The Not-So Silent Threat to Your Estate Plan

Many create an estate plan because they want to plan for taxes or to avoid probate: the court process that distributes property from a decedent’s estate. While both taxes and probate can be a serious expense to your estate, an oft overlooked source of problems are people. Some may mistakenly think that an estate plan cannot adequately plan for people problems that may crop up. Some may not even be aware of the problems that often present themselves when a loved one passes and leave a pile of assets to be distributed. Just like the old saying goes: “Where there is a will, there… are relatives.” While the people problems that are present in different situations are as various as each individual plan, there are basic categories of people problems.

Minor children

When most think about minor children they think of the problems of raising them to adulthood. These problems should be addressed with a trustee who administers over the finances and a guardian who tucks the kids in at night. Often these are not the same people. I know in my family’s plan we have different people administering over the finances, because this person is good at managing finances. We have someone else taking care of the children, because this is their strength. Even after your minor children have reached adulthood there are planning considerations. Most parents do not want their minor children to receive all their assets as soon as the children turn eighteen (which is the legal age to receive an inheritance).

If families have done nothing to plan for their children and there is enough to care for the children and raise them to adulthood, the next problem is that as soon as the children reach the age of majority they could receive large sums of money. This could be as detrimental to the development of the children as not having enough to raise them to adulthood. Often when children receive large inheritances at age eighteen, they lose their drive for success. Studies have shown that these children often achieve less and are less motivated to succeed in education or in later business endeavors.

There are planning solutions that will not allow your minor children to receive an inheritance outright when they turn eighteen. You can often employ solutions that will motivate the children to complete college as well (if this a concern of yours).

Marriage

This is a great time to implement an estate plan. When a person gets married, they often re-prioritize their life. They often want to change beneficiary designations on life insurance policies and account for assets they had prior to the marriage. You may be changing your legal name and will have to make updates to many of your accounts. A spouse, however, can also throw a wrench in an estate plan too. Many want to write remarriage protection into their estate plans. You trust the person that you are married to, but what if that person gets remarried after your death. You can make an estate plan that will only protect your children’s inheritance, but also the surviving spouse.

You can include terms in your trust that require that a prenuptial agreement be signed by the new spouse, which can protect your surviving spouse. Most people don’t want to talk about a prenuptial agreement when they get married because they don’t want the new spouse to think that they distrust the new spouse, but if it is required in your estate plan it is easy to blame the conversation on your estate planning attorney.

Blended Families

This is possibly one of the most difficult families to plan for. If these estate plans are done wrong, it will likely result in one of the families being unintentionally disinherited. In our firm, we often use what we call a “joint pour-over trust.” This kind of trust allows the blended family to plan for joint property and each of the spouse’s separate property, respectively. This kind of plan allows each spouse to protect their plan from disputes from the other spouse’s children and it also allows the property to be divided in a way where each family does not have to work together to distribute property after the second spouse has died.

Disinherited individuals

One of the toughest situations a successor can find themselves is when one member of the family has been intentionally written out of an estate plan. However, if planned properly the possibility of a disputed can be lessened greatly.

Conclusion

These are just a few situations in which you can see that often the biggest threat to an estate plan is not probate court or even taxes, but the people that are involved in the plan. With a well-crafted estate plan these concerns can be diminished or even eliminated.