We take great pride in the fact that we have many families with whom we get to work with multiple generations. Obviously, it’s a wonderful compliment and a sign of great trust. More than that though, it’s exceptionally satisfying to develop relationships with our clients and then get to know their children and even their grandchildren.
I’ve worked with one such family since the early 2000s. We’ll call them the Smiths (obviously, that’s not their real name – attorney-client privilege and all). I worked with:
- Mom to create her plan
- Daughter #1 to create her plan
- Daughter #2 to create her plan
- And Mom again, when Daughter #2 passed away
Mom died a couple years back, and we’ve been working with Daughter #1 to implement the next phase of Mom’s plan. Yes, just like humans go through phases of life, so do our estate plans.
It was soul-crushing to learn that the plan wasn’t going to work as intended. It wasn’t going to fail, per se, but it certainly was not going to be as sleek and sexy as it should have been.
And here’s the real kick in the pants: It wasn’t anything we did wrong. It wasn’t even anything the client did wrong. Collectively, we’d done everything right.
And yet, things were still going to be messy and have unintended (and avoidable!) financial consequences.
How We Set Up The Estate Plan
In this case, when we set up Mom’s estate plan, we included a trust. Mom didn’t have a lot of assets. She had three primary goals:
- Keep things as simple as possible for her children
- Avoid probate (you’ve undoubtedly heard me rant about the horror show of probating an estate)
- And protect what her children inherited from creditor lawsuits and divorces
As part of her estate plan, we’d worked closely with Mom to make sure her assets were properly aligned with these goals. We’d taken steps to make sure her trust was named as the beneficiary on her insurance and retirement accounts, and sent her to the bank with paperwork to make sure her financial accounts were in her trust. We also did the work to transfer her home into her trust.
BTW, if your attorney didn’t work through these items with you, your plan might not work the way you think. But I digress. You can read more about this here: https://inglelaw.com/the-terrible-surprise-of-an-empty-trust/
When You Do Everything Right And Things Still Go Off Course
We’d done all the right things… so why was it going to get messy?
Come to find out, somewhere along the way, Mom’s financial advisor changed broker-dealers. When that happens, beneficiary designations need to be redone, and the advisor never followed up with Mom to do that. Mom certainly didn’t know that needed to happen. Mom didn’t even realize the change had happened, let alone the industry requirements for such a thing.
The result is that we now have to deal with an expensive and public probate process in order for her children to inherit it and be able to access those assets. Since there is effectively no beneficiary on the account, it is now payable to a probate estate and it will have to be paid out within 5 years.
That in turn results in more income tax being paid. (Having to pay it out over 5 years, rather than 10 years had it been payable to her trust as we’d planned, results in the recipients being in a higher tax bracket and therefore more income tax paid overall.)
Needless to say, my client is not happy with this advisor, and at her request, I’ve referred her to a new advisor; someone local whom I trust.
There are certainly the things we know that happen in life that require a plan update: key players fall away or for some reason are no longer right for the job; new assets are acquired and need to be integrated into the plan; goals shift; and laws change. These are all things we review at least annually (and often more frequently) with clients in our Plan Preservation Program.
And now we have this new entry on list of many ways an estate plan can go awry and get messy.
If avoiding this kind of mess and unnecessary taxes were goals in creating your plan, you owe it to yourself to get a Plan Check-Up. If we worked together on your planning, there’s no cost for an every-few-years review. Let’s make sure your plan is going to work when your family needs it and you can relive that same feeling of relief and peace of mind you had when you first signed your planning documents.
Set Up Your Plan Check-Up Here: https://go.oncehub.com/inglelaw
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