Estate planning can be a complicated task, and the possibility of errors and oversights is very real. What is certain is that you want to be working with somebody who is an expert, who understands your situation, and who is detail-oriented.
Among the common mistakes made in estate planning are: selecting the wrong guardian for children; listing the wrong beneficiary for your IRA or 401(k) from a former employer; having an invalid medical power of attorney and living will; failure to notarize your durable power of attorney; having insufficient life insurance. Here we'll take a quick look at each of these common mistakes.
For many parents, selecting a guardian for their children is the most important aspect of their estate plan. Without a will, the state will determine who will care for children. Those who've already selected a guardian need to review it to ensure the original guardian is still valid. It also isn't a bad idea to assume your selection will be challenged, and to write a letter explaining the reasons for your choice. In the event your selection is challenged, this may help the judge to see your viewpoint better.
Failing to update beneficiary designations is a very common mistake. It can take a number of forms, but oftentimes the reason for the failure is that the beneficiary information isn't listed on statement and the original paperwork is not regularly looked at. Unfortunately, because assets with beneficiary designations bypass probate, there may not be an opportunity to correct them. If there is the opportunity to litigate, that can get expensive. A good rule for avoiding this mistake is to regularly check to make you're your beneficiary designations are updated.
Another area which is commonly bungled is medical powers of attorney and living wills. In our next post, we'll pick up on this point.
Source: Forbes, "Five Crucial Estate Planning Mistakes You are Making," Nancy Anderson, December 15, 2011.