Let’s be honest: estate planning means confronting what happens after you die. It’s not a pleasant thought for most, which might explain why 67% of Americans have no estate plan at all. Before we dive in, I want to stress this: there’s no “wrong time” to start estate planning. It grows more critical as you age, but life is unpredictable—there’s no such thing as starting too early (just be sure to update your plan regularly, especially after major life changes).
Unless you intentionally want to leave a mess for your heirs (in which case, feel free to stop reading), there are some potentially disastrous estate planning mistakes to avoid. Steering clear of them will make things far easier for your family during an already stressful, emotional time.
1. Outdated or incorrect beneficiary designations
Chances are, you don’t want your entire 401(k) to go to your ex-spouse. But that’s exactly what could happen if you don’t regularly review and update beneficiaries on accounts like bank savings, retirement plans, life insurance policies, trusts, and other assets. Assets with beneficiary designations typically bypass the probate process—meaning even if you update your will or other estate documents, these assets might not follow your current wishes. It’s smart to log into your accounts periodically, check who’s listed as a beneficiary, and update as needed. You might never have to change them, but it’s better to be safe than sorry.
2. Giving away assets while you’re still alive
There’s nothing wrong with being generous and gifting assets to heirs during your lifetime—but in some cases, it can be a huge mistake. Investments, real estate, and other property often qualify for a “step-up in basis” when you die, which has big tax benefits.
Take an example: Bobby and Bobbina want to give their son Bobbo their family vacation home. They bought it in 1958 for $10,000 plus a silver dollar (total $10,001), and now it’s worth nearly $3 million. If they gift it to Bobbo while they’re alive, Bobbo inherits their original “basis” of $10,001. That means if he sells the home later, he’ll owe taxes on every dollar over $10,001 (minus any exemptions if he makes it his primary residence).
If they instead leave the home to Bobbo in their will, he gets a step-up in basis when he inherits it. So if he sells it later, he’ll only owe taxes on the appreciation since he inherited it—not the entire gain since 1958. The difference between gifting assets before vs. after death might seem small, but it can lead to massive tax bills for your heirs.
3. Having no life insurance (or not enough)
Plenty of Americans lack even health insurance, let alone life insurance. Not everyone needs it, but if others depend on you financially—say, your family relies on your income, or your assets aren’t enough to cover debts like a mortgage—you probably should consider it. Life insurance can replace lost income to support your family, or cover debts if something happens to you.
If you’re older and have saved well for retirement, you might “self-insure”: having enough assets to pay off debts and support your family without a policy. There are many types of life insurance, but in most cases, term life insurance is the best and most affordable option.
4. Missing essential estate planning documents
Wills usually don’t cost much, and if you have no kids or few assets, a simple will might be enough. For more complex estates, working with an estate attorney to draft a will is wise. Dying “intestate” (without a will) means your state’s laws will decide how your property is split. That might not matter if you have little to leave behind, but the more assets and potential heirs you have, the more crucial a will becomes.
Wills aren’t the only documents you need. An advance healthcare directive lays out your medical wishes if you can’t make decisions for yourself. There are also different types of power of attorney: medical, financial, durable, limited, or springing. As the names suggest, these let someone else handle your estate, finances, or medical choices when you can’t.
5. Miscalculating your worry about estate taxes
Ignoring estate taxes can be a disaster—but for most people, over worrying about federal estate taxes is far more common, especially with the current exemption rules. The federal estate tax exemption is now $13.99 million (or $27.98 million for married couples), so you need an extremely large estate to be affected. If you think you might be, consider working with a fee-only financial advisor to plan for minimizing or avoiding estate taxes.
Some parts of managing your finances are even enjoyable—my wife likes handling our household budget, and I love contributing to our retirement accounts and watching them grow. Estate planning, though? It’s rarely enjoyable, at best tolerable. But it’s a vital part of securing your financial future—something to take seriously and prioritize.
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5 Estate Planning Errors That Could Prove Disastrous
2025-08-27T14:39:18
Let’s be honest: estate planning means confronting what happens after you die. It’s not a pleasant thought for most, which might explain why 67% of Americans have no estate plan at all. Before we dive in, I want to stress this: there’s no “wrong time” to start estate planning. It grows more critical as you age, but life is unpredictable—there’s no such thing as starting too early (just be sure to update your plan regularly, especially after major life changes).
Unless you intentionally want to leave a mess for your heirs (in which case, feel free to stop reading), there are some potentially disastrous estate planning mistakes to avoid. Steering clear of them will make things far easier for your family during an already stressful, emotional time.
1. Outdated or incorrect beneficiary designations
Chances are, you don’t want your entire 401(k) to go to your ex-spouse. But that’s exactly what could happen if you don’t regularly review and update beneficiaries on accounts like bank savings, retirement plans, life insurance policies, trusts, and other assets. Assets with beneficiary designations typically bypass the probate process—meaning even if you update your will or other estate documents, these assets might not follow your current wishes. It’s smart to log into your accounts periodically, check who’s listed as a beneficiary, and update as needed. You might never have to change them, but it’s better to be safe than sorry.
2. Giving away assets while you’re still alive
There’s nothing wrong with being generous and gifting assets to heirs during your lifetime—but in some cases, it can be a huge mistake. Investments, real estate, and other property often qualify for a “step-up in basis” when you die, which has big tax benefits.
Take an example: Bobby and Bobbina want to give their son Bobbo their family vacation home. They bought it in 1958 for $10,000 plus a silver dollar (total $10,001), and now it’s worth nearly $3 million. If they gift it to Bobbo while they’re alive, Bobbo inherits their original “basis” of $10,001. That means if he sells the home later, he’ll owe taxes on every dollar over $10,001 (minus any exemptions if he makes it his primary residence).
If they instead leave the home to Bobbo in their will, he gets a step-up in basis when he inherits it. So if he sells it later, he’ll only owe taxes on the appreciation since he inherited it—not the entire gain since 1958. The difference between gifting assets before vs. after death might seem small, but it can lead to massive tax bills for your heirs.
3. Having no life insurance (or not enough)
Plenty of Americans lack even health insurance, let alone life insurance. Not everyone needs it, but if others depend on you financially—say, your family relies on your income, or your assets aren’t enough to cover debts like a mortgage—you probably should consider it. Life insurance can replace lost income to support your family, or cover debts if something happens to you.
If you’re older and have saved well for retirement, you might “self-insure”: having enough assets to pay off debts and support your family without a policy. There are many types of life insurance, but in most cases, term life insurance is the best and most affordable option.
4. Missing essential estate planning documents
Wills usually don’t cost much, and if you have no kids or few assets, a simple will might be enough. For more complex estates, working with an estate attorney to draft a will is wise. Dying “intestate” (without a will) means your state’s laws will decide how your property is split. That might not matter if you have little to leave behind, but the more assets and potential heirs you have, the more crucial a will becomes.
Wills aren’t the only documents you need. An advance healthcare directive lays out your medical wishes if you can’t make decisions for yourself. There are also different types of power of attorney: medical, financial, durable, limited, or springing. As the names suggest, these let someone else handle your estate, finances, or medical choices when you can’t.
5. Miscalculating your worry about estate taxes
Ignoring estate taxes can be a disaster—but for most people, over worrying about federal estate taxes is far more common, especially with the current exemption rules. The federal estate tax exemption is now $13.99 million (or $27.98 million for married couples), so you need an extremely large estate to be affected. If you think you might be, consider working with a fee-only financial advisor to plan for minimizing or avoiding estate taxes.
Some parts of managing your finances are even enjoyable—my wife likes handling our household budget, and I love contributing to our retirement accounts and watching them grow. Estate planning, though? It’s rarely enjoyable, at best tolerable. But it’s a vital part of securing your financial future—something to take seriously and prioritize.