Like to read more ways we unintentionally sabotage our cherished bequeathings and are clueless about doing it? The opportunities abound!
Welcome to the club – the popular group who glow in the cozy assurance that our trusts and property wills are all-powerful enforcers of our wishes. In addition to being vulnerable to challenges about validity and about marital and children’s rights, as we’ve cited, they’re also routinely overruled by property ownership titlings, beneficiary designations, and pay-on-death provisions that often are long-neglected and forgotten
Andy’s estate plan documents clearly directed all of his net assets to beloved sweet Nancy and all of the blended-family children. But, after Andy died, his ex, Cheryl, happily basked on the deck of her windfall vacation cottage, because Andy had overlooked the “technicality” of her joint ownership interest.
We’ve often lamented the tragic mis-routing of life insurance, annuity, vested pension and 401-k fortunes that happens simply because of their own built-in testamentary provisions, called “beneficiary designations”, that are woefully obsolete. How easily we neglect to remember that we still have such assets that came from long-ago employers and military service, and need to update their beneficiaries. The same goes for old personal insurance and affinity club membership percs.
And who remembers that little detail that the banker had us fill in on the applications for those financial accounts, the one labeled “Pay on death to ________”? Not such a little detail, when the money goes to whoever we named, and not to our intended legatees.
Built-in “wills” in assets bring assurance that the assets will go to whom we designate, but they’re disasters when we neglect them and don’t change them when they become obsolete.
Neighbors Lou and Millie bought a new Cadillac. They weren’t so happy with me when I opened my big mouth and remarked how they’d have spent $ 25,000 less on Chevvy new wheels, and their kids ultimately will bear the extra expense.
Their loss is a lot more than that, too. Consider all the additional taxes, and the thousands in interest expense, and the negligible spread in resale values years hence. But, most of all, because L and M spent that $ 25,000 instead of investing it at a reasonable-expectation compound annual net yield of five percent over their remaining life expectancy, say fifteen years, the kids’ contribution to Mom and Dad’s luxury will be almost $ 52,000.00! If that’s OK with them, so be it. It’s not for me to judge. Just please be aware, L and M, that spending, instead of investing at compound yields, is grossly more expensive than we realize! You guessed it, ultimately the family suffers the loss.
Again -- Oh, the power of compounding!
Know who Derek and Cindy are? Uncle Alvin didn’t either, but they inherited half of his estate. Reader Donna relates this happens-all-too-often, and you-wouldn’t-believe-it-could-happen true story:
Uncle Alvin and Aunt Rosie, aspiring to keep family dynasty wealth in the family, lovingly bequeathed their worldly goods to each other, and to Jan and Jean, their two children in equal shares if the spouse didn’t survive. Pretty typical, and nice and clear and simple, right?
Tragically, Rosie and Jean predeceased Alvin. And by quirky operation of state law, Derek and Cindy, the former-marriage children of Jean’s hubby, wound up with Jean’s share.
The lessons? Besides not keeping their estate plan up to date, Uncle Alvin and Aunt Rosie didn’t think hard enough or deep enough about their family’s possibilities, so they failed to write enough layers of “what if’s” into it. Inadequate lines of succession are all too common.
Similarly, wills, trusts, and powers of attorney can be inadequate in so many other ways, too, even though they’re quite valid. How about the omission of a short-term survivorship provision, so that Love One is legally entitled, but dies within three or six months after you and before receiving the distributions? The inheritance then becomes part of his or her probate estate, subject to state intestacy, dower and elective share laws, all avoidable if we instead specify the alternative distribution.
Or, an inter-rorum, penalizing any disgruntled legatee who harasses the estate by bringing legal actions against it estate for any reason except fiduciary malpractice, creating costs, shrinkage and delays?
Another “Or”: A child is omitted from the will, perhaps deliberately, for whatever reason, even if it’s because he/she is taken care of in a trust. In many states, the child can de-rail the will, because of statutory family rights. Everything becomes a stalemated quagmire, at great expense in time and costs. That’s really a shame because the whole thing could have been avoided simply by mentioning the child and the alternative bequest in the will, or even the fact that nothing’s being left to him/her. Yes, that happens a lot, too.
We’ve discussed other gremlins from time to time, too, such as illiquidity, necessary costs and time frames, inept and unqualified fiduciaries, and invalidation because of defective or absent provisions and procedures.
Isn’t it a relief to know that the family person, especially a family member, that we’re handing Mom’s or Dad’s business over to, so that we won’t be burdened with it, is so completely trustworthy? Yep, until the awful discovery that greed has defeated valor strikes us. And so it is, for reader Valerie, now victimized by sister Dolores’s “devoted” care of Alzheimer’s victim Mom and her assets three thousand miles away.
Trust if you wish, but team the tasks, verify and hands-on monitor the transactions. Valerie, her beloved, and her children likely won’t ever recover Dolores’s embezzlement, even if they could successfully bring a legal action against her.
Similarly, trusting good faith can turn warm-cozy loving ventures into black holes. Demonstrating his open-hearted embrace of his newly-acquired blended family, Marty loaned many thousands of dollars to new wifie’s son, Bernie, to grow Bernie’s business, papered by a simple hand-written informal memorandum, despite his knowledge of Bernie’s financial thin ice and even thinner good sense, and even new wifie’s apprehension. You know what’s coming, right? Bernie’s bankruptcy, the judge’s rejection of the contractually deficient agreement, and the irrecoverable loss of the money, which Marty’s legatees ultimately will have to suffer.
So, let’s stoically guard against allowing ‘druthers, feelings, ego-trips, and even family pressures, to displace good, hard, intelligent arm’s-length business judgment. Personal business is business, just as much as commercial business is.
The same admonition applies in dealing with everyone, family or not. For example, it surely is tempting when a prospect finally appears after trying “forever” to sell a seemingly unmarketable item. Thus, Roger acquiesced to letting the RV prospect pay installments. Buyer soon died (What a way to wiggle off the hook of a debt, right?), and his estate’s PR and his family are invoking all sorts of schemes to evade the default. Roger, his beloved, and their estates will be that much poorer.
One more: “Entitlements”, government benefits that we’re entitled to, such as Social Security Disability, various veterans’ programs, Medicaid, subsidized Affordable Care Act, and state and federal programs aiding mental and physical impairments. Like our insurance, we’ve paid for them. Some really are insurance. We’re entitled to them, and our legatees deserve to have their inheritances at least partially protected from erosion.
As you know, they’re worth big bucks to us. So, let’s get past the silly stigmas, ignorance about what’s available to us, and inertia over doing the work of applying for them.
Contact GARY NEWMAN at email@example.com. Your ideas and comments are always welcome.