The most important bit of advice we can offer about your estate plan is to have one. The second most important advice: keep it up to date. Your circumstances will inevitably change as your life goes on, and odds are those documents you had prepared back when the senior George Bush was President could stand a good review. Sadly, it’s not at all uncommon for estate planning attorneys to come across estate documents that are decades old and have never been updated. As we’ve said before here on the AgingOptions Blog, estate planning is not a “one-and-done” proposition.
That said, this recent Kiplinger article on estate planning , written by Florida estate planning attorney Richard Ricciardi, caught our eye. Ricciardi writes that it’s a great idea to update your estate plan, but there are mistakes and oversights he has seen many clients make which can lead to hidden problems. Let’s review Ricciardi’s list of the five mistakes people often make in the review process.
An Incomplete Review Leads to Legal Headaches
Writing in Kiplinger, Ricciardi begins, “Establishing an estate plan is extremely important. As life changes, it is necessary to update your plan to fit new circumstances. Whether it’s a change in domicile, the death of a family member, new grandchildren or a significant change in assets, it is important to make sure you adjust your estate plan accordingly.”
To that end, Ricciardi highlights the following mistakes that he sees all-too-often, which can lead to real financial and emotional headaches for you and your family in the future.
Mistake #1: Updating the Will, Ignoring the Rest
The first common estate planning error, says Ricciardi, is to focus on making and updating the will, but then to neglect the other documents required for all-around estate planning.
“When updating an estate plan,” Ricciardi writes, “people tend to focus on updating their wills and trusts without taking time to have their powers of attorney, health care directives or nominations of guardians reviewed and updated as well. This tunnel vision prevents them from completing a full update to their estate planning.”
Ricciardi is quick to note that, yes, these ancillary documents are technically valid indefinitely, “but that doesn’t mean they should not be periodically reviewed and updated. Older templates become outdated. Addresses, phone numbers or even the agents themselves might require modification.”
One of Ricciardi’s clients swore up and down that his power of attorney did not need to be changed, only to realize that the agents he had long-ago appointed, namely his siblings, had since passed away. A sobering warning to us all: when making updates, look at the whole picture, not just the will or trust.
Mistake #2: Choosing the Wrong Agents
In his article, Ricciardi says he sees too many clients use what he calls “flawed reasoning” when selecting executors or trustees to act on their behalf. Instead of choosing the most qualified person, they base their choice on an attempt to avoid the appearance of favoritism—often by appointing too many agents—or on age or profession.
“The ideal candidate needs to live in close proximity to you and have an ample amount of time to address issues you may need,” Ricciardi writes. “That person may not be your child who is a doctor with a family, because they might not have enough free time to help.”
He goes on to warn that trying to appoint co-agents—and this includes appointing all of your children together—is not a good idea. “Such action can add to the administration time it takes to transfer your assets,” he explains. “It could also lead to a deadlock due to differing opinions or different time investments.” Ricciardi sums it up this way: “It might be slightly counterintuitive, but one person who is organized, efficient and has the time and capability to handle these matters is most often better than three others.”
Mistake #3: Ignoring a Financial Review, Especially Beneficiary Designations
The third error can hold real landmines, Ricciardi writes. It’s the mistake of updating your estate plan without taking a close look at your financial accounts first – especially your beneficiary designations.
“An attorney can update an estate plan, but people should also take the time to meet with a financial adviser and have their investments and financials reviewed as well,” Ricciardi writes. “Most people are so focused on having their estate plan updated that they forget to get a checkup on their financial accounts and remember to make beneficiary designations.”
Sadly, Ricciardi knows the pain of this firsthand. He regularly performs probate services on the estates of people who spent the resources necessary to create trusts, but after they pass away it’s discovered that they forgot to assign beneficiaries to their financial accounts separate from the trusts. “Now,” he warns, “beneficiaries must go through the time and expense of probate, when preventing that issue was one of the primary plan objectives. The vehicle is important, but make sure what is inside is periodically checked as well.”
Rajiv Nagaich of AgingOptions adds this highly important alert: that beneficiary designation form you signed on your first day at the new job thirty years ago usually trumps whatever your will stipulates. “In most cases the designation of a beneficiary supersedes your will,” he states. “This is particularly important where there have been multiple marriages. Keep those forms current!”
Mistake #4: Overlooking the Laws When Moving Between States
The next error is forgetting to update your estate plan when you move to another state. As Ricciardi explains, “Estate planning documents drafted out-of-state, as long as they were drafted with the formalities and requirements of that state, will be effective in all 50 states. That being said, having out-of-state documents can unnecessarily complicate trust or estate administration, or the ability to exercise powers of attorney or health care directives.”
Whenever a client moves to another state, Ricciardi always advises them to review and update their plans to make sure everything functions correctly. “They might be legally effective, but there is no good reason to have a slew of estate planning documents from Michigan when you left that state five years ago and have no further connection to that state,” he writes.
Mistake #5: Not Updating Critical Information for Your Executor
The final error Ricciardi gives us can have pretty dire consequences: forgetting to create, or update, your “asset cheat sheet” for your heirs and executors.
“Most individuals, as they get older, accumulate a great deal of different assets and investments,” Ricciardi writes. “Real property is easy to find, but accounts are not so easy to locate. It is not uncommon for someone to have stock and bond investments, life insurance, annuities, securities or other investments with many different institutions. I find it rare that someone has all of their investments with one company.”
As Ricciardi puts it, no one knows your financials like you do. When you change anything in your estate plan, make sure you create and update a list of your accounts and assets. “It is not important to put a value to the account, as those change over time,” Ricciardi explains. “Make sure to include the name and location of the account and the last four digits of the account number. It is one of the most important things you can do for your beneficiaries to avoid an unnecessary treasure hunt for your assets when you’re gone.” We would add, don’t forget to have passwords available for your executor.
With these mistakes in mind as you create and update your estate plans, you are far less likely to walk into painful, costly situations for you and your loved ones. You know what they say about an ounce of prevention? According to Ricciardi, it especially holds true for planning your estate.
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(originally reported at www.kiplinger.com)