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Top 7 Most Common Estate Strategy Mistakes (and How to Avoid Them)

June 21, 2023

Getting your affairs in order and outlining what you want done with your estate after you’re gone is one of the greatest gifts you can leave your loved ones. However, not preparing for the transfer of your assets can lead to confusion, potential family disputes, and outcomes that don’t align with your ultimate wishes.

Creating a financial strategy that considers how an estate is structured is one of the most important services we provide as financial professionals. Over the years, we’ve helped guide many of our clients so they can make sound estate decisions and potentially avoid any missteps.1,2 

Let’s delve deeper into the key areas of focus in estate planning:

1. Failing to create a comprehensive estate strategy

One of the biggest financial mistakes is not developing a strategy for your estate. Some people never get around to it, while others think that estate concerns are only for the wealthy. Without a strategy, your assets may not be distributed based on your wishes, and your heirs may be forced to make hard decisions at a difficult time for your family.

The cornerstone of a comprehensive estate strategy is understanding the different tools at your disposal. For instance, a healthcare power of attorney can designate someone to make medical decisions on your behalf if you're unable to do so. Also, if you have business agreements or prenuptial agreements, these must be included in your estate strategy. They are legal instruments that can affect the distribution of your assets and need to be addressed to ensure they harmonize with your overall estate planning objectives.

2. Not updating an estate strategy periodically

Estate strategies are not a 'set-and-forget' plan. Like your business strategy, which needs to adapt to market conditions, your estate strategy must reflect your current wishes and circumstances. As life changes, so too should your estate strategy. A strategy designed a decade ago may not cover newly acquired assets or new beneficiaries.

Reviewing your estate strategy every three to five years, or whenever a major life event occurs (such as births, deaths, marriages, or divorces), will help keep it current. Business-related changes, such as acquiring a new property or expanding your business operations, should also trigger a review of your estate strategy.

3. Not considering taxes

It's crucial not to underestimate potential tax liability when crafting your estate strategy. Overlooking the tax implications can place your heirs in a difficult financial position, possibly forcing them to liquidate assets quickly to cover tax liabilities.

We recommend working closely with a tax or legal professional to gain an accurate understanding of your potential estate taxes. They can guide you on efficient strategies to minimize estate taxes while aligning with your overall goals.

4. Not taking advantage of charitable giving

Charitable giving isn't just about supporting important causes; it's also a strategic tool that can benefit your estate. By incorporating philanthropy into your estate strategy, you can leave a lasting legacy that reflects your values.

Charitable giving can take many forms, such as direct gifts, creating a charitable trust, or leaving a bequest in your will. Each option has its tax considerations and benefits, so you'll need to work with your financial advisor and tax professional to select the most suitable strategy for you.

5. Failing to account for business succession

If you're a business owner, how your business will be managed or transferred after your demise is an essential part of your overall estate strategy. A sudden leadership void could destabilize your business, potentially diminishing its value.

Creating a business succession plan can help manage this process. One option is a buy-sell agreement, a legally binding contract that outlines how a partner's share will be reassigned if they exit the business. This agreement helps avoid conflict and ensures the continued operation of the business. Your financial advisor can guide you through the nuances of such agreements.

6. Not communicating with heirs

Estate planning is an inherently personal process, but it shouldn't be a secretive one. Failing to discuss your estate strategy with your heirs can lead to misunderstandings and misinterpretations, potentially resulting in family conflicts or even legal challenges. Open and honest communication is essential to ensure that your heirs understand your intentions and the rationale behind your decisions.

To avoid this mistake, start the conversation early and involve your heirs in the estate planning process to the greatest extent possible. By openly discussing your intentions, you can address any concerns or questions they may have and provide clarity on your objectives. This collaborative approach not only helps build trust and understanding but also gives your heirs an opportunity to prepare themselves for their future roles and responsibilities.

7. Not asking for help with difficult estate decisions

A poorly constructed estate strategy can result in mistakes and missed opportunities. Consider working with professionals who help families create estate strategies; they can anticipate issues that you may overlook.

In some situations, an estate team should comprise your financial professional, attorney, and tax advisor.

A tax advisor brings knowledge about estate taxes to the conversation, while an attorney can help create the critical documents needed to support your estate strategy. As financial professionals, we often function as estate team quarterbacks, coordinating activities and ensuring that critical areas are being addressed and that everyone is on the same page.

Also, a team of professionals can help examine your estate from different perspectives. For example, if the team determines that a trust may be appropriate, you’d have access to professionals familiar with the laws that must be followed to create a trust document.

Another benefit from having outside assistance with your estate is that tax laws change constantly, so having a team may help you keep your documents up to date. For example, several estate provisions in the Tax Cuts and Jobs Act are set to expire on December 31, 2025. You may want your team to consider how your current estate strategy could be affected if the laws revert back to 2017.

The best time to start your estate strategy discussion is right now.

The best time to start your estate strategy discussion is right now. Facing one's mortality is never easy, but ignoring the inevitable doesn't help anyone. Failing to address these common estate issues can have consequences for your further down the line.  

To assist you in navigating the complex world of investments and financial planning, you can download our ebook on 5 crucial investment mistakes people often make. It is designed to help you understand and avoid common pitfalls so that you can make more informed decisions to secure your financial future.

1, 2023
2, April 24, 2023

This article was written by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.