ESTATE PLANNING IS A PROCESS
Estate planning is a process, a plan. It is not going to a lawyer and having a Will drafted. There are certain aspects to estate planning that no lawyer can help you with. You have to help yourself.
For example, a client will come to me and say, “I want a Will that leaves everything to my four children equally.” But, when I begin to ask the client how she owns her assets, it becomes clear that her assets will not pass to her children equally.
Clients often own assets jointly with one of their children. Clients will frequently place beneficiary designations on assets, such as “payable on death” or “transfer on death” designations. All of these ownership styles affect how the asset passes and who will ultimately own the asset.
When I mention to the client that the children will not receive her assets equally, more likely than not, the client will not understand what I mean. Most people believe that their Will controls how their assets pass, as if the Will overrides such things as joint ownership or beneficiary designations. Somehow, in the client’s mind, the Will makes everything okay and all of her children will receive an equal share of her estate. Yet, that’s simply untrue.
Leaving disproportionate shares of your estate to your children, or other relatives, can cause hard feelings that never go away. Even if the client did not intend to leave one child more than the other children, the damage may be done.
Some families get along very well, so no matter what the client does, the children will “do the right thing” and split the client’s estate equally. Some families, however, don’t get along so well and some don’t get along at all. For these latter families, a perceived slight has the potential of causing a family rift that will never be cured.
Assume the following facts: Mom has an estate worth $450,000. She owns a condominium worth $150,000; a brokerage account that holds assets worth $200,000 with a “transfer on death” designation for one of her four children; a bank account that holds $50,000 in cash that she owns jointly with another child; and a second bank account that holds $50,000 in cash that she owns in her name alone.
The client has a Will that leaves everything to her four children equally, and that is really how the client wishes her assets to be divided – equally among her children. For some reason, the client truly believes that her assets will pass to her children equally, yet that is far from reality.
Reality is, the child who is named as the “transfer on death” beneficiary will receive the brokerage account, the child who is named jointly on the bank account will receive the bank account, and the four children will split the house and the second bank account. One child will receive $200,000, another will receive $100,000, and two will receive $50,000 each.
For obvious reasons, three of the children might feel some form of resentment and anger towards the child who received the most and two might feel anger and resentment towards the child who receives $100,000. Heck, all of the children might just end up fighting with each other for one reason or another.
Personally, I’d like to believe that every family is composed of members who will “do the right thing,” but I like to plan as if that’s not the case. I plan as if every family member would like to hold onto the decedent’s money for sentimental purposes (add sarcastic inflection), since the only thing left when we depart this earth is our money and the memories we left. And as priceless as they may be, memories don’t have a great street value.