Seven Estate Planning Traps Most People Miss—and Seven Questions to Audit Your Family’s Future

Beneficiary designations determine who receives certain assets, such as retirement accounts and life insurance policies. In most cases, these designations control who receives the account even if your will says something different. 

• The trap: An outdated beneficiary designation on a 401(k), individual retirement account, life insurance policy, or similar account may cause money to pass to the wrong person, such as a former spouse, a deceased relative, or someone you no longer intend to benefit. 
• The question: Have you reviewed your beneficiary designations and your will within the past three years or after a major life event such as marriage, divorce, death, or the birth or adoption of a child?

When you name an executor or a trustee, you choose the person who will carry out your wishes. But people age, move away, become ill, or may decline the role. 

• The trap: You named an executor or trustee but did not name a backup.
• The question: If your first choice cannot serve, have you named at least one backup—and are you confident that they are willing and able to serve?

Many important records are now online: bank accounts, email, photos, subscriptions, and accounts protected by two-factor authentication. 

• The trap: Your family cannot access key digital accounts or information needed to settle your affairs.
• The question: Does your executor know where your documents are stored and how to find your securely stored digital account list and access instructions?  

A good estate plan covers more than what happens after death. Many families struggle most during a period of incapacity, i.e., when someone is alive but cannot manage finances or make medical decisions. 

• The trap: You have no incapacity planning documents in place.
• The question: Do you have a signed power of attorney (a document that lets someone act on your behalf if you become unable to manage your affairs) that would allow a trusted person to handle bills, banking, and real and personal property if you became incapacitated? Do you have healthcare decision documents (often called a healthcare power of attorney and advance directive) for medical decisions?

Good intentions and family understanding do not always translate into preferred legal outcomes, especially in blended families.

• The trap: Vague phrases such as “to my descendants” may accidentally exclude stepchildren or create unintended results.
• The question: Have you clearly specified who should inherit, including any stepchildren, in clear language that leaves as little room as possible for confusion or dispute? 

Creating a trust is a good first step to a solid estate plan. For a trust to work, though, it must legally own the property it is meant to control. 

• The trap: You created a trust but did not transfer key assets into it, leaving those assets to be administered outside the trust’s control.
• The question: Are your major assets titled correctly to align with the provisions within your will or trust (and have you confirmed that with your attorney)?

An inheritance can come with complications such as liens, unpaid property taxes, expensive maintenance, homeowner association dues, or other costs that may make an asset difficult to keep. 

• The trap: Heirs inherit property that is encumbered or expensive to maintain, forcing a stressful sale or unexpected out-of-pocket costs.
• The question: Does any asset you plan to leave behind have hidden costs your heirs will not expect, and do they have a plan for handling those costs?