In previous articles, we have stressed the importance of a completing an estate plan, one that is tailored for you and your family. We have explained the positive benefits of putting key estate plan documents in place and how to integrate your assets through retitling and beneficiary designations. By completing an estate plan, you and your family members are in the best position to address a lifetime event, such as illness or dementia, and to administer your estate upon death. An estate plan can help avoid taxes and other costs, prevent court involvement, and avert family conflict. And so on …
I like to focus on the positive, telling many of my clients, ‘It’s good work to do’. So, what if you don’t complete an estate plan? Well, here are some untended consequences and negative outcomes that can result.
If you do not put a Power-of-Attorney (POA) document in place, then your spouse and loved ones may have difficulty helping you when you need them the most. If you develop a serious illness or dementia, you need someone who can do more than ‘pay the bills’. Banks, financial institutions, insurance companies, social security, the VA, etc. often will not talk to a spouse or family member without the POA in place. Such institutions will not make changes, disperse funds, or even respond to requests for information. Without a POA, there’s no one with authority to act on your behalf, and so even small issues can create big headaches for your spouse and family members.
For example, a person calls asking what she can do for her daughter who has been in a serious car accident. Her daughter is unconscious, expected to recover, but will not be able to communicate for several months. Without the POA, the mother cannot access her daughter’s bank account to pay bills; she cannot communicate with the health insurance company on her daughter’s behalf; she cannot even turn off her daughter’s cable service. It’s a difficult situation, and the mother would likely have to pursue a guardianship and conservatorship to take care of her daughter’s affairs.
Many of you may think it’s best to put your kids on the title to all of your assets, so that they may take care of things while you’re alive and so the assets transfer automatically to your kids or one of your kids when you pass away. Well, ownership matters. If you add one of your kids as an owner to an asset, the asset becomes their asset, and they ‘bring their life to the asset’. This means the asset can be subject to their divorce, bankruptcy, judgements, liens, creditors, and own death. This means when you pass away, the asset goes to the joint owner, and that person has no legal obligation to distribute to siblings or other family members.
For example, if you make your son a joint owner on a bank account, the funds belong to your son only when you pass away and no one else. If you title your home in daughter’s name and then she passes away, you may end up living in a house that is now owned by your son-in-law. Probably not what you intended!
If you die without a will, the laws of intestacy determine who are your heirs and who will inherit your assets. Spouse and children come first, of course, but if you don’t have a spouse or kids, then your parents inherit first, then siblings and half-siblings, and so on. Part of your estate may go to a parent or other relative receiving assistance, thereby disqualifying that person. You may have a half sibling out of state with whom you have no relationship, and without a will, that person would be entitled to a portion of your estate. You may be unmarried but have a significant other, and if you don’t provide for that special person in your will, then he or she would not receive anything. This could be problematic, for instance, if you share a home with that special person.
Completing an estate plan includes integrating each asset into your plan by way of retitling and transfer on death designations. The failure to address the title to each asset, and particularly real estate, can trigger a probate. I call this ‘stranding an asset’. For a will plan, we make sure assets transfer directly by way of a transfer on death deed (TODD), pay on death (POD), transfer on death (TOD), or other beneficiary designation. For a trust plan, we make sure each asset is either titled in the trust or flows to the trust or to an individual upon death.
What’s the consequence of not completing this step? Typically, a probate. For example, a single life insurance account without a proper and updated beneficiary designation can trigger a probate. A fractional interest in a real estate parcel, no matter what the value, can trigger a probate. A single bank account with more than $75,000 will trigger a probate. With the cost of a simple probate at $3000 or more, most want to avoid one.
As I mentioned, I prefer to focus on all of the benefits and positive outcomes an up-to-date estate plan can provide rather than focus on the negative ones. Nonetheless, it’s my hope that this article is informative and encourages you to put an estate plan in place. Bottom line, a good estate plan can help prevent unintended consequences, headaches, and additional costs. It’s good work for all of us to do.
At Breen & Person, Ltd. estate planning is an important area of our law practice, and we are committed to helping individuals and families with these issues. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.