Common Estate Planning Issues to Avoid

Estate planning is the process of creating a strategy for managing your assets and personal care if you become incapacitated and for distributing your property upon death. This preparation provides legally enforceable direction for your family and designates individuals to carry out your wishes.

Proper planning is a fundamental aspect of financial responsibility for every adult. Without a plan, decisions about your assets and healthcare are left to state laws and court proceedings, which may not align with your personal desires. A well-constructed estate plan gives you control over these outcomes and provides for your loved ones as you intend.

Core Document and Asset Control Issues

A last will and testament serves as a set of instructions for a court, meaning any assets it governs must pass through probate. Probate is a public, court-supervised process for validating the will, paying debts, and distributing property. This process can take months or even years, during which assets may be frozen while legal and administrative fees accumulate, diminishing the inheritance.

To bypass probate, many people use a revocable living trust. This arrangement allows you to transfer assets into the trust’s ownership, which you control as trustee during your lifetime. Upon your death, a successor trustee distributes the assets according to your instructions without court intervention, maintaining privacy and efficiency.

A frequent failure with trusts is not properly funding them. You must retitle assets like real estate, bank accounts, and non-retirement investment accounts into the name of the trust. If an asset is not formally transferred, it remains in your individual name and will likely require probate, defeating a primary purpose of the trust.

Asset titling can also override a will or trust. Property owned as Joint Tenancy with Right of Survivorship (JTWROS) automatically passes to the surviving joint owner. Likewise, accounts with Payable on Death (POD) or Transfer on Death (TOD) beneficiaries transfer directly to the person named. These designations are contractual and take precedence over instructions in your will or trust.

Fiduciary and Beneficiary Designation Issues

The selection of individuals to manage your affairs, known as fiduciaries, is a frequent source of conflict. These roles include the executor of a will, the trustee of a trust, and an agent under a power of attorney. A fiduciary must navigate complex tasks, communicate effectively, and remain impartial, so appointing someone based on emotion rather than qualification can lead to asset mismanagement and family disputes.

Another problem involves outdated beneficiary designations. Retirement accounts like 401(k)s and IRAs, as well as life insurance policies, are governed by beneficiary designation forms. These are legally binding contracts that dictate who receives the asset upon your death.

People often complete these forms and then forget about them. Major life events like marriage, divorce, or the birth of a child require an immediate review and update of these forms. Failure to do so can lead to unintended consequences, such as an account being paid to an ex-spouse because the designation was never changed.

Incapacity and Healthcare Issues

Planning for potential incapacity is a distinct part of a complete estate plan. A durable power of attorney for finances grants a trusted agent the authority to manage your financial affairs if you become unable to do so. This can include paying bills, managing investments, and handling real estate transactions.

Without this document, your family must petition a court to establish a conservatorship. This is a public and expensive process where a judge, not your family, decides who should manage your assets under ongoing court supervision.

Healthcare directives are also needed to ensure your medical wishes are followed. A healthcare power of attorney appoints an agent to make medical decisions on your behalf. This is often paired with a living will, which provides specific instructions about your preferences for end-of-life care. When these documents are absent, family members are left to guess your wishes, which can lead to conflict and guilt.

Tax and Financial Issues

While federal estate taxes affect a small portion of the population, failing to plan for them can have major consequences. The federal government taxes the transfer of assets after death, but only on estates valued above a high exemption amount. For 2025, this exemption is $13.99 million per individual, but this amount is temporary and scheduled to be cut by roughly half at the beginning of 2026. For estates exceeding the threshold, the tax rate can be as high as 40%.

A more common issue is state-level estate or inheritance taxes. Many states impose their own estate tax with exemption amounts far lower than the federal level. An estate not taxable federally could still face a substantial state tax bill. A few states also levy an inheritance tax, which is paid by the beneficiaries who receive the assets.

Gift tax rules also present a planning pitfall. For 2025, you can give up to $19,000 to any number of individuals each year without tax consequences. Any gift to a single person above this annual exclusion requires filing a gift tax return. The excess amount is then subtracted from your lifetime estate tax exemption, which can create complications for your executor.

Complex Family and Business Issues

Standard estate plans may be insufficient for complex family or business situations. Blended families, for example, face the challenge of providing for a current spouse while ensuring children from a prior marriage receive an inheritance. Without specific planning, assets left to a surviving spouse could later be passed to others, unintentionally disinheriting the children of the first spouse to die.

A Qualified Terminable Interest Property (QTIP) trust can address this. This trust provides the surviving spouse with income from the assets for their lifetime, but the spouse cannot change the ultimate beneficiaries. Upon the surviving spouse’s death, the remaining assets pass to beneficiaries named by the first spouse, such as their children.

Planning for minor children involves managing their inheritance. Leaving assets directly to a child means they gain full control upon reaching the age of majority, which is 18 in most states. A trust can hold the inheritance for the child’s benefit, with funds used for health, education, and support. The trust can also dictate staggered distributions, such as one-third at age 25, one-third at 30, and the remainder at 35.

For business owners, the absence of a succession plan can jeopardize the company’s continuity. The death of an owner can lead to conflict if heirs who are unable or uninterested in running the business inherit ownership. A buy-sell agreement is a contract that dictates what happens to a departing owner’s interest, defining who can buy it and at what price. Often funded with life insurance, it provides cash to the family and allows the business to continue smoothly.