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Mistakes to Avoid in Estate Planning

Knowing the mistakes to avoid in estate planning carries almost as much importance as developing the documents themselves. An estate plan that is riddled with errors, after all, can cause your family members unnecessary stress and may cost thousands of dollars in unnecessary taxes and probate fees in the long run.

What Are Common Estate Planning Mistakes?

Several estate planning pitfalls commonly plague people as they put their affairs in order. As a result, the family members they leave behind may have complex matters to sort out, exacerbating their stresses during a likely already difficult time. Some of the most common mistakes include:

  • Not understanding the plan that they create or how it works
  • Not knowing the estate tax requirements
  • Not including advance care directives
  • Not funding the trusts created
  • Not regularly reviewing and updating the plan

Taking these and other mistakes to avoid in estate planning into consideration when creating their plans may help people prevent issues or disputes for and between their loved ones after their passing.

Knowing How the Plan Works

Rather than taking a passive approach, people often benefit from understanding the plans they create. Having fundamental knowledge about how their plans work aids in ensuring they meet their needs and goals. Sometimes, the choices they make at the time of creating their plans make sense. However, months or years later, they cannot remember the reasoning for them. Taking notes allows people to look back and recall why they made the key decisions they made.

Understanding Estate Tax

When developing a plan, many find it helpful to understand how estate taxes work. Going through probate involves settling the decedent’s affairs. The state of Illinois has set the threshold at $4 million. As such, estates valued at less than the limit may have an exemption from paying such taxes. Knowing the state and federal thresholds helps inform how people develop their plans. For instance, a person with assets in excess of $4 million will often consider options to limit the taxes their estates face, while someone whose property total falls below the threshold may not need to worry about such issues.

Addressing Special Circumstances

Estate plans should include contingencies for circumstances other than the end of a person’s life. People often think of estate plans as simple wills, trusts, and such documents for passing on their assets and property to family, beneficiaries, or others after their passing. However, such plans should also include advance care directives, such as living wills and health care powers of attorney. These documents aid with an emergency, lifesaving, and end-of-life situations when, due to physical or mental incapacity, a person cannot make decisions for himself or herself.

In addition to advance care documents, people should also make sure their plans address any specific needs of them or their beneficiaries. For instance, a person who intends to provide for a child with special needs after his or her passing will typically want to set up a different type of trust than a person who wants to transfer ownership of a family business.

Funding Trusts

Creating trust is only part of the process, people must also fund those trusts. Trusts do not work like a bank account, where creators simply deposit funds in. Rather, they often involve steps such as transferring ownership of assets, recording paperwork with the appropriate state agencies or offices, and in some cases, obtaining a tax identification number.  

Reviewing the Plan Regularly

Estate planning requires updating. Many people mistakenly look at estate planning as a one-time necessity. In addition to creating their plans, however, people should conduct regular reviews to ensure it reflects on their life changes. The death of a family member, a marriage, a divorce, the birth of a child, or other such factors may give cause for people to update their plans. Aside from major life events, people may consider performing regular reviews every three to five years.

Updating Beneficiaries

When they experience some life changes, people will need to update their estate planning documents. To this end, they may adjust to whom their estates will pass after their deaths, as well as who, will handle their affairs or make medical decisions for them if they cannot make them for themselves. For example, following a divorce, a person will likely want to adjust any estate planning documents that list his or her spouse as the beneficiary. Adjusting the beneficiaries on financial accounts and estate plans make sense, then, to adjust for life changes such as falling outs or estrangement that may affect who a person wants to pass on their assets to.

Sadly, many people go through the process of creating an estate plan only to have it not address their needs or, worse, pass their assets on in a way other than how they intended. Working with a probate attorney to understand their options may help people create estate plans that avoid the common pitfalls and give them peace of mind that their concerns and the needs of their loved ones will be taken care of.

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