by John R. Berry
The #1 estate planning mistake I see in my practice is failure to have an updated will or a living trust. Individuals with big incomes and/or a high net worth seem just as likely to put off estate planning as those of more modest means.
It never ceases to amaze me that so many people are choosing to not direct their hard-earned assets upon their death or incapacity.
But John, bringing up death or incapacity sounds like a grim topic!
While thinking of our final days on Earth is not pleasant, having an estate plan helps ensure your wishes are followed. In essence you have a voice from beyond the grave.
If you don’t have a will or trust, you are not alone. Well over half of Americans don’t even have a simple will.1 Even household names like Abraham Lincoln (who was an attorney!), Prince, Aretha Franklin, Pablo Picasso, and Martin Luther King Jr.2 died intestate (without wills).
While some estates are settled amicably, others generate rancorous disputes and hurt feelings that last for decades.
When a client lets me know that they haven’t done any estate planning, or that their documents are out of date, I direct them right away to a choice of attorneys in their region. This is a pressing issue. Accidents and sudden illnesses do not just target elderly people.
A short, but not comprehensive, list of possible consequences of not having a will or trust includes:
- Squabbling among heirs.
- Government determines distribution of your assets.3
- Possible reduced funds for surviving spouse (especially non-community property or if the deceased has children from another relationship).4
- Children and other loved ones may not be provided for as you see fit.
- Children receive their inheritance when they come of age, whereas if you had a valid will you could have dictated a payout schedule.
- Guardianship of minor children could become an issue.
If you do not have a will or living trust, please contact an attorney today.
Other mistake #1: Not having key health-related documents
When an unfortunate health situation arises, family members may lack the legal authority to make decisions or the knowledge of their loved one’s wishes if the correct documents are not in place.
While a living trust allows your successor trustee to step in and run your affairs should you become incapacitated, a living will is a legal document that lets your loved ones and medical providers know how you wish to be cared for should you become unable to speak for yourself, including whether you want CPR or ventilation.5
One of the most dramatic examples of the problems that can be caused by lack of a living will is the case of Terri Schiavo,6 whose husband and parents battled for over a decade over whether she would want care despite being in a vegetative state. She was just 26 years old at the time of her incapacity.
Other important documents that may be helpful during a health crisis are:
- Durable power of attorney – Power of attorney that extends into incapacity.
- Medical power of attorney – A document in which you name who will make health care decisions for you if you cannot make them for yourself.
- HIPAA authorization – Allows a named person or party to share specific health information with another person or group.
Other mistake #2: Not using/updating beneficiary and TOD designations
If you handle things right, some assets pass directly to your heirs without having to be probated. These include joint accounts and accounts with beneficiary or transfer on death (TOD) designees. Life insurance and retirement accounts offer beneficiary designations, while non-retirement investment and bank accounts let you elect to TOD or POD (pay on death).
Not designating a beneficiary or payee, designating your estate as a beneficiary, or failing to update your selections if life changes may create tax consequences or unnecessary hassle for heirs, not to mention serious interpersonal or financial problems for survivors if, for example, you are divorced but mistakenly leave your former spouse as a beneficiary.
Other mistake #3: Not conducting an insurance review
Outside of planning for death or incapacity, insurance seems to be people’s second least favorite topic. However, ignoring insurance when there is a need or an opportunity to mitigate risk creates yet more potential problems down the road.
Life insurance and disability insurance are vital when a family is dependent on a worker’s wages. My simple rule of thumb is: If someone might miss a meal if you died or became unable to work, you need to think about life insurance or long-term disability insurance.
If you are age 50 to 70, do a needs assessment for long-term care insurance, which can cover at least a portion of any home based care, assisted living, or nursing home stays you might require. If you have parents in this age range, frankly discuss their long-term care insurance situation with them.
The #1 reason people make the above mistakes
Life gets in the way for all of us. We have necessary things to do today, tomorrow, and the day after that. This is a top excuse I hear when people have not taken the time to attend to estate matters.
However, it could be massively inconvenient for your loved ones if you don’t have a will, or if they don’t know under what circumstances you would like to be given life support.
Please consider addressing these important items today, and contact our office if we can direct you to any resources that you might need.
CERTIFIED FINANCIAL PLANNERTM John R. Berry is owner of Corner Post Financial Planning in Mineral Wells.
Citations:
1) The Basics of Texas Intestate Succession Law, Gerry W. Beyer, Texas Tech University School of Law
2) https://www.ranker.com/list/celebrities-who-died-without-a-will/celebrity-lists
3) Texas Estates Code
4) Texas Estates Code 201.003:
5) https://www.mayoclinic.org/healthy-lifestyle/consumer-health/in-depth/living-wills/art-20046303
6) https://www.apa.org/monitor/2010/10/living-will
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.