What type of planning do I need to do?

What type of planning do I need to do?

  • August 10, 2015

The type of planning that you need to do depends on the goals that you want to accomplish. Joint tenancy ownership, payable on death designations (PODs), beneficiary designations, trusts, and wills is important tools that you can use to plan your estate. Whether or not any of these tools are right for you can be determined only after a careful analysis of all of your assets along with a thoughtful review of what you want to be done with each individual asset. Great caution is necessary because the improper use of any estate planning strategy can backfire and result in the disinheritance of your intended beneficiaries.  

For example, when entering a second marriage many couples what to satisfy the dual goals of protecting their new spouse while also leaving an inheritance for the children of their previous marriages. To accomplish this goal, they each sign new "I love you wills." These wills are often drafted to state that upon the death of either spouse, all of their assets will be distributed first to the surviving spouse and then, when the second dies, to the children of the previous marriages. Although the couple thinks they have done a good job of planning their estates with wills, they have not! Planning with wills, without taking other precautions, is a big mistake for several reasons. 

First, unless all of the assets of each spouse are carefully analyzed, it is entirely possible that the surviving spouse will receive nothing from the "I love you will." This is because the will may fail to control the distribution of any property in an individual's estate. Instead, the entire estate may be distributed via beneficiary designations on life insurance policies and retirement accounts; payable on death (POD) or joint tenancy designations on savings and checking accounts; and joint tenancy designations on real estate, all of which override the will. If the first spouse to die failed to get around to removing the children of the previous marriage like the ones to receive all of his or her property through these types of transfers, the surviving spouse of the new marriage gets nothing because the will was meaningless!

A second planning mistake is much like the first, only this time it is the children who are disinherited. People who remarry usually want to protect their new spouse and still leave an inheritance to the children of the first marriage. The second marriage couple dutifully goes to their attorney to sign new wills. They are often drafted to leave half of the estate to the new spouse and the other half to the children of the previous marriage. Although they leave the attorney's office feeling proud and thinking that all of their loved ones are now protected, they are mistaken. 

Consider this scenario: The first parent dies and the children are dismayed to learn that in the intervening years, the parent's house, car, bank accounts, and investment accounts were all titled jointly with the stepparent. They further learn that the stepparent was named as the beneficiary of their parent's IRA and life insurance policy. Even though the will left one-half of the property to them, the children are effectively disinherited because of the improper use of joint tenancy and beneficiary designations. The stepparent gets it all - the children get nothing. 

This was the estate plan of Cinderella's father! Although Cinderella should have inherited at least part of her father's estate, everything, including the home, went to her stepmother. Good estate planning can avoid this type of tragedy. 

A third planning mistake occurs when a couple writes their wills to state that on the first spouse's death everything goes to the survivor and that on the second death everything is to be divided between the children of both spouses. The fault in this plan is that it assumes that there will be assets left to pass on after the second spouse's death. In reality, there might be nothing left to pass if the assets are all consumed by the surviving spouse due to medical expenses, nursing home costs, or other unforeseen circumstances. Even if there are assets left over, with "I love you wills" there is nothing to prevent the surviving spouse from rewriting his or her will after the first spouse dies and disinheriting the stepchildren. 

Good estate planning is needed to protect not only the inheritance you leave your spouse but also the inheritance you want to ultimately leave to your children. An experienced estate planning attorney will draft what is needed to make sure that none of your loved ones suffer these planning disasters.