Financial biases are often linked to investing. However, subconscious tendencies can affect many aspects of your finances, including your estate plan.
An estate plan sets out how your assets will be managed during your lifetime and distributed after your death. It might include writing a will or creating a trust to provide for young children.
As estate planning can be emotional, it’s not surprising that behavioural biases could affect how you approach the task. So, here are three ways biases might affect your estate plan.
1. Putting off your estate plan due to emotions or overconfidence
Trying to avoid confronting difficult emotions means some people put off estate planning altogether.
A February 2025 survey carried out by JMW Solicitors found that 77% of people believe having a will is important. Yet, 58% don’t have a valid will, and avoiding the sometimes difficult conversations that might form part of estate planning could be a reason why.
Overconfidence may also be a reason for not creating an estate plan. For example, you might believe you’re “too young” to worry about writing a will or that you’re healthy now, so you can leave the task for the future. However, life is unpredictable and it’s impossible to know what’s around the corner.
Putting off estate planning because it’s difficult or you assume you don’t need one yet could leave your family in a vulnerable position should the unexpected happen.
While estate planning can be daunting at first, view it as a step that allows you to take control of your legacy. Once the task is complete, you may find it reassuring to know you’ve set out your wishes.
2. Under or overvaluing assets could have implications for your estate plan
A common financial bias that affects investors is tying the value of certain assets to a particular piece of information. For example, you might view shares as being worth £100 because that’s what you initially paid for them, even if the value has changed.
Under or overvaluing your assets could have implications for your estate plan.
You might want to split your estate evenly between your children while giving them specific assets. However, if you don’t have accurate information when doing this, they could end up with very different proportions of your wealth, which might lead to disputes.
Alternatively, if you undervalue assets, you might not realise your estate could be subject to Inheritance Tax (IHT). For instance, if you’ve “anchored” the value of your home to the price you paid for it 20 years ago, your estate could unexpectedly be liable for IHT due to rising property prices.
Regular financial reviews with your financial planner can help you track the value of your assets, and how they could rise or fall in the future.
3. Loss aversion could mean you are reluctant to pass on assets
Loss aversion suggests that you feel the pain of a loss twice as strongly as the pleasure of an equivalent gain. This bias can lead to people avoiding taking action, even when it would make sense.
As part of your financial plan, you might want to gift assets to your beneficiaries now instead of leaving them an inheritance. It’s an option that could provide much-needed financial support to your loved ones, such as covering university fees or helping them renovate their home.
Gifting during your lifetime can be rewarding, but loss aversion might also mean you’re reluctant to part with assets.
A reason for this is that you might worry about an unexpected event creating a financial shortfall in the future. So, you choose to hold on to the assets.
A financial plan could help you see the effect of gifting during your lifetime, including whether you could still overcome a financial shock. Discussing your gifting plans could give you the confidence to pass on assets and ease your worries.
Contact us to talk about your estate plan
Working with a professional who understands your circumstances and goals can make estate planning easier. We’ll be on hand to offer support and guidance from the outset.
Please contact us to arrange a meeting to discuss your estate plan.
Please note:
This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, will writing, or trusts.
