Estate Planning It’s Not Just About the Documents, 05-30-2009

What is an estate plan? An estate plan is a plan that passes your assets to whom you want and in the manner you want after your death. However, an estate plan is more than just documents. For example, some of your assets may not even be controlled by your Will or Trust.

Let’s look at a case study. Mike had a Will which left everything to his wife, Sally. It also provided that if Sally did not survive him, it would have set up continuing Trusts for his kids.

Mike owned the following assets:

  • Family farm worth $2 million, owned in joint tenancy with his sister, Mary
  • Retirement plan with $2 million, opened when he was still single
  • House, worth $500,000, owned jointly with his wife, Sally
  • $5,000 in a checking account

Is this a good plan? Unfortunately, no, it is not. Sally may not get anything! How can this be? Well, first, the family farm, which was owned jointly with Mary, went to Mary, the surviving joint tenant, by operation of law at Mike’s death. The retirement plan went in accordance with the beneficiary designation Mike had put in place before he even met Sally. Since he never changed the beneficiary designation, the beneficiary is still Jill, who was his fiancée at the time he opened the retirement plan. Sally will get the house. However, Mike and Sally refinanced the house when real estate values were high, so the mortgage actually exceeds his equity in the house. Sally gets only the checking account.

What did Mike do wrong? Mike failed to seek the advice of an experienced estate planning attorney. An experienced attorney who focuses in estate planning would have seen the problems with this plan and would have advised a better plan. For example, a better plan would have included changing the beneficiary designation on the retirement plan and changing the ownership of the family farm from joint tenancy to tenancy in common. Joint tenancy property passes to the surviving joint tenant, notwithstanding a Will, while tenancy in common property does not. Property governed by a beneficiary designation passes to the beneficiary pursuant to the most recent beneficiary designation, notwithstanding a Will.

Remember, your assets can pass by ways other than a Will:

  • By contract or other arrangement, such as Trusts, Partnerships, and Buy-Sell Agreements
  • By operation of law, such as joint tenancy or tenancy by the entirety
  • By beneficiary designation, such as life insurance, 401(k)s, and IRAs

An experienced attorney from Morris Hall who focuses in estate planning can help you devise a plan so that nothing falls through the cracks. That way, you will have the security of knowing that the assets you’ve built up will be there for your family when they need them most. Morris Hall offers complimentary appointments to get started or review what you already have in place.