5 Common Pitfalls to Avoid in Estate Planning
May 02, 2023
By: Lynn Gifford Bria, Esq.
Vice President, Principal Wealth Advisor and Senior Fiduciary Officer
Washington Trust Wealth Management
Estate planning is a crucial aspect of financial planning that helps protect your family and ensure your assets are distributed according to your wishes. However, there are common pitfalls that can hinder your estate planning efforts, leaving your legacy vulnerable to legal, financial, and familial issues.
Here are five common pitfalls to avoid:
- Trying to plan your estate online.
Online wills and estate planning software may seem like a convenient and affordable option, but they may put you and your family at risk. Online “one size fits all” templates may leave your loved ones with an estate plan that is not enforceable, creating a costly and time-consuming legal battle that may result in your wishes not being carried out. Estate planning involves complex legal and tax considerations that require the expertise of a qualified wealth advisor, so don’t try to go it alone. - Not addressing all four components of an estate plan.
A comprehensive estate plan should include four essential components: a will, living trust, power of attorney, and healthcare directive. Each component plays a unique role in protecting your assets and ensuring your wishes are followed if you become incapacitated or die. Ignoring any of these components can leave gaps in your estate plan, which could result in unintended consequences and conflict. - Not choosing the right fiduciary.
Choosing the right fiduciary is a critical aspect of estate planning; choosing the wrong one can be costly and painful. An executor is responsible for managing your estate, paying your debts, and distributing your assets according to your will. A trustee is an individual or financial institution (corporate trustee) that oversees your living trust, managing your assets and distributing them to your beneficiaries. (Learn about corporate trustees in our May 18 blog.) It is important to choose a fiduciary that you trust and who has the necessary qualifications and experience to carry out your wishes. - Not funding your estate plan.
A living trust is an essential component of an estate plan but is effective only if properly funded. Failure to fund your living trust – by transferring (retitling) your assets, including real estate, investments, life insurance, business interests, safe deposit box, and bank accounts – could result in your assets going through probate, which is costly, time-consuming, and may not reflect your wishes. Funding a living trust can be a complex process that requires legal and financial expertise, so it is essential to work with a qualified wealth advisor. - Not revisiting your estate plan.
Failing to revisit and revise your estate plan regularly could result in an outdated plan that no longer reflects your wishes, leverages current estate tax exemptions, or worse, one that is not legally binding. It is recommended to review your estate plan every five years, as well as after significant life events, such as marriage, divorce, birth, death, or a change in financial circumstances.
Planning Note: You may wish to revisit your estate plan before 2026, when sunsetting tax provisions may create additional complexity in an already complex tax planning environment. The 2018 Tax Cuts and Jobs Act (TCJA) is expected to sunset on December 31, 2025, unless legislative action is taken to extend the TCJA. The 2025 sunset will cut the current estate and gift tax exemption in half and could significantly impact the amount of taxes your beneficiaries may need to pay after you die.
Washington Trust Wealth Management Can Help
At Washington Trust Wealth Management, we are experts in estate planning. We provide a holistic view of your assets to design a personalized estate plan that is legally binding, reflects your wishes, and minimizes tax liabilities. Our qualified wealth advisors take you step by step through the planning process, from consolidating assets into a revocable trust to serving as a responsible corporate trustee for your estate.
Connect with a wealth advisor
No matter where you are in life, we can help. Get started with one of our experts today. Contact us at 800-582-1076 or submit an online form.
This document is intended as a broad overview of some of the services provided to certain types of Washington Trust Wealth Management clients. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting, actuarial or tax advice. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, an attorney or tax professional regarding your specific financial, legal or tax situation. No recommendation or advice is being given in this presentation as to whether any investment or fund is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were, or will be, profitable.
Any views or opinions expressed are those of Washington Trust Wealth Management and are subject to change based on product changes, market, and other conditions. All information is current as of the date of this material and is subject to change without notice. This document, and the information contained herein, is not, and does not constitute, a public or retail offer to buy, sell, or hold a security or a public or retail solicitation of an offer to buy, sell, or hold, any fund, units or shares of any fund, security or other instrument, or to participate in any investment strategy, or an offer to render any wealth management services. Past Performance is No Guarantee of Future Results.
It is important to remember that investing entails risk. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. The value of a portfolio will fluctuate based on market conditions and the value of the underlying securities. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss. Investors should contact a tax advisor regarding the suitability of tax-exempt investments in their portfolio.