Estate Planning Business Succession
There are so many estate planning horror mistakes, it’s hard to know which is the worst. One is the woman who had an estate plan created, but only named one guardian for her teenage daughter. When the guardian declined to serve, the girl was moved into foster care. Many estate planning attorneys recommend not one, but two alternate guardians, according to the article “Don’t get tripped up by these common estate planning pitfalls” from MarketWatch.
Joint ownership of bank accounts leads to a tangled mess. Seniors often add one of their adult children to ownership of their bank accounts, so the child can manage their affairs or keep an eye open for financial elder abuse. However, when the parent dies, the account is the sole property of the child, and siblings have no say over what the new owner does with the money. Even if the children agree to split the money evenly, the federal gift tax exemption is limited to an annual gift, gift tax returns have to be filed and a simple idea becomes expensive and time consuming.
If joint ownership of an account is necessary, it may be better to add all of the children or have in a separate writing the intention that this is an asset you want divided equally among the children. Easier still: create a new account dedicated to paying bills and maintain a small balance. Even better, if the institution allows you to arrange for the account to “pay on death,” then designate all of your children as beneficiaries. This approach will avoid probate, while treating all children equally and not exposing your account to any potential divorces, lawsuits, or bankruptcies during your lifetime.
Giving money to grandchildren directly. Putting a minor as a beneficiary of a percentage of an estate requires the involvement of a judge approving the bequest and the appointment of a custodian over the account until the minor becomes an adult. An estate planning attorney would likely recommend the use of a trust for the benefit of the minor. Alternatively, limit bequests to adult children and adult grandchildren.
An adult child or surviving spouse living in the house. A man created a property trust to allow his second wife to remain in the house he owned before their marriage. The couple had jointly paid off the mortgage. The man named his daughter from a prior marriage as the successor trustee. The daughter began making unreasonable demands on the surviving spouse to make expensive improvements. Years of bad blood between the two erupted into years of litigation. The parties finally agreed to revise the trust terms and name a professional trustee, but not after an expensive and stressful battle.
When one of the children is living in the house and the will says the home is to be divided among the siblings equally, what happens? Does the child who lives in the house get first right of refusal to buy out their sibling’s shares? Are they paying rent to siblings? What if the child living in the house decides to sell, after they personally have invested a lot of money improving the house?
Estate planning attorneys bring up these kinds of situations with clients not because they want to scare people, but because they have seen firsthand what happens when an estate plan fails to anticipate a variety of situations. The estate planning attorney needs to know about the family’s dynamics in detail, in order to create the best plan to achieve the desired outcome and prevent as many twists and turns as possible.
Reference: MarketWatch (Jan. 6, 2022) “Don’t get tripped up by these common estate planning pitfalls”
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