The Implementation Gap in Estate Planning
Common Mistakes in Estate Planning
A common misconception among consumers is that estate planning begins and ends with the drafting of documents. I routinely counsel clients that drafting of wills, trusts, durable powers of attorney, health care directives, etc. is only the first step and that proper implementation and periodic updating of the documents is critically important. Mistakes in estate planning implementation and maintenance are extraordinarily common and the consequences are potentially costly.
Among the most common and obvious mistakes involves taking the newly minted documents directly from the attorney’s office to a safe deposit box. A problem with this is that, if the people named in the documents are unaware of the roles and responsibilities that have been assigned to them and/or are unaware of the box’s existence and location, the documents may be rendered worthless.
Practical Perspective from a Financial Planner
In other instances, the implementation gap is more subtle. One couple for whom I work delivered paper copies of their estate planning documents for me to review and upload to our online financial planning platform, eMoney. The documents had been drafted about ten years earlier. In looking them over, I discovered that none of the documents had been signed and notarized.
When I brought this to the clients’ attention, they told me that their attorney insisted on keeping the signed originals in his office, since the signed documents could immediately convey authority over their affairs to the people named in the documents.
While it is not my place to provide legal guidance, I opined that, from a practical financial planning perspective I do not consider that to be a best practice. For instance, the advance healthcare directive is a critical document that may be needed on demand in a medical emergency.
Obtaining the signed document from the attorney – assuming the person named as your agent for healthcare even knows/remembers the attorney’s name - can be challenging and time consuming. The practical flaw in the attorney’s guidance was made even clearer when we discovered that he had retired a few years earlier and that the attorney who took over his practice was unable to locate the original signed documents!
The following are, in my opinion, estate planning implementation and maintenance best practices:
- Have your attorney provide PDF and paper versions of the signed documents to you. Provide PDF copies to me for review and storage in eMoney.
- Provide signed copies of advance health care directives and durable powers of attorney to the people named in the documents. I also encourage clients to inform the people chosen to act on their behalf that my office has copies and to include my contact information along with the attorney’s contact information with the document copies.
- Ask the attorney for explicit written instructions for implementing the documents, including how to title bank and investment accounts, register property, and designate beneficiaries.
- Periodically review your documents to make sure the instructions provided are consistent with your wishes, life situation, and state and federal law changes.
See Also – Avoiding 7 Deadly Estate Planning Mistakes (Forbes)
John H. Robinson is the founder of Financial Planning Hawaii and a co-founder of software maker, Nest Egg Guru.
Disclosures: Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities.
Fee-Only Financial planning services are provided through Financial Planning Hawaii, Inc, a separate Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.
The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client-specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making an investment or financial planning decisions with tax or legal implications. Cover image courtesy of Arild Vagen and Wikimedia Commons.
