July 30, 2024 •HoganTaylor
If you’re taking your first steps on your estate planning journey, congratulations! No one likes to contemplate their own mortality, but having a plan in place can provide peace of mind for you and your loved ones should you unexpectedly become incapacitated or pass away. Here are five common estate planning pitfalls you’ll want to avoid:
Pitfall #1: Lack of Coordination in Plan Components
An estate plan typically involves several moving parts, including a will, a power of attorney, trusts, retirement plan accounts, and life insurance policies. It’s crucial not to look at each component in isolation. Even though they serve different purposes, they should be coordinated within your overall plan. For example, you might want to arrange distributions from investments—such as securities, qualified retirement plans, and traditional and Roth IRAs—in a way that preserves more wealth.
Pitfall #2: Neglecting to Update Beneficiary Forms
Your will outlines who gets what, but it’s often superseded by other documents such as beneficiary forms for retirement plans, annuities, life insurance policies, and other accounts. These forms need to be kept up to date just like your will. Without regular updates, your retirement plan assets could unintentionally go to a sibling, parent, or even an ex-spouse instead of your children or grandchildren. Review beneficiary forms periodically and make necessary adjustments.
Pitfall #3: Inadequate Trust Funding
Many estate plans include one or more trusts, such as a revocable living trust. A primary benefit of a living trust is that assets transferred to it don’t have to go through probate, avoiding public inspection and delays. However, the trust must be funded with assets—meaning legal ownership of the assets must be transferred to the trust. For example, if transferring real estate, the deed must be updated to reflect the trust as the new owner. If transferring securities or bank accounts, follow the financial institutions’ directions. Otherwise, the assets will still need to be probated.
Pitfall #4: Improper Asset Titling
The way you own assets can significantly impact your estate plan. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, upon your death. It’s critical to review asset titling periodically, especially after major changes in your personal circumstances or shifts in prevailing laws that might necessitate a change in ownership methods.
Pitfall #5: Failing to Regularly Review Your Plan
An estate plan is a “living” entity that requires regular updates and maintenance. Don’t let it gather dust in a safe deposit box or file cabinet. Consider the impact of major life events such as births, deaths, marriages, divorces, job changes, or relocations. Regular reviews help ensure your estate plan continues to meet your goals and adapt to changes in your life and the law.
To help ensure your estate plan succeeds and avoids these pitfalls, turn to us. We can help you cover all your estate planning bases and keep your plan up to date.
HoganTaylor Estate Planning Services
HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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