The Most Common Estate Planning Mistakes and How to Avoid Them

Let’s face facts; estate planning is something of a niche activity and one that most people aren’t completely familiar with.

In fact, many of us aren’t even fully aware of the basics of estate planning, creating a scenario where it’s relatively easy to make simple and costly mistakes that are harmful to your finances.

In this post, we’ll consider some of the most common estate planning mistakes, while asking what steps you can take to avoid them.

Estate Planning Mistakes You Need To Avoid

As we have covered in our earlier articles about estate planning, it is not the easiest or the most simple thing on this planet. In fact, the complexity of estate planning is tremendous, and you definitely need some help in understanding it.

Therefore, understand what is expected of you and avoid committing some major blunders that we will be listing here in this article. However, remember that everyone has their own iteration of this list. So, approach with an open mind and understand the estate planning mistakes you need to avoid at all costs.

1. Not Having an Updated Plan

There’s an old adage that suggests that if you “fail to prepare, you must prepare to fail, and this is never truer when discussed in the context of financial management and estate planning.

It’s not enough to have a simple or basic plan in place, however, as you’ll need to cultivate a detailed plan of action that’s viable and compliant with UK law. Make no mistake; the key to successful financial planning lies in the detail, so you may need to liaise with an expert to ensure that you achieve your objectives.

Similarly, you’ll need to ensure that your plan is regularly updated to suit your circumstances and any changes in law, so a proactive approach is absolutely imperative here.

2. Forgetting Digital Assets

According to one study by the Law Society, a staggering 93% of people who have made a will fault make a provision for digital assets, while only 25% of respondents understood what would happen to their digital assets in the event of their death.

Including photos and videos, digital assets refer to anything that exists in a digital format and comes with the right to use.

Data that doesn’t possess that right is not considered to be an asset, but it’s important to undertake a complete review of your digital holdings to ensure that they’re accounted for as part of your estate plan.

3. Failing to Utilize Gifts to Reduce Your IHT Bill

Current laws enable you to gift money or assets from your state while you’re still alive, as a way of reducing your inheritance tax (IHT) bill.

The key is to ensure that the gift in question is given outright, otherwise, it may fail to meet the specific criteria and prevent you from realizing your goals from a tax perspective.

For example, if you transfer property to your children but continue to live there and benefit, this would not qualify for exemption from IHT. Conversely, if you award the house in full and your child is able to move in immediately, this will qualify and you can remove them from your future estate for tax purposes.

There are several allowances that you should be aware of in this respect, including annual exemption (in which each person can give away £3,000 worth of gifts every tax year) and wedding or civil ceremony gifts (which can be added on top of your annual exemption and awarded up to the value of £1,000 per person).

4. Financial Procrastination

Estate planning is a financial priority if you have an expansive estate along with a lot of beneficiaries. However, as we have stated earlier, this will not be a walk in the park.

You will run into some significant issues as you start walking the path. As a result, people often procrastinate the process. Secondly, many of us hate factoring in our mortality. The fact that we will be worm food in a matter of few years is something people do not understand or refuse to acknowledge. 

This can lead to financial procrastination. In other words, delaying the necessary and inevitable. Just to do it in haste and with poorer quality. Therefore, do not dilly-dally and start the process in haste.  

5. Outdated Will Format

Estate planning is not a one-time thing. Situations change, relationships change, etc. Hence, staying updated is the key. Just imagine you planned your estate around 20 years ago.  

Now, the relationships have changed along with the valuation of your estate. As a result, the 20-year-old will might not be accurate. As a result, you need to ensure that your will is updated and takes into account the current situation of your family. 

Therefore, ensure that you understand this aspect, approach the conversation accordingly, and keep the will updated. This will help you allocate your estate with moe sense of clarity.  

6. Uncoordinated Beneficiaries

Another crucial mistake that you need to avoid is not mentioning beneficiaries. While it is okay to keep the beneficiary section open, you need to understand that you need to set a proper pathway for all your funds.  

Uncoordinated beneficiaries or unclear estate route map can be quite a challenge for the p[ost-death allocation. Therefore, ensure that you have a sense of clarity on what to do and how to proceed in order to make the right choice. 

The Final Thought

In the end, you need to admit that estate planning mistakes are inevitable. If you are doing it for the first time, you will run into some trouble. Therefore, you must definitely take the aid of a professional in doing so. This will ensure that you do the right job.  

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