/>iIn this third and final installment of our estate planning refresher series, we address additional critical mistakes that often undermine otherwise sound estate plans. Before diving into these issues, it is important to briefly review the mistakes highlighted in Parts 1 and 2.
In Part 1, we explored the complications that arise from jointly held property, particularly the limitations of joint tenancy in preserving post-mortem control and avoiding tax inefficiencies. We also discussed incorrect life insurance strategies, where ownership retention or transfer-for-value issues can result in unintended estate tax inclusion or taxable death benefits. Liquidity shortfalls were another significant focus, as insufficient liquid assets can force executors to sell property at a loss or borrow under unfavorable terms to cover estate obligations. Finally, we addressed the risks of selecting the wrong executor or trustee—a decision that can lead to delays, mismanagement, or strained family dynamics.
In Part 2, we examined the marital deduction trap, emphasizing that outright spousal transfers may defer, but not eliminate, estate tax burdens. Strategic asset distribution was another key topic, where equal shares are not always appropriate given beneficiaries' varying needs and circumstances. Business continuity and digital asset planning were discussed as essential components of preserving asset value and ensuring seamless succession. We also covered the importance of comprehensive documentation and record management, as incomplete records can create significant administrative challenges. Lastly, modern family dynamics and alternative legacy planning were addressed, highlighting the need for nuanced strategies to accommodate blended families, chosen families, and evolving reproductive technologies.
13. Failure to Provide Complete and Accurate Information
A foundational requirement of effective estate planning is transparency. However, many clients inadvertently or intentionally withhold critical information from their estate planners. This omission can result from embarrassment, mistrust, or a desire to conceal details that may draw attention from taxing authorities. Whatever the cause, incomplete disclosure jeopardizes the estate plan’s integrity.
Insufficient transparency often creates complications in blended families, where dynamics are already complex. For example, if a client neglects to disclose a prior marriage or children from that marriage, it may lead to unintended disinheritance or disputes among heirs. Similarly, hidden debts or undisclosed assets can surface after death, burdening beneficiaries with unexpected tax liabilities or legal challenges. One client, for instance, failed to disclose ownership of a vacation property acquired decades earlier. This omission led to legal wrangling among heirs when the property was discovered posthumously.
To mitigate these issues, estate planners should encourage clients to disclose all relevant financial and personal details, including assets, debts, and family relationships. Trust can be fostered through confidentiality and by explaining the critical importance of full disclosure. Employing detailed questionnaires and conducting thorough follow-up interviews can help uncover hidden or overlooked information, ensuring a comprehensive and accurate estate plan.
14. Lack of Coordination Among Estate Planning Instruments
Piecemeal estate planning, where wills, trusts, insurance policies, and other instruments are created in isolation, often leads to conflicts and inefficiencies. For example, a client may draft a will that conflicts with beneficiary designations on retirement accounts or insurance policies, creating confusion and potential disputes.
Consider a scenario where a client’s will stipulates equal distribution of assets among three children, yet a life insurance policy lists only one child as the sole beneficiary. Such inconsistencies can lead to feelings of unfairness and legal challenges among siblings. Similarly, overlapping provisions across multiple documents can confuse executors and beneficiaries, delaying the estate administration process.
To avoid these pitfalls, it is essential to regularly review and update estate planning documents to ensure consistency across all instruments. Beneficiary designations should be coordinated with the overall estate plan to align with the client’s intentions. Collaboration among financial advisors, insurance agents, and estate planners can further ensure that all components of the plan work harmoniously.
15. Failure to Communicate the Estate Plan
A lack of communication about the contents and intentions of an estate plan often results in familial discord and legal challenges. Research indicates that 70% of estate plans fail due to a lack of communication and trust among family members. Misunderstood intentions can lead to disputes and emotional harm among heirs, especially when unequal distributions are perceived as favoritism.
In one illustrative case, a client chose to leave a larger share of their estate to a child with significant financial needs, while the other children were well-established. This decision, though logical, was not communicated to the heirs. After the client’s death, the unequal distribution led to resentment and protracted litigation among siblings. Had the client explained their reasoning during their lifetime or left a detailed letter with the estate plan, the conflict might have been avoided.
Estate planners should encourage clients to explain their decisions to heirs, either in person or through written communication. Soliciting limited input from beneficiaries can also foster a sense of inclusion without compromising the client’s autonomy. Neutral third parties, such as mediators, can facilitate discussions, particularly in blended family scenarios or contentious situations.
16. Incomplete or Incorrect Beneficiary Designations
Beneficiary designations are critical for assets like retirement accounts, life insurance policies, and annuities. Errors or omissions in these designations often undermine the estate plan. For example, failing to update beneficiary designations after a divorce can result in assets passing to an ex-spouse instead of the intended beneficiaries.
In one instance, a client named their spouse as the primary beneficiary of a retirement account but failed to update the designation after their divorce. Upon the client’s death, the ex-spouse inherited the account, contrary to the client’s wishes. Additionally, designations that lack contingent beneficiaries can lead to assets being distributed according to default plan rules, which may not align with the client’s intentions.
To address these issues, estate planners should gather and review all beneficiary designation forms during the planning process. Clients should name contingent beneficiaries and specify their wishes for secondary contingencies, such as whether assets should pass to grandchildren if a primary beneficiary predeceases them. Regularly revisiting designations, especially after significant life changes, is crucial to maintaining alignment with the estate plan.
17. Neglecting to Keep the Estate Plan Current
Even the most meticulous estate plan can become obsolete due to changes in laws, family circumstances, or asset portfolios. Divorce, remarriage, or the birth of grandchildren can dramatically alter the intended disposition of assets, leading to unintended outcomes.
For example, a client who remarried but failed to update their estate plan inadvertently left a significant portion of their estate to an ex-spouse. In another case, a client’s failure to revise their plan after the birth of a grandchild excluded the grandchild from any inheritance. These oversights can cause emotional distress and legal disputes among heirs.
To prevent such issues, estate plans should be reviewed regularly—at least every three to five years—and after major life events. Clients should be educated on the importance of timely updates and informed about changes in tax laws that may impact their estate. Proactive communication between estate planners and clients is key to ensuring the plan remains relevant and effective.
18. Overreliance on Joint Tenancy
While joint tenancy offers simplicity in transferring assets upon death, it can inadvertently override the intentions set forth in a will or trust. Assets held in joint tenancy pass directly to the surviving joint tenant, bypassing the estate plan.
In one case, a client intended to divide their estate equally among their three children but held a bank account in joint tenancy with only one child. Upon the client’s death, the account passed solely to the surviving joint tenant, contrary to the client’s wishes. This situation created discord among the siblings and led to legal challenges.
To avoid these complications, clients should carefully evaluate the use of joint tenancy in the context of their overall estate plan. Alternatives, such as revocable living trusts, offer greater control and protection while ensuring assets are distributed according to the client’s intentions. Regularly reviewing account titles and real estate deeds is essential to maintaining consistency with the estate plan.
19. Insufficient Planning for Disability
Disability planning is often overlooked, leaving clients vulnerable to unnecessary court intervention and expense. Ambiguity in triggering events for springing powers of attorney or successor trustee appointments can delay decision-making and create additional stress for loved ones.
For instance, a client’s springing power of attorney failed to clearly define the circumstances under which it would take effect. When the client became incapacitated, their family faced significant delays in accessing financial accounts and managing medical decisions. A well-drafted document could have avoided this hardship.
To ensure adequate planning, powers of attorney and successor trustee provisions should include clear and actionable procedures for activation. Coordinating disability planning documents with the overall estate plan can prevent conflicts and streamline decision-making. Open discussions with loved ones about disability planning can also foster understanding and preparedness.
20. Failure to Account for Blended Family Dynamics
Blended families present unique estate planning challenges, often exacerbated by emotional complexities and competing interests. Without careful planning, these dynamics can lead to disputes and unintended outcomes.
For example, a client with children from a prior marriage intended to provide for both their current spouse and their children. However, their estate plan did not clearly delineate distributions, resulting in disputes between the spouse and stepchildren. The absence of clear provisions left both parties feeling unfairly treated and led to costly litigation.
Separate trusts for each spouse can protect individual interests while addressing shared goals. Clearly defining distributions to stepchildren and biological children can avoid ambiguity and ensure fairness. Open communication about intentions can help manage expectations and minimize disputes.
21. Relying on Informal Arrangements
Some clients assume that informal agreements, such as verbal promises or unenforceable letters, will suffice in directing the distribution of their estates. These assumptions often lead to disputes and inequitable outcomes.
In one case, a client verbally promised to leave a family heirloom to a specific relative but did not include this instruction in their will. After the client’s death, multiple relatives claimed entitlement to the heirloom, resulting in prolonged disputes and damaged relationships. Formalizing intentions in legally binding documents could have prevented these issues.
To avoid such risks, all intentions should be documented in enforceable legal instruments, such as wills and trusts. Specific wishes, particularly in blended family scenarios, should be clearly articulated to avoid misunderstandings. Estate planners should discourage reliance on verbal agreements or informal notes, emphasizing the importance of formal documentation.
Conclusion
This was the final installment of our 3-part series. Effective estate planning requires meticulous attention to detail, proactive communication, and a willingness to adapt to changing circumstances. By addressing common mistakes, such as incomplete disclosure, lack of coordination, and outdated plans, clients and estate planners can create robust strategies that honor the client’s wishes while minimizing conflict and inefficiencies. Ultimately, the key to successful estate planning lies in preparation, communication, and periodic review—ensuring that every component works harmoniously toward the client’s goals.
Reference:
This 3-part series was inspired by the relevant sections in the immensely practical and up-to-date handbook Leimberg, Stephan, L. Paul Hood, and Edwin P. Morrow. 2023. The Tools and Techniques of Estate Planning, 21st Edition. 21th ed. Newburyport: National Underwriter Company.
