Top estate planning risks: Inattention and outdated plans

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Wills. Revocable trusts. Irrevocable trusts. Powers of attorney. Advanced medical directives. For many, those words trigger stress and visions of aging, death and loss. They sound technical and expensive and raise uncomfortable questions about family dynamics. And then there are those who assume estate planning is only for the wealthy or for people with children.

But estate planning is less about how much you have and more about who you want to make decisions for you when you can’t. It lets you choose who can access your accounts if you become incapacitated and who makes medical choices on your behalf along with who receives your assets, and how.

In Maryland, estate planning carries added importance. We’re the only state with both estate and inheritance taxes, which affect what and how much heirs ultimately receive. Many people don’t know, for example, that assets left to those who aren’t direct heirs, like nieces, nephews and people you’re not related to, can be subject to the inheritance tax; advance planning can help reduce the impact of that tax.

Yet despite the potential risk, many Americans either don’t have estate plans or have plans that aren’t well maintained. A 2022 survey by financial firm D.A. Davidson found that only 34% of American adults have an estate plan. Of those, 20% haven’t updated theirs in the last five years.

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Often, estate plans become outdated not because they were improperly drafted, but because the owners haven’t revisited them. “It’s important,” says Maurice Offit, co-founder and principal at Offit Kurman (and the author’s family attorney), “to review an estate plan every 3 to 5 years, to help ensure it continues to align with current laws and ever-changing tax laws and incorporates major life events, like birth, marriage, divorce or death.”

Too often, he says, people don’t create the right documents, or they sign them and forget about them till they’re needed. He tells his clients they should typically have three different estate plans over their lifetime, as “each stage of life presents a different set of issues that need to be addressed and resolved.”

Neglecting an estate plan can lead to inconsistencies between the documents and actual account records. This includes issues like a missing beneficiary designation on a retirement account; a life insurance policy that names a former spouse as the beneficiary; a house titled incorrectly, requiring additional legal steps before it can pass to a surviving partner; or asset distribution instructions that differ from the instructions in a will or trust.

“It’s not a topic people enjoy talking about,” Offit says. “We talk about death, disability and sometimes taxes. These are three difficult topics.”

Avoidance is common. Kristen Argenio, a 47-year-old creative professional, and her husband named each other as beneficiaries on their respective retirement plans and other accounts that require beneficiaries, but they haven’t taken further steps. “It’s one of those things my husband and I figured we’ll ‘get around to’ when we’re older, or have more time, or have a pressing reason,” she says. “We know it would be a good idea to do it now, but that hasn’t compelled us to do it. My impression is that it’s expensive and somewhat onerous.”

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Even documents created with the best intentions can be undermined if the specifics aren’t updated to align with the broader estate plan and the stage of life a person is in, as well as the lives of those they would entrust to help. Outdated estate plans frequently name fiduciaries (the person you choose to handle your money, property or decisions) and successor fiduciaries (the backup who steps in if the first can’t serve), who are no longer the right fit. A fiduciary named years earlier could be incapacitated or even deceased. An adult child once too young for this level of responsibility may now be a good choice. An attorney or CPA named in the documents may no longer practice or may no longer have a relationship with the family.

Even those who have created their plans and update them acknowledge they require a sizable amount of work to keep them current. Melissa Gerr, a 61-year-old marketing manager, created her estate plan because she didn’t want others to make decisions without her guidance. She continues to review and revise her plans as time passes and her circumstances change.

Pieces of her plan are current; others require attention, particularly after a recent job change. “It’s a lot of paperwork and a lot of details that you have to look into and questions that you need to ask yourself and others, if other people are involved,” she says. She regularly reviews her materials, including her advanced medical directive and financial information, and she’s currently drafting her durable power of attorney documents.

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“They’ve worked hard to develop these assets,” Offit says, “and they should get to choose who they go to and who makes financial and medical decisions if they become incapacitated and can’t make decisions on their own.”

Without clear documentation and direction, he notes, Maryland law governs decision-making and asset distribution. Courts appoint personal representatives and state and federal statutes determine who inherits assets and makes financial and health care decisions, which may or may not reflect a person’s relationships or wishes.

“Estate planning comes into play where circumstances exist that cause you to examine issues,” Offit says. “We need to plan for what will eventually happen. It’s something that people need to take seriously, so that they’ll be prepared.”

For those with estate plans, failure is rarely in their initial drafting. It happens through what comes after, things like unsigned updates, blank or outdated beneficiaries and outdated fiduciaries. Inaccuracies or omissions can complicate how a person’s estate is administered. As Offit notes, whenever you experience a key life change, it’s important to revisit each piece of your estate plan to be sure they remain current and appropriately reflect your life, to help ensure your legacy will be carried out as you want it to.