ensuring that your assets are distributed according to your wishes and that your family is protected from unnecessary legal or financial burdens. By avoiding these common estate planning mistakes, you can rest assured that your plan is up-to-date, tax-efficient, and comprehensive.
Ready to update your estate plan or start one from scratch? Contact Lancaster Law Firm today to ensure your legacy is secure and your loved ones are protected.