Avoid common, yet costly, estate-planning mistakes

Estate planning may seem simple—just create a will and you're good to go—but if it were that easy, there wouldn't be lawyers, accountants, financial advisors and court systems dedicated to sorting out people's affairs after they die.

The most common mistakes that people make are, however, fairly easy to rectify. Review documents, ensure they're signed, pick the right people to handle your estate and you should be fine.

However, it does help if you know what errors most people make. Here are seven of the more common estate-planning mistakes.

One of the biggest mistakes people make is not creating an estate plan at all. According to a 2012 survey from legal services website Rocketlawyer.com, 50 percent of Americans with children don't have a will.

That number doesn't surprise Donna Walton, a wills and estate specialist with TD Bank. Many new clients come to her without any estate documents filled out.

It's not just young people who recently had a child and might have not gotten around to creating an estate plan yet; it's also retired Americans, high-net-worth individuals and just about everyone in between.

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People tend to put off estate-planning discussions because they don't want to deal with death, she said. Many also assume that their assets would just go to a spouse or their children after they die. However, that's not always the case.

"What people don't realize is that every state has a different intestacy law, and by not having a will, the state will decide where your assets go," she said.

Going through the process of creating a will doesn't make it a binding document. Signing it does, which is something that a lot of people forget to do, said Erik Roemer, a financial advisor at Gerber.

"I know it sounds crazy, but what happens is, people meet their attorney, take home the documents to review and then never sign them," he said.

In many cases, everything is filled out. The will states who gets what, and powers of attorney are clearly designated. However, if it's not signed, it's not a valid document.

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"It's a contract, and if you don't have it signed, it's like it never exists," Roemer said.

When his clients take home documents to review, Roemer follows up to make sure they do get signed. He also looks for unsigned documents when it's time to update or review the will.

Those who do create a will and powers of attorney—both health and financial—often fail to review and update their beneficiaries.

In many cases, beneficiaries won't have to be altered, but there are situations where forgetting to change the name of the person who gets your assets can ruin an estate plan.

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Years ago, TD Bank's Walton had a remarried client who passed away. Naturally, the new spouse expected to get all of his assets; however, the decedent had failed to update his beneficiary designations after the divorce and ended up leaving all of his money to his first wife.

The two sides ended up battling in court.

"There was lengthy litigation," she said. "The last time I spoke to the [new spouse], they were attempting to make some sort of settlement."

Happily married couples need to regularly review their will, too.

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Someone may want to set aside money for new grandchildren; tax rules can change, which might necessitate revisiting a plan; or a power of attorney might pass away, which means you need to designate someone new.

Take a look at the plan at least annually, Walton said.

A lot of people fail to put wills, powers of attorneys, insurance documents and other paperwork, as well as information such as bank account numbers and even online passwords, in one single location.

It's a problem seen time and time again by Lisa Hay, founder and president of advisory firm Ascend Financial and author of "Estate Planning Checklist: Prepare Your Affairs for Your Heirs."

People often leave these important documents in hard-to-find folders or somewhere no one would think of looking, she said.

It's easy to see how an estate plan can be derailed if people can't find a will, insurance documents or other critical information. If papers can't be found, it will be that much harder to carry out your wishes after death, according to Hay.

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A lot of people do keep these documents in a safety deposit box, but that "can be tricky," she said. The heirs' names have to be on the box in order to get into it. If they're not, then the bank can lock it up and let a probate court decide who gets to open it again.

The best option is to keep the original will with an attorney—courts typically want to see the actual document, not a photocopy—and other documents in a fireproof safe at home or somewhere that can be easily accessed by the estate's executor.

Besides a will, the most important estate-planning document is the power of attorney, both financial and health.

The former will designate someone to be in charge of your finances in the event that you're incapacitated, while the latter will make someone responsible for any health decisions.

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Most people designate their spouse as their power of attorney, but some people, especially on the financial side, write down someone who may be good with numbers, rather than someone they can truly trust, said Gerber's Roemer.

Business owners have to be especially mindful of this. Someone might put down her financially savvy brother-in-law as her power of attorney, but those finances could also include the company. What happens if that relative knows nothing about the business?

"You don't want that person making decisions for you," Roemer said.

Even if people do get their powers of attorney right—and they should be people you trust, above all else—many fail to write down a successor who would be in charge if both they and their power of attorney were incapacitated, noted TD Bank's Walton.

In that case, there would no one looking after their best interests.

There are many reasons why people like using trusts, but mainly, it lets you have more control over how assets are distributed after you die, and the assets inside the trust can be exempt from estate taxes.

However, a lot of people set up trusts but then never put anything inside. That's not intentional—many people actually think their assets are inside the trust, even though they're still sitting outside of it.

There's a crucial step that people forget to make when setting up a living trust, said Hay at Ascend Financial. They don't retitle their assets.

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Retitling is a fairly simple process. Go to your financial institutions and sign some documents that say you want your assets to go into the trust.

Someone who has a lot of stocks, bonds, real estate and other investments may have to fill out a lot of paperwork, but there's nothing more to it than that.

Still, many people forget to retitle and that can result in those assets having to go through probate, which was exactly what you wanted to avoid.

There can be more to estate plans than just financial assets and children to protect. A lot of people's closest companion is their furry pet, yet many fail to include provisions for their animals in their will.

A pet is considered property in the eyes of the law, so if no one is appointed the animal's guardian, then the court will decide who should take it. Unfortunately, the court can also send it to a shelter, where it would likely end up euthanized, Walton said.

While no one wants a dog or cat to be put down, there could be financial implications for not designating a new home for a pet. For instance, people could own pricey horses—which could actually generate revenues from breeding—and if those don't get properly passed down, then that income could be lost.

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Walton suggests not only naming a person to take ownership over the pet but also leaving money for the animal's care.

"It's the same as children," she said. "You want to find someone to look after them and put funds aside to help them be able to do that."