One area that comes up often is the mistaken belief that a Last Will and Testament is really powerful and controls everything I own at my death. This is unfortunate because a Will only governs assets that are held in an individual's name alone. For that reason, the following ways of holding title are much more powerful than a Will:
1. Joint with Right of Survivorship
2. Paid on death accounts (beneficiary designated accounts)
3. Revocable Living Trusts
4. Irrevocable Trusts
5. Business entities (partnerships, limited partnerships, limited liability companies, and corporations)
What this means is that assets held in the manner set out above, will not be governed by your Will, a situation that may end up resulting in accidentally disinheriting your loved ones.
The challenge is that our lives are complex and we own things in a variety of different ways. In order to ensure that our lifetime and estate planning objectives are met, a careful assessment and global review of all of these areas is essential in ensuring that our plans are carried out effectively. Without engaging the expertise of a legal advisor who specializes in lifetime and estate planning, short term solutions often result in adverse unintended consequences over the long term.
For example, most married couples own everything during their lifetime "joint with right of survivorship," or "tenants by the entireties with right of survivorship". Although this initially sounds good and "is how everyone does it," there are a number of potential pitfalls. With joint ownership, the surviving spouse (or joint owner) immediately becomes the owner of the whole property upon the death of the other spouse. Although this seems like a good short term solution to the transfer of assets to a spouse or other joint owner, often the long term results are devastating to the children.
While joint tenancy does provide for the survivor to receive the property upon the death of one of the owners, no provisions are included for the disposition of the property upon the death of the survivor. In addition, the joint owner who is intended to be the survivor may die first, frustrating the intent of the parties. Worse than this however is that often the survivor gets remarried and then at death everything goes to the new spouse, leaving the children from the first marriage with nothing!
We recently encountered this when two brothers came to see us after the death of both of their parents. Mom had died a few years before our meeting and their father remarried before his death. The boys were certain that they would equally receive 100% of their parents estate. Mom and Dad had both signed Wills verifying their intention that the boys share the entire estate equally. Unfortunately, the father had not executed a Prenuptial Agreement before his remarriage, and the original Wills did not cover the disposition of joint and paid on death assets. After the second marriage Dad had opened joint accounts with the new wife and named her as a beneficiary on other accounts. We had to inform the boys that they were not going to receive 100% of their parents estate and that much of it was going to their new stepmother. The failure to obtain proper legal advice and a misunderstanding about legal title to assets, caused this family to accidentally disinherit their children.
Inequality among children also occurs when investment accounts, vehicles, real estate, life insurance policies, retirement plans, checking and savings accounts and other assets are not titled in accordance with both short and long term objectives. Sometimes we hear from clients that they have put their son or daughter on their investment account, real estate or checking account, to make it easier to handle if "anything happens to me." This often results in providing one child with more than the others, or in a total loss through the attack of creditors or the divorce of that child.
Many pitfalls await the person who fails to obtain expert legal advice about estate or business planning. Some of the following triggers may also require special attention:
1. Did you review your estate plan before or after marriage, divorce or re-marriage?
2. Have you suffered the loss of a spouse or a child?
3. Have you suffered the loss of a parent?
4. Have you purchased real estate in another state?
5. Do you own a business?
These are just a few of the life issues which increase the risk of accidentally disinheriting loved ones. All of us want the peace of mind that comes when our family values, wealth, and transfer of what we own effectively provides a legacy for future generations.
Is that worth a conversation?