I know – that seems like an odd title for a blog post by an estate planning attorney, but it’s true!
First of all, let’s start by talking about what I mean by using the word “work” in my title. When I talk about plans that “work”, I mean a plan that meets your expectations – a plan which, when carried out, accomplishes what you wanted it to accomplish. When will you know that? Well, certainly not during your lifetime.
Imagine that after you’ve departed this mortal life, you could look down and see what’s happening with your family. Are they getting along with each other? Are they able to handle your affairs with minimal frustration and difficulty? Do the choices and decisions you’ve made in your plan help the people you love, or do they hurt them? If your plan “works”, you’ll approve of what you’re seeing!
So why don’t most estate plans work? Here’s four reasons to consider:
- The plan is “un-funded”. A plan is un-funded if your property (meaning everything you own) isn’t titled in a way that allows it to be controlled by your plan. If you have a will, and you want your property to be controlled by it, the property has to be titled only in your name, and the beneficiary of your life insurance has to be your estate. If you have a trust, your property has to owned in the name of the trust, and the trust has to be the beneficiary of your life insurance. With either a will or a trust, if another person, instead of your estate or your trust, is a joint owner or beneficiary, the property will go to that person – not according to your will or trust.
A surprising number of estates and trusts that I am asked to help with have the “un-funded” problem. People come in with a trust and say “There’s really not much to do because my dad had a trust.” The first question I ask them is “What’s in the trust?” They respond with a puzzled look that tells me they have no idea what I’m talking about. So I ask “Is the house in the trust?” When they don’t know, I ask for a copy of the deed, and see that it’s just in the name of the deceased person – not the trust. We look at bank account statements and see that they are being mailed to the person – not the trust. And so on. You get the idea. If nothing is in the trust, it doesn’t control anything. The worst thing about an un-funded trust is that there’s generally a will that gives everything to the trust, but to get it to the trust, the will has to be probated. Kind of misses one of the points of having a trust!
- The plan is out of date. It is amazing the number of plans that people bring to my office that were signed in the late 1980s or 1990s. Clients will ask, “Is my plan ok as it is, or does it need to be updated?” I’ll respond by asking them what’s changed in the last 20 or 30 years. Generally, their kids have all grown up, they have grandkids, sometimes with unique needs of their own, and the people they’ve named to be in charge after they become disabled or die are either dead themselves, or no longer part of the clients’ lives. And then I tell them that many estate planning methods have changed during that time, and that there have been major changes in the tax law that might affect their plans.
An estate plan is kind of like a car – you can’t drive a twenty or thirty-year-old car unless you’ve done some upkeep in the meantime, like changing the tires and the oil, or replacing belts, hoses, and filters. It takes effort and costs money to keep both an old car and an estate plan up to date, and keeping both up to date is a worthwhile investment if you want them to “work”.
- The wrong people are in charge. If the plan doesn’t suffer from having deceased or estranged people in charge, it may just suffer from having the wrong people altogether in charge. The “in-charge” person under a will is called a “personal representative” (or by the older term “executor”), and the person in charge of a trust is the “trustee”. The personal representative or trustee has the responsibility for following the directions in the will or trust, and carrying out your intent. Many people default to naming their oldest child as the person in charge, with their other children in their birth order as successors. The problem is that the oldest child isn’t always the most capable or trustworthy. Age does not equal experience or trustworthiness. Being named as the in charge person is not a birthright, and naming the wrong person can cause heartache and disarray with the administration of your estate. It may even be best to consider naming a professional trustee to take the emotion and personalities out of the process.
4. The “I’m all done” attitude. I’ve often said that the worst thing about people who have estate plans is that they have estate plans. The problem is that a lot of people, once they’ve signed their estate plans, dust off their hands and say “See – I have an estate plan! I’m all done!” They check “estate plan” off their to-do list, and put their documents in the file cabinet or book case where they does nothing for the next umpteen years but gather dust. Sometimes people lose track of where their documents are, and when the time comes to implement the plan, the family is either unaware of their existence or they can’t find them Just like any plan for something that hasn’t happened yet, your plan for what’s to be done if you become mentally incapacitated or when you die has to be updated to reflect changes in your life, your family and the law.
In summary, plans that “work” include:
- Proper asset ownership so that the plan is “funded”
- A controlled transfer process with the right person in charge who knows
- What to do,
- How to do it, and
- How to pay for it
- A formal updating process to avoid having an out-of-date plan
If you’d like to create an estate plan that works, please call today at (801) 263-0132 to schedule a free initial consultation. Both you and your family will be glad you did!
Our mission: To help people find peace of mind about the future by designing and implementing estate plans that work!
