Seniors & Aging

Real Life | Plan correctly to avoid unintentionally ‘disinheriting’ loved ones

Saw a faux license plate on a luxury RV: “I’m spending my kids’ inheritance.” Well, many of us could truthfully display one on our Toyotas and Chevvies that says, “I’m disinheriting my kids, and I don’t even know it.”

Attorneys and financial planners advise that we often blithely channel assets to our loved ones using methods that fail to deliver, or that penalize them. They say that unless we have compelling reasons to employ those methods, however sophisticatedly devised, the cons can outweigh the pros, and we instead should use more fail-safe ones.

Some examples:

Weren’t you clever, adding a child or sibling as joint owner of a bank account, so that when you die, the account will continue, distribute to the legatees and quickly, and bypass probate? It will, but you also expose the asset to the joint owner’s creditors, judicial judgments and Loved One’s heirs’ claims and death tax exposure if L.O. predeceases. L.O. must include the full value on financial disclosures when trying to meet the eligibility thresholds for entitlements. When tempted, pressured or threatened, L.O. can “borrow” the money, vowing of course to return it “someday.”

For both you and your other heirs, it’s “bye-bye” money. And that’s more grievous, because it would have been so easy instead simply to add L.O. as an authorized user, pay-on-death beneficiary, or attorney-in-fact under a power of attorney, or to place the account along with almost everything else into a personal trust.

Professional life insurance agents insist:

Sometimes someone or some entity other than the insured person or the personal revocable trust should own a life insurance policy, ultimately resulting in assured and greater benefit to our heirs. Taxation, estate planning, financial “insulation” and the owner’s “insurable interest” are some valid reasons. But then the third-party owner controls the policy, so we must have “bullet-proofing” to assure that it will remain in force, fully funded and beneficiaried as intended.

Speaking of beneficiary provisions, are yours up-to-date, or is your “ex” (and therefore also his or her family) still there? Who are your primary, secondary and tertiary beneficiaries? Yes, it’s desirable to have contingent beneficiaries, to cover all the “predeceasing” what-ifs. Are there no living named beneficiaries, thus forcing the proceeds into your probate estate to suffer expense, delay, creditors’ claims and shrinkage?

“Oh, I forgot all about those in-force old policies from former-employer benefits plans and my military service.” The same “forgot-about” applies to other kinds of benefits, too, like vested pension, 401-K, investment club, profit-sharing and stock-option assets.

Still blind-sided by the cheap premium for your term insurance? Term won’t be there to cover your estate’s expenses or to leave money to your loved ones after you outlive its “drop dead” (pun intended) date, or after the sharply increasing premiums become outrageous. It’s bye-bye insurance money for the estate and family, unless you and agent do the long-procrastinated conversion to permanent insurance.

That coverage that you bought on the Internet, by phone or mail, or through your membership organization might contain waiting periods, graded (reduced) benefits and limitations. It’s “guaranteed acceptance,” but is it “guaranteed underwritten” at claim time?


Congratulations to Mom and Dad for their new home! Lovingly and cleverly, they titled it in their kids’ names. Legally, a gift, but it’s indeed “the gift that keeps on taking!”: Kids became legally responsible for the taxes, utilities, mortgage interest and homeowners’ association dues and assessments. All those liabilities have to appear on their financial statements. They’ve been given the opportunity to fight over it all, too, plus all the decisions about what to do with the place.

As with the above joint bank account, the value goes onto their financial disclosures, is exposed to all claims against them and counts toward their gift-tax exposure. Mom and Dad can’t claim its asset value on their credit applications. Kids can encumber the home and maybe someday have to default, leaving Mom and Dad twisting in the wind. Plus, someday, when Kids sell the home, their cost basis will be close to zero, making almost the entire sale proceeds taxable as a capital gain. Some gift!

Inter-vivos gifting can be desirable, but only when all the implications are thoroughly recognized and provided for. In fact, if the kids need the asset more than we do, why make them wait until we die?

Shouldn’t Mom and Dad have titled the home as tenants by the entirety, or maybe better yet, added it to one of those personal trusts that advisers favor, either way mandating its at-death sale and a cash distribution to Kids?

The typical estate plan makes “specific bequests” to specified loved ones, and the remaining net assets (the “residual estate”) after the final expenses and estate settlement costs are paid, then go to the will’s or trust’s named beneficiaries. Tragically, so often the estate has to liquidate assets, frequently at quick-bargain-sale prices, to raise cash for expenses, because we failed to provide and to “stonewall” sufficient liquid assets to cover the needed liquidity. Daughter won’t get the family home, Grandson won’t get his college money, and all the residual legatees and beneficiaries suffer from the shrinkage.

Worse yet, when there are invalid or conflicting wills, or none at all, the law throws the entire probate estate to the wolves of intestacy. Sorry, deceased person and family, your druthers don’t count.


We’re real clever, deferring income tax via IRAs, matching-contribution 401k’s and 403b’s income tax and other “qualified” plans. But at death, the piper (the Internal Revenue Service) must be paid — by guess who — income taxes on both the estate’s asset distributions and on the subsequent required annual installment distributions. Attorney and financial planner, “Help!”

Professionals tell of hard-earned valuable assets being neglected and forgotten over the years, never to surface or to reach the heirs. Fiduciaries’ discovery efforts fortuitously discover some, clues found behind a dresser drawer or under a car seat. Occasionally, a financial institution’s detective work finds an heir. But, millions of dollars’ worth of assets are escheated to state abandoned property offices. Will our fiduciaries know about, and have access to, our digital records?

What a shame — especially because those losses would have been so easily prevented by organizing and keeping track of everything, and compiling and maintaining that marvelous fiduciary and family benefit, the Estate Operators’ Manual (“Doomsday File”).

CPAs and tax attorneys thrive on clients’ “cost-basis” issues. Should the estate sell the asset, pay the capital gains tax? Or, take the capital loss credit, and pass the proceeds on to the legatees? Or should it go to them “in kind,” and they’ll deal with the capital gain/loss tax question at subsequent sale? The cost difference, market dynamics and timing factors can be substantial. Let’s give the estate and the personal trust the option to decide either way, with professional guidance.

The bottom line: Estate planners and I love personal trusts, especially revocable (you can change yours) ones, that we are our own trustees while we live and are lucid, and that continue and become irrevocable at death. They can own nearly everything, can do almost anything that we mandate them to do, bypass probate and all of the estate administration and can handle all of the property bequests. They can be that more fail-safe method to accomplish our bequests.

Contact GARY NEWMAN at Your ideas and comments are always welcome.