An article was recently sent to me today by a friend who finds certain points interesting. I reviewed it, and have to agree that the author did touch on some of the most common points of error in estate planning. I thought I would add a bit more relevant Tennessee substance to some of the areas addressed by the originating author.
1. You Keep Putting It Off: Well, unfortunately this is the most common reason why people pass away without appropriate planning documents. The process of sitting down with an attorney to discuss end of life issues has to be one of the most uncomfortable experiences for any person. I have these meetings on a regular basis and I know by the time these clients have come to meet me they have already struggled with this reality for quite some time. What I try and remind clients is that this uncomfortable situation will be much more brief than the protracted administration they may leave their families after they are gone as a result of failed or absent planning. This often is one of the best gifts you can give your loved ones.
2. Wrong Guardian: I agree that there are often errors or omissions when it comes to guardianship designations. However, I do not totally agree with the author in regards to court intervention in these matters. In Tennessee the Court will look to a designation in your Will for guidance as to the appropriate party to serve as guardian for your child. Your designation is simply guidance to the Court and will not be binding upon the Court. This is due to the simple fact that the Court will also strive to act solely in the best interest of the minor child. Now, I am not suggesting that a Court will ignore a designation in a Will, but I think it is a mistake to assume that a guardianship designation will allow you to forego bringing the matter before the Court and presenting sufficient evidence to the Court that the designation is the most appropriate.
3. Wrong Beneficiary Designation: Our office received a phone call from a potential client regarding this very matter just this week. They were the designated beneficiary under a life insurance policy for a former spouse. The former spouse never made a change of beneficiary (as he may not have wanted to, each case has its own unique facts in this regard) on the life insurance policy and as such the designation beneficiary remains the ex-spouse. Most people assume, incorrectly, that a divorce automatically extricates the former spouse from every aspect of their life. To some extent this is correct. For example, the state of Tennessee automatically revokes all interest that the former spouse may have held under the Will of the other spouse. This means that any bequest or devise to the former spouse under such a Will is automatically nullified and the interest passes to the next beneficiary. Further, the former spouse is not allowed to serve as the representative for the estate (unless the decedent makes a new will following the divorce which provides some benefit or right to the former spouse). That is about the extent of the automatic action on the part of the state. The decedent has an affirmative duty to make the necessary beneficiary designation changes on all other assets. This includes life insurance, 401k policies, IRA, etc. If the decedent failed to then the family is usually without recourse to rectify this problem and it may result in a perceived “windfall” to the former spouse.
4. Healthcare Power of Attorney Doesn’t Reflect Your Wishes: Unfortunately the nature of our business is such that we are often left with very long, very complicated legal documents which have been bread out of a long lineage of court cases. All of these former court cases, which have their own unique influence on the matter, have necessitated the inclusion of just one more paragraph to adequately deal with this obscure and unlikely situation. However, if you forget or elect to omit that point of law it will certainly come to re-visit your client (at least that is the fear of all planners). Due to this the documents have become long, complicated and rather dry to read. I work with my clients in an effort to adequately reflect their wishes and desires in their documents. Despite this effort (on both of our parts) what I find is surrender to the expert. The clients are paying us for our experience in these areas and often sign what we put in front of them. I strive to keep my clients from feeling as though they have to surrender to the documents. I really prefer that we talk through the documents in detail in order to ensure that the provisions which I have included are reflective of what they want. I think we owe this to our clients, especially for matters of this gravity.
5. Not Enough Life Insurance: I am not in complete agreement with the proposition that everyone needs life insurance. I believe that life insurance has appropriate roles within various estate planning scenarios, but to simply max out life insurance through fear of impoverishment for the family is not something I adopt. Now, this, like all matters related to planning, is a personal matter for each client. Some clients do feel a responsibility to provide sufficient insurance to meet certain known expenses (funeral, college education, mortgage satisfaction, etc.) but these areas should be revisited with changes in lifestyle and debts. Further, I have often seen individuals with non-taxable general estates who, unbeknownst to them, find themselves rocketed into a taxable position for estate and inheritance tax purposes simply because they have a very large life insurance policy. Now, there are planning ways to remedy this situation (through the use of certain irrevocable and testamentary trusts) but it makes much more sense to educate these people on these matters before they sign up for a whole life policy.
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