Estate planning mistakes

No one enjoys conversations addressing our own mortality. The reality is that avoiding the topic is one of the most damaging decisions that will continue to reverberate long after your inevitable passing. If you don’t have a Last Will & Testament in place at the time of your passing, the state will determine how your assets are distributed. However, simply creating a will isn’t enough to cover all your important priorities when it comes to the end of your life—there’s much more to estate planning. Letting your will fall out of date, not updating beneficiaries on insurance policies or retirement accounts, and a lack of organization around your affairs can all wreak havoc on your loved ones.

As financial advisors, we help many clients with estate planning, and they gain a sense of peace knowing that this important work has been completed. We also support clients through the all-too-common experience of settling an estate for a loved one who didn’t leave up-to-date documentation behind. After going through this process many times, we’ve identified some of the most frequent mistakes people make when it comes to documenting their last wishes.

1. You have a will, but it’s outdated.

Major life milestones are often triggers for people to create a will, which isn’t a bad thing. The birth of a child or acquisition of a major asset, for example, are vital events in life that should have provisions in your will. Unfortunately, a will isn’t a one-time project that you complete and check off your to-do list. Your needs and wishes inevitably change over time, and it’s important to ensure that you update your will to reflect those changes. We recommend reviewing your will every few years to keep it as up to date as possible.

The same goes for beneficiaries on retirement accounts, life insurance policies, and other types of financial instruments. A beneficiary designation on an account or policy will supersede your will. Here’s an example. Say you and your spouse divorce, and several years later you remarry. You update your will to show that all your assets pass to your new spouse, but you forget that you have a 401k plan with your first spouse still listed as the beneficiary. In the event of your death, your first spouse will receive the 401k account, despite what you intended to express when you updated your will. We recommend creating an inventory of your assets and reviewing beneficiary designations every few years to ensure your accounts and life insurance will be distributed according to your most current wishes.

2. You have a will, but you didn’t create any other legal documents.

The Last Will & Testament is the document with which most people are familiar—it explains how to distribute your assets when you’re no longer here. Did you know that there are three other important documents to put into place and keep up to date? We recommend completing these at the same time you create your will. They are:

  • Durable Power of Attorney: Designates a trusted person to handle your affairs and make financial and legal decisions on your behalf should you become incapacitated. By having this document in place, you give legal permission for the person you identify to conduct important business on your behalf, such as banking, real estate, credit, and other matters.
  • Medical Power of Attorney: Allows a trusted individual to make medical decisions on your behalf, should you be unable to make them. These decisions can range from which tests to run to whether medical professionals should perform invasive procedures or utilize artificial life support measures.
  • Living Will or Advance Directive: Dictates your wishes for end-of-life care if you’re unable to communicate. End-of-life care includes a variety of medical procedures, such as pain management, medications, tests, blood transfusions, and artificial life support measures.

You can give Durable and Medical Powers of Attorney to the same person or choose two individuals for those roles. The Living Will is closely linked to the Medical Power of Attorney because you should ensure your selected medical decision maker understands your wishes for medical care well in advance of needing to make those decisions. If your loved ones may consider your wishes controversial, consider expressing your thoughts to them in person as well, helping them to understand why these are your wishes. The more you can do to prepare for these decisions before they need to be made, the better for all involved.

3. You don’t have information about your personal affairs easily accessible for your estate administrator.

Who will be responsible for settling your affairs when you pass? Does that individual have access to the many details you use to transact your personal business on a weekly, monthly, and annual basis? Your estate administrator will need everything from bank account numbers and bills you pay to contact information for professionals whose services you use and details about the locations of your assets. Although it’s not a legally binding document, we strongly encourage everyone to create a list of information with all these important details. You won’t be around to answer questions and can save your administrator a lot of time and difficulty tracking down information.

We’ve created a series of free downloadable guides to help you document your last wishes. Follow the link below to access your download.

Documenting your last wishes