5 Vital Estate Planning Mistakes You May be Making

A wise man once said, “If you don’t die before retirement chances are pretty good you’ll die sometime afterwards”.  And while we all know and understand that death is a sad fact of life, we sometimes put off making decisions that will help our loved ones after we’re gone. 

When Steve Jobs died last year, many financial pundits wondered whether his advisors had helped him set up an effective estate plan.  Given the fact that Jobs famously resisted the advice of his doctors for several months while he explored other alternatives, some wondered if he might have acted similarly when it came to his estate planning.  With a net worth estimated at nearly $7 billion, the stakes were large -- his estate could have been hit with nearly $2.5 billion dollars in taxes.  Further, Jobs was known as a very private person and it was quite possible that all his affairs could have been played out in detail at the probate courts for all the world to see.  It turns out that Jobs plans were intact and it appears this helped his estate avoid many taxes, ensured his privacy and made his intentions clear to his surviving family and friends.  And while we might not be able to relate to Steve Jobs at all, the reality is that it would be a major mistake to think that estate planning is just for the rich and famous. 

Here are five examples of estate planning mistakes you may be making now:

1.  You keep putting it off.  If you postpone planning until it is too late, you run the risk that your intended beneficiaries -- those you love the most -- may not receive what you would want them to receive because of extra administration costs, unnecessary taxes or squabbling among your heirs.

2.  You have the wrong guardian listed for your children:  A will isn’t just about how to distribute your assets after you die.  It’s also about who you want to care for your minor children.  Some estimates suggest that almost two-thirds of Americans don’t have one.   The main reason people put off creating a will is because they find it difficult to select a guardian for their children.  Sometimes it’s because you can’t bear to think of the possibility of leaving their children orphaned.  At other times it’s because you and your spouse don’t agree on whom to ask.  And sometimes it’s because you just don’t know how to ask a friend or family member to consider taking on the responsibility.  These are all valid concerns, but if you don’t decide now, you’re just passing the buck to someone else who will have to make the decision later on without your input or wishes being known.  If you die intestate – without a will – the court will decide who will care for kids at a hearing.   And even if you have a will, it’s important to review it to make sure that it reflects your current situation and wishes.  Here’s what I mean:

• Changing situation:  Actor Heath Ledger didn’t update his will after the birth of his daughter so when he died, his assets went to his dad and led to a lot of family disharmony when some of Ledger’s family disagreed about how the estate should be divided.
• Changing circumstances:  There are times when it might be appropriate to amend your will to choose a different guardian.  Perhaps your guardian moved across the country to take a new job and you don’t want to ask her to relocate nor do you want your children to resettle far from their grandparents and other support networks.   

3.  You have the wrong beneficiary on your IRA, 401(k) or life insurance policy:  Single parents and divorced couples are particularly susceptible to this mistake.  Many times single parents will name grandparents when their children are minors, but then forget to update the forms when the children reach the age of majority.  Couples who divorce sometimes never change the beneficiary designation and because the beneficiary information usually isn’t listed on the quarterly performance statements from the 401k or IRA it’s easy to forget.  And even if you remember to update the beneficiary in your will, this won’t help when it comes to your IRA, 401k or life insurance policies because the beneficiary form usually trumps the will.

Other people who need to particularly vigilant in watching out for this mistake are frequent job changers.  It used to be that a person would join an employer and work there until it was time to retire.  A recent government study, however, showed that people are now changing jobs every 4.1 years.  If you haven’t consolidated all your old 401k plans, you may want to read “”: ( )

When you update your beneficiary forms be sure to name both primary and contingent (secondary) beneficiaries.  Also, don’t list your estate as beneficiary because that could cause your heirs to lose important tax benefits.

4.  Your Health Care Proxy doesn’t reflect your wishes:  The state of Massachusetts has a simple two page health care proxy form that allows you to name someone you know and trust to act as your agent and make health care decisions for you if you aren’t physically or mentally able to do so yourself.  Completing the form is one thing, but actually sharing your wishes is altogether another thing.  As difficult as it might be, imagine that you can no longer make decisions about your care because you’ve survived a serious accident or because you’ve suffered through a chronic illness that has progressed.  Do you want pain relief if it means you won’t be alert?  Do you think there could be circumstances where you would NOT want medical treatment to keep you alive?  Your choices about care at difficult times like this may be very different from the choices even your own family might make.  Be sure to spend some thoughtful time sharing your beliefs, values and choices for medical treatment before you become seriously ill. 

5.  You don’t have enough life insurance:   How would your family survive if you only earned an income for the next two or three years?  Many families in recent years have learned what it’s like to live on a reduced income.  Two years ago, nearly 9 out of every 100 workers in Massachusetts were unemployed.  Families were struggling financially and foreclosures were at all time highs.  Thankfully, employment is improving and families are getting back on their feet.  But what if the loss of income wasn’t temporary due to unemployment, but was permanent due to death.  Sure, your company might give you a group insurance policy in the amount of  two or three times your annual salary, but what happens after that?  Check your coverage and if you don’t have enough, get more today.

About this column: Steve Davis is a local CERTIFIED FINANCIAL PLANNER™ who has been helping clients for more than twenty years.  He serves clients in Mansfield, Foxboro, Easton and other local communities.   You can find out more about Steve and his company, Davis Financial at www.talkwithdavis.com 

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