Caught in the Undertow: How no Estate Plan (or a bad one) could leave your family overwhelmed

Many people love to spend part of their summer vacation at the beach, enjoying the ocean and sunshine. But there may be unseen dangers that are crucial for beach-goers to keep in mind. For example, the undertow is a current of water below the surface, that is moving away from shore when waves are approaching it. It can easily knock a smaller person off balance and can be dangerous for those who are not strong swimmers. As a result, it is very important to take steps to protect family members from this danger. Likewise, there are a number of dangers associated with failing to put a well-thought-out estate plan. If you have a plan in place, it could make your family members feel as though they are drowning if you were to pass away.

State law, not you, will determine who gets your money and property.

If you pass away without a valid will and/or trust, by default, much of your property will go to the individuals (heirs) spelled out in your state’s intestacy law in the proportions determined by the law. In effect, the state makes a will for you if you fail to do so. This may not seem like a major concern until you consider the potential consequence. Your loved ones you want to provide for, including your own children, could be disinherited.

Here are several situations in which loved ones could be disinherited if you do not have named beneficiaries in a will and/or trust:

• Children from a first marriage who have been adopted by a stepparent, or children who have been adopted by other family members or an unrelated person. They may no longer be legally recognized as your children under state law. As a result, they will receive nothing from you unless you specifically include them in your will or trust.
• Children conceived after one parent’s death using assisted reproductive technology. For example, frozen embryos may not inherit from that parent under intestacy statutes. Unfortunately, many of these statutes do not address the rights of posthumously conceived children.
• Children of unmarried parents may always inherit from their mothers under state law, they might have to produce proof of paternity to inherit from their father under an intestacy statute.
• A significant other with whom you have spent your life is unlikely to receive anything under state law. State law does allow a spouse to receive some proportion of your estate. However, if you are not legally married to your partner—or in a legally recognized civil union or registered domestic partnership, they will not inherit anything from you.

Additional Circumstances

There are many other situations in which intestacy statutes are unlikely to achieve your wishes. For example, a special needs child may need a larger inheritance amount to pay for future care. An adult child who is not disabled may not require this. Intestacy statutes provide no exceptions for these special circumstances.

Beneficiaries

You can ensure that everyone you wish to benefit from your estate will receive the money and property you want them to have. You can do this by naming them as beneficiaries and specifying the gifts you want them to receive in your will and/or trust.

An outright gift under state law will not protect your heirs’ inheritance.

Outright gifts made pursuant to an intestacy statute provide no protection for your spouse or children, which is often problematic. Once they receive a distribution from your estate, the money and property they have received may not benefit them at all. Especially if they have creditors or ex-spouses who can reach it to satisfy their claims.

If one or more of your children are irresponsible with money (i.e. spendthrifts), they could quickly squander the money and property you have worked a lifetime to save.

These common problems can be addressed through the creation of certain types of trusts. There are a number of possibilities to consider. Two of the most commonly used trusts are those that distribute money and property in certain percentages at specific ages and discretionary trusts.

Trust with distributions at specific ages

Creating a trust with distributions at specific ages will help to ensure that your beneficiaries will receive the assets when you choose. They will begin to receive distributions at an age when you believe they will be sufficiently mature to responsibly handle them. These gifts can be made in increments, so you can rest assured that your beneficiaries will not be able to quickly exhaust their entire inheritance. Therefore, the money and property held by the trust should be protected from creditors until it is distributed to your beneficiaries.

Discretionary trust

The trustee of a discretionary trust has the authority to make distributions for each beneficiary but is not required to make them. The beneficiaries will not have a legally enforceable right or entitlement to receive any of the funds in the trust. Therefore, the money and property held by the trust are protected from their creditors until a distribution is made. The trustee of this type of trust should be someone you have confidence will make wise decisions. Especially when and if, distributions should be made since that person will have a significant degree of control over the trust’s funds.

Failing to create a trust could mean that your estate will be tied up in a lengthy court-supervised probate process.

Without an estate plan, your money and property will have to go through probate. This could last up to a year, even if your estate is not very complex. This is true even if you have a will, as probate can only be avoided if you die with no accounts or property in your name. Typically, this is accomplished by transferring all of your money and property into a trust. You can also name a beneficiary for your accounts and other eligible property.

In addition, it is important to keep in mind that if you have minor children, money or property that they inherit under state law, or a will, cannot be immediately distributed to them. And it shouldn’t be. Because minor children are not legally able to control property, a conservator will need to be appointed by the court to manage the inheritance for them. Alternatively, you may have chosen someone to fill this role in your will. When they reach the age of majority under state law, the assets will be distributed to them outright.

Locating, screening, and appointing an appropriate person is a time-consuming process for the court. It might also not be someone you would have chosen. Further, the assets you want to be used to care for your children, will not be fully available to benefit them until the administration process concludes.

Lastly, the conservator will be supervised by the court but there is no guarantee. The court-appointed individual may not use the money and property for the benefit of your children in the way you would have wanted.

Allow Us to Help You Care for Your Family

A carefully designed estate plan is like a life vest for your family in a rough sea. Losing a family member is never easy. We can help you put plans in place that will provide you peace-of-mind. Give us a call to set up an appointment. We can talk about the best estate plan to provide for the needs of your family and loved ones. If you prefer, we are happy to meet with you over the phone or by video-conference.

Please call (805) 518-9633 or email us to set up a Family Planning Assessment.