10 Common Estate Planning Mistakes

By Donna Walton, Wealth Strategist

The goal of an estate plan is to ensure your assets pass to your loved ones the way you intend and in as efficient a manner as possible. While a properly created estate plan can create peace of mind for you and your loved ones, unintended errors can derail your plan and keep you from reaching your estate planning goals. Below are some of the more common estate planning mistakes and how to avoid them.

1. Failing to have a plan
Whether you have estate planning documents in place or not, your loved ones will be left to manage your affairs. A surviving spouse and children are dealing with loss and grief and business partners may be dealing with confusion and uncertainty. The biggest mistake you can make is failing to plan at all. If you fail to create an estate plan, your state in which you live will have one for you and it may not be the plan you would have wanted. Not having a will can lead to family members battling it out in court over your intentions. Without a will, your assets will pass by intestacy laws of the state you live in, instead of by your wishes which could be very different. Most people assume if they pass away all their assets would pass automatically to their spouse, but in some states, the assets could be divided between a spouse and children. If the children are minors, this can lead to more complications.

Minor children cannot directly inherit property and the court will require the appointment of a guardian of property, if necessary, and set up trusts, appoint trustees and oversee how the trust is invested and spent. These activities will incur legal fees and expenses that may not have been anticipated. Not only should you have a plan, but it is important to discuss what is in your plan with your loved ones. This will provide clarity and set expectations and provide an opportunity for discussion while you are alive. Doing this minimizes the likelihood of disagreement and challenges after your passing.

2. Not coordinating beneficiary designations with your will/trust
Many assets can pass by beneficiary designation – this includes accounts that are titled as "Transfer on Death", life insurance and retirement plan accounts including IRAs and employer-sponsored retirement plans. When an account validly provides for named beneficiaries, those assets pass to the named beneficiaries without going through the probate process. Issues and tensions may arise when there are inconsistencies between named beneficiaries that transfer outside of probate and the beneficiaries you have included in your will. For example, this can be a problem if you name all your children as the beneficiary of your will but perhaps only one or two the beneficiaries of your 401k plan and life insurance. Specifically, this can create an unintended unequal distribution. Another potential problem is naming different children as beneficiaries of seemingly similar assets such as a $500k life insurance policy and a $500k IRA. The life insurance proceeds would not be subject to income tax, but the IRA proceeds would be taxable creating unequal gifts. It is important to discuss your beneficiary designations with your attorney when creating your estate plan so they can help to make sure all your assets are passing according to your intent and there are no unintended consequences.

3. Not naming contingent beneficiaries and decision makers
A contingent beneficiary (also known as a secondary beneficiary) is the person or entity who receives your assets in the event your primary beneficiary passes away before you do. It is important to name one or more contingent beneficiaries because if the primary beneficiary passes away and there are no named contingent beneficiaries when you pass, the assets may go to the estate or to default beneficiaries that were not as you intended. This outcome could also cause disagreements among family members who may bring challenges in probate court. It is always best to name at least two contingent beneficiaries. It is not only important to name contingent beneficiaries, but also name contingents for decision makers named in your documents such as Executors, Guardians and Trustees when drafting your estate plan in case the originally named individuals pre-decease you or are no longer able to serve.

4. Leaving assets outright to minors
As mentioned above, minors cannot inherit property directly. Often the court will create and oversee a trust and appoint a trustee for the minor child/children which will be monitored by the court or appoint a guardian of property for the child which will be monitored by the court. The court could appoint someone that you would not want in that position. Often the money/property is required to be paid to the beneficiary when they reach the majority of the state they live in. The child may not be mature enough to manage a significant inheritance at a young age.

By setting up a trust, either separately or in your will, you can indicate who you want to be the trustee, how the funds are to be distributed and at what age you want the child to receive the assets. Having assets in a trust can help protect the child from bad spending habits and future divorce and provide creditor protection. It can also preserve the assets for what you intend such as a college education, buying a first home, or starting a business.

5. Not considering both federal and state estate tax
Estate tax liability can have a large impact on the assets you leave your beneficiaries for those with estates over the current estate tax exemptions. For most people, the federal estate tax will not have a large impact. The current federal estate tax exemption for 2025 is $13.99 million per person and $27.98 million per married couple. The Federal estate tax exemption is scheduled to sunset back down to about $7 million per person after 2025 if there is no change in the law. Many states also have a state estate tax. While many states mirror the federal exemption, in some states the state estate tax exemption is less than the federal exemption. Someone who doesn't have a federal estate tax liability may have a state estate tax liability. It is important to know what the exemptions are for your state so you can plan accordingly.

For 2025, a donor can make annual exclusion gifts of $19,000 per year ($38,000 per year for a married couple) to any number of individuals. Gifting property during your life will remove both the asset and the future appreciation of that gift from your estate for estate tax. Establishing an annual gifting plan over many years can be a powerful way to reduce future estate taxes on your estate.

6. Forgetting to fund your trusts
Revocable trusts are becoming an increasingly popular tool to help avoid probate. Often, after having the trust drafted and executed, people forget to fund their trusts. By not titling assets in the name of your trust, the assets will likely be subject to probate and defeat one of the main goals of creating the trust in the first place. Another common mistake is not putting the title of a new asset in the name of the trust. Often, the drafting attorney will change the original house deed to the trust, but then years later the house is sold, and the new home is titled individually and not to the trust.

If a trust is irrevocable, it is important to fund it with the intended assets to not only avoid probate, but to ensure the goals of the trust are met, which could be for creditor protection, or estate reduction. A qualified attorney should advise on this process.

7. Failing to plan for incapacity/have a power of attorney or advance directives for health care
While most people are aware of the importance of having a will, many people also forget to prepare other important documents such as a General Durable Power of Attorney and an advance directive for health care. A General Durable Power of attorney is a legal instrument that allows you to name one or more agents to make legal decisions on your behalf if you become incapacitated. Advance directives for health care are legal instruments that allow named individuals to make medical and health decisions on your behalf if you are incapacitated. The most common advance health care directives are a living will or a health care power of attorney. Many attorneys will draft these documents along with your will as part of a complete estate plan. A revocable trust is another tool that allows you to plan for the management of your assets while you are still alive and after your death. If you become incapacitated, your successor trustee will become the trustee and manage the trust assets in accordance with the terms of the trust instrument. A trust must be drafted by an attorney.

8. Failing to plan for digital assets
Planning for digital assets is a relatively new concept, but is important in the increasingly technological world we live in. Make sure to incorporate your wishes for your digital assets into your estate plan including your will and, possibly, your durable power of attorney. This could include social media accounts, domain names, photos and videos, cryptocurrency, online banking, and email accounts. It is also important to have a separate document that you regularly update with a list of your digital assets and passwords for your executor to access in the event of your passing.

9. Failing to have a business succession plan
Having a business adds a layer of complexity to estate planning. Family-owned businesses often do not survive when passed from one generation to the next. While business owners are often focused on the growth of their business, and possibly think of retirement down the road, they often overlook what will happen to the business if they passed away. A succession plan should address both the ownership and management business. Some strategies may include the use of buy- sell agreements or life insurance trusts. They may also incorporate lifetime transfers to family member via trusts. It is important to have ongoing conversations with other family members involved in the business and your tax and legal advisors as your business changes and grows to make sure your strategies are in line with your goals.

10. Not updating your plan
Estate planning like all aspects of financial planning is not " set it and forget it". It needs to be kept current and updated to reflect the changes in your life. These events could include:

• Marriage
• Divorce
• Pre- and post-nuptial agreements
• Birth of children/grandchildren
• Death of a minor child's guardian
• Death of a beneficiary, executor or trustee
• Move to a different state or to another country
• Inheritance
• Sale of a business

After any of these life events you should review your plan to see if it still is in line with your goals. Not making changes could result in your assets not passing the way you want, create family disputes, and make the process of wealth transfer more difficult, and expensive, than anticipated. You should review your estate plan every few years even if there isn't a major life event to ensure it is still line with your goals.

In the turmoil that follows the death of a loved one, having a current estate plan in place that is current and reflective of the decedent's wishes and that has been communicated to loved ones in advance can provide those you care about with clear guidance for handling your affairs after your death. At a time when so much is uncertain, knowing there is an estate plan can bring clarity and peace of mind.

Our TD Wealth® Advisors are available to provide you with advice to help you meet your financial goals.