Estate planning is one of the most important steps you can take to protect your loved ones and ensure your assets are distributed according to your wishes. Creating a Trust is a great start to planning for incapacity or death. However, many people make critical mistakes that can lead to unnecessary costs, legal battles, and unintended consequences. Below are some of the most common estate planning pitfalls and how to avoid them.
1. Not Funding Your Trust
Creating a revocable living trust is a great way to avoid probate and streamline asset distribution, but simply drafting the trust isn’t enough—you must fund it. Funding means retitling your assets into the name of your Trust, or in some cases naming a beneficiary. Some of the assets that need attention are real estate, bank accounts, and investment accounts.
Why this is a problem:
If assets remain in your name instead of the trust, they may have to go through probate, defeating one of the main purposes of having a trust in the first place.
How to avoid it:
- Work with your estate planning attorney to ensure all relevant assets are properly titled in the Trust’s name.
- Regularly review your trust to make sure newly acquired assets are included.
2. Failing to Update Your Plan
Life changes, and so should your estate plan. Major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary can greatly impact your estate plan, and lead to undesirable results.
Why this is a problem:
An outdated estate plan may not reflect your current wishes or family situation. For example, an ex-spouse may still be listed as a beneficiary, or children may be unintentionally excluded.
How to avoid it:
- Review your estate plan every three to five years or whenever a major life event occurs.
- Update beneficiary designations on retirement accounts, life insurance policies, and financial accounts.
3. Not Updating Beneficiaries or Contingent Beneficiaries
You may be surprised to learn that a lot of people name a beneficiary and then never update it if they marry, divorce, or change their mind. Additionally, a lot of people only name one beneficiary, and do not list a contingent beneficiary in case the primary beneficiary dies.
Why this is a problem:
Not updating your beneficiary designations can cause issues if you pass away before you get around to revising your beneficiary designations. Legally, the account will go to the current named beneficiary. Further, not naming a contingent beneficiary, and your primary beneficiary passes before you, your assets may become subject to probate, delaying distribution and potentially causing disputes.
How to avoid it:
- Always name both primary and contingent beneficiaries on your accounts and estate documents.
- Review your beneficiary designations periodically to ensure they remain up to date.
4. Choosing the Wrong Trustee
Selecting the right trustee is crucial for ensuring your trust is properly managed. Many people choose a close family member without considering whether they are responsible, financially savvy, or capable of handling legal obligations. Remember, your named Trustee will also be grief stricken, making their job more difficult.
Why this is a problem:
An unqualified or untrustworthy trustee may mismanage funds, create conflicts among beneficiaries, or fail to fulfill their legal duties, leading to costly disputes.
How to avoid it:
- Choose someone who is responsible, organized, and understands financial matters.
- Consider naming a professional fiduciary as trustee.
- Clearly outline the trustee’s duties in your estate plan to avoid confusion.
The Key to a Successful Estate Plan
A well-crafted estate plan is not a one-time task—it should evolve with your life circumstances. Regular updates, proper asset funding, and choosing the right fiduciaries can help safeguard your legacy and ensure a smooth transition for your loved ones.
If you’re unsure whether your estate plan is up to date or properly structured, consulting with an experienced estate planning attorney can help you avoid these common mistakes and provide peace of mind.
Take Action Today!
Don’t leave your family’s future to chance. Ensure your estate plan is properly structured and up to date. Contact our office today at (925) 459-1777 or fill out the contact form to schedule a complimentary consultation and take the next step toward protecting your loved ones and securing your legacy.