When we talk about estate planning, one of the most crucial components to understand is…
Imagine if the following happened to you:
A decedent disinherits her daughter in her Last Will and Testament believing it meant that the daughter would not receive any of client’s assets when decedent passes away.
Unfortunately, the mom forgot that she named her daughter as a beneficiary of her IRA years ago. And the decedent didn’t understand her estate plan.
When the client died, the daughter was entitled to the money in her IRA (Individual Retirement Account). Even though everyone in the family knew that said daughter and decedent didn’t get along and decedent didn’t want her to receive anything.
If the decedent met with an estate planning attorney and thoroughly understood how her estate plan worked, this could have been avoided.
The above is only one example of an estate planning horror story. Keep reading to learn what else may happen when you don’t understand your plan.
Top Things That May Go Wrong When You Don’t Understand Your Estate Plan
The following are the top things that may go wrong when you don’t understand your estate plan. You’ll see why it’s important to consult with an estate planning attorney. Not only can an estate planning attorney possibly save you probate fees and time delays, but the attorney can ensure your estate is current.
Insufficient Funds in an Estate Plan – Your Heirs May Have to Pay
If your estate doesn’t have enough money to pay bills or taxes, beneficiaries or heirs may have to raise the funds to pay creditors and anyone else that is owed. Otherwise, assets will have to be liquidated, which reduces the inheritance paid to your heirs. Make sure your estate has enough money to cover
any debts you may owe after you’ve passed.
Failing to Protect a Disabled Heir – They Could Lose Public Assistance
If you have a disabled beneficiary, you may consider leaving them their inheritance in a “specially” drafted trust. Why? Because it could protect and keep them from being ineligible for public assistance – may lose funding. Keep in mind that leaving a disabled beneficiary’s inheritance to another child could create problems. For example, the person may die, get divorced, or be sued and use the funds left to your special needs beneficiary for his or her personal gain. Contact an estate planning attorney to make sure this special needs beneficiary doesn’t get disinherited or penalized.
Forgetting to Update Beneficiaries – Did You Get Divorced or Remarried?
If you get divorced or remarried, you better update your beneficiary designations. Otherwise, upon your death, someone you don’t want receiving your money may get your assets such as life insurance policies, savings bonds, stocks, property, and more. Could you imagine if the rest of your estate is split between you and someone you don’t like? Review your beneficiaries and make the necessary changes! In addition, we recommend that you discuss with your estate planning attorney the consequences of getting remarried so the attorney can share with you the need for a prenuptial or postnuptial agreement if you are getting remarried or have remarried and you want assets to pass to your children and not your spouse.
Leaving Money to Minors without Instructions – They Could Spend Funds Quickly
If you have minor children or grandchildren, be careful. Why? Because naming them as a beneficiary without any rules gives them access to their inheritance at a young age and possibly allowing the parent of the child to manage the child’s share – this could cause trouble. To avoid any problems and to set up younger heirs for long-term financial success, you’ll want to create a revocable trust that provides for the well-being of minors. Not only can their inheritance be managed , but you can assign a trusted representative, a Trustee to fulfill your wishes on when and how the younger heirs receive their inheritance.
Avoid Your Own Horror Story by Understanding Estate Planning
You can avoid an estate planning horror story by planning properly and understanding your plan. Here’s an example:
A husband and wife (the second marriage for both – they have two kids each) bring assets into their marriage. However, they decide not to have a prenuptial agreement because they “trust” one another and each has promised they’ll make sure the surviving spouse will not disinherit the children of the first spouse that dies.
The husband dies first. A few years later, the wife becomes incapacitated and her child is named as agent under the Durable Power of Attorney.
As the agent, said child closes accounts for different reasons and open “new accounts.” The accounts that were closed named ALL the children of husband and wife as beneficiaries. The “new accounts” only has mom’s two children as beneficiaries. The house is sold and the proceeds from the sale of the house are placed into the “new accounts.” The husband’s children are inadvertently disinherited.
If the husband and wife would have planned properly this would not have occurred. Furthermore, their attorney could have helped them understand their estate plan. The husband’s children would not have been disinherited.
Are you married with children and need more information about estate planning?
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