Common estate planning mistakes to avoid
Perhaps the most common estate planning mistake is simply not having an estate plan. According to unbiased.co.uk research, 28.7 million UK adults (57 per cent) lack a codified will.
I’m too young
Some think they’re too young to need one. This is perhaps unsurprising, as the younger you are, the less likely you are to have sizeable assets – and the further away the end of your life will seem.
“This is a common misconception. For one, a lot more goes into an estate plan than simply deciding who gets what possessions of yours,” says Tom Hewitt, partner at Burges Salmon.
“Estate planning can cover every aspect of your life at almost any stage. It’s also specifically meant to deal with unforeseen circumstances, so even if you’re in your mid-20s and in rude health, it’s still very much applicable to your circumstances.”
While there is no universal juncture at which all people must start estate planning, Hewitt believes that getting married, or owning property, are two clear benchmarks. It is important to bear in mind that the phrase ‘better late than never’ does not apply to estate planning – so start as early as you can.
I’m not ‘worth’ enough
Many assume that estate planning is the sole preserve of those with significant assets – or that their financial affairs are so straightforward they simply don’t require formal documents to administrate, and shared assets (such as mortgages and bank accounts) will suffice.
However, this idea is contested by James Beresford, head of inheritance & welfare at Slater and Gordon.
“Almost everyone can benefit from an estate plan, irrespective of their ‘worth’ – and everyone’s personal affairs are complex to some degree,” he says.
For instance, if you have young children, it’s important to designate someone to distribute your money to them if you pass away unexpectedly.
“Estate plans can cover such considerations as assigning a guardian to your children, your funeral arrangements, and more,” Beresford continues.
“A failure to state your wishes in these regards in a legally enforceable document hands control over such areas to courts, and the state. If you don’t like the idea of someone else deciding how your affairs are posthumously managed, you need an estate plan in place.”
I haven’t informed my beneficiaries
Some make the mistake of not telling their inheritors about the contents of their will.
This is perhaps understandable, as many won’t want to risk causing squabbles or animosity – inheritors fighting over who gets what out of your personal effects, or complaining about their share, for instance.
However, Beresford highly recommends that those who stand to inherit your estate when you pass away have a clear idea of its contents before it comes to pass. That way, you have time to deal with any disagreements that arise – and the likelihood that a will could be later challenged by an inheritor who feels short-changed is reduced.
I haven’t appointed a power of attorney
“Another common estate planning mistake is thinking that estate planning only covers death, rather than health more generally,” says Hewitt.
“It’s important to bear in mind the significant ramifications that disability, whether physical or mental, may have for your ability to administer your personal and financial affairs as you wish. It could even have greater consequences than your death.”
Many can fail to appoint a power of attorney, and/or create a living trust to work on their behalf if they’re unable to do so themselves. A failure to appoint a lasting power of attorney could mean your loved ones need to appoint a guardian or conservator via the courts.
I’ve not updated my plan
Another common estate planning mistake is failing to regularly update an estate plan.
“It’s important to view an estate plan as an ever-evolving document. Chances are, your financial and personal circumstances and wishes will change over time – so ensure these adjustments are reflected,” says Beresford.
“The assets you hold when you’re 30 will almost certainly be different 10 or 20 years down the road –the people you want to leave them to may be different too – so don’t just ‘set and forget’.”
A good analogy could be to consider estate planning as a constant process, similar to upgrading your home. Starting with a solid framework, amendments and modifications are made over the course of your life, until it reaches effective completion. From then on in, it’s a matter of replacing curtains and lightbulbs and intermittent licks of paint.
Major changes in life, such as births, marriages and divorces, obviously warrant updates to an estate plan. However, changes in the wider world – for instance, a worsening economic outlook, changes to inheritance laws, and so on – may necessitate a review of your current plan.
“As an aside, you should apply the same logic to the beneficiaries you list on anything you hold that can be transferred in the event of your death – insurance policies, death in service benefits,” concludes Beresford.