Bad Estate Planning
Don’t Get Caught In The Undertow
Caught in the undertow. Bad estate planning, or no estate planning, can leave your family overwhelmed. Make sure you leave your loved ones a safety net.
I don’t know about you but I love spending the summer at the beach. I love to enjoy the sunshine and the ocean. But, as beautiful as the beach is, there are unseen dangers lurking in the ocean. One such danger is the undertow.
The Undertow
The undertow is an omnipresent force hidden beneath the water's surface. This concealed current possesses remarkable strength, persistently propelling seaward as waves eagerly approach the shoreline.
It can easily knock a smaller person off balance and could be dangerous for those who are not strong swimmers. As a result, it is very important to take steps to protect family members from this danger.
In the same manner, failing to establish a carefully considered estate plan holds several risks. These risks can potentially overwhelm your loved ones. They can feel like they are submerged in a sea of uncertainty upon your death.
Risks of Bad Estate Planning
If you do not have an estate plan, then the state, not you, determines who you will get your money and property. In the unfortunate event that you pass away without a legally recognized will or trust, a significant portion of your possessions will be distributed according to the state's intestacy law.
The intestacy law stipulates who your beneficiaries are, regardless of whether you like or know them. The laws also govern how much those persons receive from you at your death. In effect, the state makes a will for you if you fail to do so.
Bad Plans Result in Bad Scenarios
If you fail to explicitly designate your loved ones as beneficiaries in a will or trust, various scenarios may arise where they could potentially be excluded from inheriting your assets.
Children from a first marriage who have been adopted by a stepparent, or children who have been adopted by other family members or an unrelated person, may no longer be legally recognized as your children under state law. As a result, even if you still love and care for them, they will receive nothing from you unless you specifically include them in your will or trust.
Children conceived after one parent’s death using assisted reproductive technology, such as frozen embryos, may not inherit from that parent under intestacy statutes, many of which do not address the rights of posthumously conceived children.
In addition, although children of unmarried parents can always inherit from their mothers under state law, they may have to produce proof of paternity to inherit from their father under an intestacy statute.
A significant other with whom you have spent your life is unlikely to receive anything under state law if you are not married. Although state law does allow a spouse to receive some proportion of your estate, if you are not legally married to your partner—or in a legally recognized civil union or registered domestic partnership, he or she will inherit nothing from you.
Intestacy Statutes Often Fail To Meet Your Wishes
Intestacy statutes often fall short in accomplishing your desired outcomes in a multitude of scenarios. Take into consideration a special needs child. That child requires a greater inheritance to cover future care expenses compared to a non-disabled adult child. Unfortunately, intestacy statutes fail to offer any provision for these unique circumstances.
You can ensure that everyone you wish to benefit from your estate will receive the money and property you want them to have by naming them and specifying the gifts you want them to receive in your will and/or trust.
Outright Gift Problems
An outright gift under state law will not protect your heirs’ inheritance. Outright gifts made pursuant to an intestacy statute provide no protection for your spouse or children, which is often problematic. Once they receive a distribution from your estate, the money and property they have received may not benefit them at all if they have creditors or ex-spouses who can reach it to satisfy their claims.
Additionally, say you have one or more children who are irresponsible with money (i.e. spendthrifts). They could quickly squander the money and property you have worked a lifetime to save. These common problems can be addressed through the creation of certain types of trusts.
Trust Solutions To Combat Bad Estate Planning
There are a number of possibilities to consider, but two of the most commonly used trusts are those that distribute money and property in certain percentages at specific ages and discretionary trusts.
Creating a trust with distributions at specific ages will help to ensure that your beneficiaries will only begin to receive distributions at an age when you believe they will be sufficiently mature to responsibly handle them. Also, because the gifts are made in increments, you can rest assured that your beneficiaries will not be able to quickly exhaust their entire inheritance.
The money and property held by the trust will be protected from creditors until it is distributed to your beneficiaries.
Picking The Right Trustee
The trustee of a discretionary trust has the authority to make distributions to beneficiaries but is not required to make them. Because the beneficiaries do not have a legally enforceable right or entitlement to receive any of the funds in the trust, the money and property held by the trust are protected from their creditors until a distribution is made.
The trustee of this type of trust should be someone you have confidence will make wise decisions regarding when and if distributions should be made since that person will have a significant degree of control over the trust’s funds.
Trusts Can Solve Bad Estate Planning
Failing to create a trust could mean that your estate will be tied up in a lengthy court-supervised probate process. Instead of being immediately available to provide for the financial needs of your family members, your money and property will have to go through the probate process, which could last up to a year even if your estate is not very complex.
This is true even if you have a will, as probate can only be avoided if you die with no accounts or property in your name. Typically, this is accomplished by transferring all of your money and property into a trust or naming a beneficiary for your accounts and other eligible property.
Minor Children Issues
In addition, it is important to keep in mind that if you have minor children, money or property that they inherit under state law or a will cannot be immediately distributed to them (nor should it be).
Rather, because minor children are not legally able to control property, unless you have named someone you have chosen to fill this role in your will, a conservator will need to be appointed by the court This person will manage the inheritance for them until they reach the age of majority under state law, at which point it will be distributed to them outright.
Further Issues With Minor Children
Locating, screening, and appointing an appropriate person (who may not be someone you would have chosen) is a time-consuming process for the court. The court undergoes a lengthy procedure in finding, evaluating, and selecting a suitable individual. Further, the money and property you want to be used to care for your children will not be fully available to benefit them until the administration process concludes.
Lastly, while the conservator will be supervised by the court, there is no guarantee that the court-appointed individual will use the money and property for the benefit of your children in the way you would have wanted.
Allow Us To Help You Care For Your Family
A carefully designed estate plan is like a life vest for your family in a rough sea. Losing a family member is never easy, but we can help you put plans in place that will provide you with the peace of mind of knowing that your grieving family will not be overwhelmed if you die.
Give us a call to set up an appointment to talk about the best estate plan to provide for the needs of your family and loved ones. If you prefer, we are happy to meet with you over the phone or by videoconference.
