When Bruce Friedman's wife, Anne, died suddenly of a heart attack in September 2001, he was summarily passed over for her $900,000 pension because of a technicality. The problem? His wife's beneficiary paperwork indicated that in the case of death, her pension should go to her closest living relative.

All good so far, right? The problem was that Anne assumed her husband was that person. Under New York state law, a spouse is considered the closest relative on record.

She would have been correct if, as she and her husband were repeatedly told, there had been no beneficiary designation form on file. Only in the Friedmans' case, a forgotten beneficiary form filed in 1974, four years before the couple first met on a blind date, trumped their true wishes.

The million-dollar clerical error
Instead of going to Bruce, her husband of nearly two decades, Anne's entire pension fund of nearly $1 million was left to her sister.

Friedman took his case to court, arguing that his wife was regularly sent account updates indicating that there was no beneficiary record on file. But the court would not hear his tale of 11th-hour paperwork woe.

The tale of profound personal and financial loss was enough to catch the attention of the tabloids. The New York Post called it a "Pension Pickle," though if the copywriters had used "Rampant Pension Pickle," it would hardly have been an exaggeration.

How to make your loved ones miserable
A 2004 survey commissioned by Lawyers.com found that 58% do not have a legal will, sparking the question of how many workers have outdated -- or missing -- beneficiary documentation on file. Even worse, nearly 70% have made no arrangements to give their loved ones the legal power to make decisions on their behalf if they become terminally ill or permanently unconscious.

Let's say you snap out of your dire situation and make a full recovery. After the rounds of hugs and tears of joy, about 75% of you should brace yourselves for the "if you hadn't been so sick I would have killed you" lecture. The other 25% get a welcome-home party. That's because they had powers of attorney for health care and finances on file, making it easy for their loved ones to take care of medical and financial matters when they were temporarily incapacitated.

Brace yourself for the worst -- and sign here
Give yourself and your loved ones peace of mind. Have a heart-to-heart with your family about your final wishes, and then double- and triple-check the paperwork to make sure your wishes will actually be carried out.

If you don't have the paperwork in place, then start with these critical forms: a living will (sometimes called an advance medical or health-care directive), a durable power of attorney for finances, and updated beneficiary forms. (For more on each of these items, see "5 Things Your Honey Has to Know.")

It may seem clinical and clerical, but it could be a million-dollar love letter to the important people in your life.

Need help with your estate plan?
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Dayana Yochim conducted a nationwide talent search to find the perfect person to give power of attorney over her affairs. It all came down to the dance-off. The Fool's disclosure policy won't let you down.