What Happened When My Aunt Died With No Estate Plan (It Wasn’t Good)

September 29, 2017

When it comes to financial planning, any planner worth their salt will tell you that having the proper estate planning documents in place is essential to a complete plan, and yet so many people are still resistant to getting that step done. They wonder, isn’t estate planning for old people or the very rich? Why is estate planning so important?

A real-life example of the importance

Several years ago, the answer to that question became very clear to me when my aunt got sick, was incapacitated in the hospital, and subsequently died. She was a very smart woman who had a PhD and was dean of her college. She knew a lot about investments as I remember listening to her talk around my grandmother’s dining room table about various stocks she had in her portfolio. She was what most people would consider financially sophisticated.

But her lack of planning in one critical area left a hole that caused difficulties, was expensive and could have easily been avoided. Here are the critical estate planning steps that she missed, that everyone should take today, while they’re healthy and able:

1. Create or update your Last Will and Testament. This is your chance to direct assets that will go through the probate process to your preferred destinations after you’re gone. And if you have children, this is the only place to name guardians who will take care of your most precious assets, your kids.

My aunt had no will, to there was no clear indication where she wanted her property to go. So, it was distributed according to the laws of Tennessee, where she lived.

Each state is different in how they distribute the estates of those without a will, so just know that if you pass without a will, someone you’d rather not receive your money may end up with it anyway. Check with your employer to see if they offer a legal benefit that includes free will and estate planning document preparation — many do.

2. Update your beneficiary designations. These are found on any financial accounts that have a direct beneficiary, such as your 401(k), 403(b), IRA, HSA, life insurance policies, and annuity contracts.

My aunt had not completed any beneficiary designation forms which meant assets flowed through the probate estate. There can be two problems with a situation like this.

• Estate assets pass according to the will but remember– if there is no will then it passes according to state law and perhaps not to the preferred destination.
• It is especially important for retirement accounts to have a beneficiary designation so beneficiaries can stretch out required distributions over their lifetime. If no beneficiary is named, distributions may be required over a mandatory 5-year period which could lead to increased income taxes for the heirs.

3. Create or update a Healthcare Directive. This is your chance to tell healthcare providers which medical procedures you want and those you don’t want when at the end of your life (called a Living Will). This also will name someone who will make sure your health care decisions are followed (called a Healthcare Power of Attorney). Some states combine these in a single document while others keep them separate so it’s important to check what is required in your state.

My aunt also had no healthcare directive, so the days she spent incapacitated in a hospital were full of challenging and emotional decisions for the family, not knowing what healthcare treatment she preferred as her end of life neared.

4. Create or update a Durable Financial Power of Attorney. This gives a trusted family member or friend the power to manage your finances if you are unable to make decisions for yourself. This also would have been helpful so money could be moved around easily to pay household and medical bills that were stacking up while my aunt was in the hospital.

Estate planning isn’t just for people with kids and spouses

My beloved aunt was single and without children yet still needed these critical pieces of a financial plan, perhaps even more so than someone who was married. So, if you are unattached and think this doesn’t apply to you, please think again.

Estate planning is not just for our benefit but for our loved ones we leave behind to make it easier during the emotional trauma of death and the time afterwards. It’s not pleasant to think about dying but with a little bit of preparation, you can rest easier knowing your loved ones have been thought of and cared for in case something happens to you.