5 Easy Ways to Destroy an Estate Plan
Sandy Calbreath, Trust Officer
When it comes to estate planning, the best laid-plans can derail because of simple oversights over time, or errors in judgement. We have recently managed the situations which tell a cautionary tale.
ESTATE PLANNING AND BANK ACCOUNTS
Consider the case of “Mary Jones.” She created a will which provided for her friends and family. At a later date, she had a falling out with “Joe Black,” so she drafted a new will re- moving him as an heir. However, Mary neglected to change ownership of bank accounts which were previously established as Joint Tenants with Right of Survivorship with Joe. The result was that the funds in the accounts passed directly to Joe, and her heirs did not receive the funds she intended to give them. Although Joe was shocked to realize that Mary had inadvertently neglected to remove him from the accounts, he enjoyed the unexpected windfall.
Moral: Beware of Joint Tenants with Right of Survivorship accounts because assets pass outside of your estate, thus thwarting the terms of a will or trust. Professional advisors can assist their clients by routinely reviewing all of their accounts with them to make sure they are consistent with the clients’ wishes.
ASSETS PASSING OUTSIDE OF PROBATE
In another case, “Margaret” amended her trust to remove a charity which had fallen out of favor with her. However, she neglected to change the beneficiary designation of her annuities, thus depriving her preferred charities of the funds she intended for them and inadvertently supporting a cause which she no longer endorsed.
Moral: Review the beneficiaries of annuities, IRA’s, and life insurance policies periodically to make sure they still conform to your wishes. Professional advisors can assist their clients by routinely reviewing designated beneficiaries with them.
“Sarah Brown” never married and had no children, but she was very fond of her nieces and nephews and left her estate to them through her trust. As a generous gesture, she named her relatives’ spouses as joint beneficiaries, i.e., “Mark and Janice Brown.” After Sarah’s lifetime, we learned that Mark and Janice were divorced. The family was greatly distressed to learn that Janice’s former spouse, Mark, was the recipient of half of Janice’s inheritance.
Moral: Routinely make sure that beneficiaries’ situations have not changed through death or divorce and that contact information is current. Professional advisors should routinely review this information with their clients.
LACK OF FOLLOW THROUGH
It is not uncommon for individuals to establish a trust and neglect to legally transfer assets into it. “Al West” created a trust which would leave his assets to his children by his first wife. However, he neglected to change the title on a significant holding of government bonds. Therefore, after his lifetime, the bonds transferred to his third wife, “Millie,” rather than to his children as he intended.
Moral: When funding a trust, be sure to legally transfer title to all assets into the trust. Professional advisors should review this with their clients and assist them if possible.
Finally, "Alice Smith's" estate plan failed because of an error in judgment: she trusted the wrong relative to assist her with her financial affairs by naming him as her attorney-in-fact under a durable power of attorney and establishing joint financial accounts with him. Prior to her death, he took advantage of her through duplicitous real estate transactions and by siphoning off her liquid assets. At the end of her life time, Alice’s heirs were shocked to find that the bulk of the estate was gone. The Superior Court removed the individual as Personal Representative and appointed us as successor. We are actively pursuing the return of estate assets.
Moral: Be careful whom you trust to handle your affairs. This is especially true if there have been multiple marriages, family conflict, or children with disabilities. Attorneys can assist their clients by helping them to identify professional trustees or competent family members to assist with estate management issues.
The common denominator in all of the above cautionary tales is lack of attention to the details as the years go by—you cannot create an estate plan and turn on the auto pilot. Life and situations change: children are born and grow up, beneficiaries die, move, marry and divorce, and charities close their doors or change their mission. Therefore, it is important to revisit documents and monitor asset holdings, including ownership and beneficiary designations, regularly. Reviewing the details will ensure that your wishes are met after your lifetime.
Print Date: Fall 2010