Q. I recently retired after 35 years as a federal employee. I funded my retirement plan, paid off my home, and amassed enough savings to cover future expenses and hopefully leave a financial legacy to my loved ones. When it comes to estate planning, I want to make sure I do it right. What are some mistakes I should avoid?
A. Estate-planning mistakes can be costly, even among those who are fiscally prudent. Any number of oversights can leave you vulnerable in the event you become incapacitated. Others can seriously compromise the amount your heirs will inherit when you die
In the past, our newsletter featured a series of articles entitled “Lessons Learned from Estate Planning Mistakes of Celebrities,” demonstrating why probate is such a nightmare and lessons that can be learned from the costly mistakes of celebrities. Celebrities, including Philip Michael Hoffman, James Gandolfini, Whitney Houston, Amy Winehouse, Etta James, and Michael Crichton, who made estate planning mistakes, were explored. We can learn a lot from these celebrities and others about what not to do when it comes to estate planning.
If you wish to ensure that your estate does not fall prey to predators, creditors, or taxes, keep reading to be sure you’re not committing any of these five mistakes of estate planning:
1. Poor Choices: Many people don’t realize that estate planning documents provide instructions for divvying up your estate after you die AND directives for handling your finances and medical care if you become disabled. When it comes to your Advance Medical Directives and your Financial Power of Attorney, take some time to think before you choose someone to act on your behalf. One of the mistakes that can occur is picking someone not trustworthy. You can put the best estate plan into place, but if you pick the wrong person to help execute it, it doesn’t matter.
2. Using only a Will: It is generally unwise to use a Last Will and Testament to distribute your Estate at death. Instead, you should almost always use a Living Trust. When you use a Last Will and Testament instead of a Living Trust, your financial affairs – and the financial affairs of your beneficiaries –become known to the public and will have to go through the nightmare of probate.
3. Forgetting to update beneficiaries: Failing to update your beneficiary forms after a divorce or death in the family can have disastrous consequences. For example, what if you left everything to your ex-spouse, while you were still married, and never made any updates. She can then turn around and leave that money to her own children from another marriage. Thus, it’s important to review your designated beneficiaries on all documents (including retirement accounts and life insurance) after every life event and be sure they all reflect what’s written in your Will. Please read our blog post for more details on when to make updates to your estate planning documents.
4. Failure to sign a General Power of Attorney and Advance Medical Directive: When you give someone Financial Power of Attorney, you are giving that person the right to access all or portions of your finances. The document typically goes into effect immediately after it is signed, but it intended to be used by your Agent only when needed. This person would also be in charge of your finances if you become incapacitated. Failing to procure this document can result in a costly legal battle for your family in which a court will select a guardian. In addition, having a Financial Power of Attorney avoids the “nightmare of living probate” — the time consuming, expensive, and publicly embarrassing process whereby someone has to go to court to have you declared mentally or physically incompetent and then one or more persons need to be appointed to serve as your legal guardian and/or conservator, which process is subject to ongoing court supervision.
Our proprietary 4-Needs Advance Medical Directive(TM) enables you to set forth your preferences with regard to organ donation, funeral arrangements, and disposition of remains. The document also accomplishes several essential things. In your 4-Needs Advance Medical Directive(TM), you can appoint an agent and give that person the power to consent to medical and health care decisions on your behalf. This person can decide whether to withhold or withdraw a specific medical treatment or course of treatment when you are incapable of making or communicating an informed decision yourself. Our 4-Needs Advance Medical Directive(TM) also contains a proprietary Long-Term Care Directive(TM) that allows you to address numerous issues that arise if and when long-term care is needed. You can also indicate your wishes concerning the use of artificial or extraordinary measures to prolong your life in the event of a terminal illness or injury. Such guidance spares your family the emotional angst of having to guess at your wishes when they are already under stress.
At our firm, we offer a service called DocuBank to ensure that that the documents you’ve completed will be there when you need them most, such as when you are hospitalized. DocuBank is an electronic storage and access service for healthcare directives and other legal documents, so your documents are available whenever you need them. Read more about Docubank in our blog post, FAQ: Storing Important Documents, such as Advance Medical Directives.
5. Waiting too long: Many people delay estate planning, partly because it’s unpleasant to contemplate our own mortality, and partly because younger adults believe such paperwork isn’t necessary until they reach old age. If you don’t create an estate plan, you’re letting the state legislature and/or the courts decide how to divide your assets, which may not reflect your wishes. Without a road map, it just makes it much more difficult for everyone.
Most people, including yourself, work their entire lives to accumulate what they own. Everyone needs the peace of mind that comes with making sure that their legal and financial affairs are taken care of if they become incapacitated, that decisions about health care are carried out the way they’d like even if they’re not able to make them, and that their loved ones are taken care of when that time eventually comes. To begin your Estate Planning or to update your documents, please call 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg to make an appointment for an introductory consultation.
About Evan H Farr, CELA, CAP
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