Estate planning attorneys know that clients often try to plan their own estates and end up making a complete mess of things. Sometimes, even when the client sees an attorney to prepare a simple will, their goals are not accomplished because they have not told the attorney about all their property (or the attorney did not ask).
It’s as though there are different piles of assets. One pile is the probate estate, governed by the will. One pile is governed by the trust. Yet another pile may be governed by beneficiary designations, joint tenancy, or other forms of property.
Problems most often arise when there is property which circumvents the primary estate planning vehicle, whether a will or a trust. (Here’s a story of such a situation.)
When does property circumvent the will or trust? The following all could pass assets outside a will or trust:
Joint tenancy
Tenancy by the entirety
Beneficiary designation (life insurance, IRA, 401k, etc.)
TOD (Transfer on Death)
POD (Pay on Death)
All of the above transfer ownership to the designated individual or joint owner notwithstanding anything in the will or trust. Clients ordinarily do not think of this. For example, if a client has a will prepared which leaves everything to his or her two children equally, they think their work is done. However, they may have the bulk of their assets in accounts which have beneficiary designations or other forms of ownership which may not designate their children at all, or may disrupt the desired distribution pattern. For example, let’s say the client has $200,000 in a bank account without a beneficiary designation or POD designation. However, they forget about the house, which the client holds in joint tenancy with their sister. They also have an IRA which designates the sister as the beneficiary. When the client dies, the sister will get the IRA and the house, while the children will split the bank account. Thus, the bulk of the client’s estate could go to the sister, notwithstanding the fact that the client had a will prepared leaving everything to their two children.
An experienced estate planning attorney will get a complete inventory of assets from the client and ask about any such designations. That way, the attorney can create a comprehensive plan to handle all the piles of assets.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022
