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Estate Planning Questions Part 2: What?

Estate Planning is often misunderstood. What is it?


Some people think it's primarily about making a Will. Others know that trusts are involved, and for them, that means estate planning is the business of "rich people."


The reality is so much more complex. Estate Planning is a valuable tool for anyone who is building assets to secure their family's financial future. Everyone who owns anything has an estate. Your estate is comprised of all of your possessions....everything.


Estate Planning involves thinking about how best to order each aspect of your estate to help you achieve your goals to protect your family. Typically, this will involve drafting both a Will and a Trust. But it also involves coordinating beneficiary designations on life insurance, IRAs, retirement plans, etc. It includes planning for the possibility of disability or incapacity during your lifetime.


Increasingly, it may also involve planning for qualification for public benefits, either for the elderly client who may face a future nursing home admission or for the loved one of a client, who has special needs (Medicaid planning).


When strategizing how to plan, many, many considerations come into play. Getting the details right means each family's unique circumstances must be addressed. There is no such thing as "one size fits all" estate planning. Quality professionals can help you put the protections in place that will best fit your family's needs. 


Let’s look at an example: Bob and Joan have three children, Stacy, Denise, and Bobby. They each want the other to receive their whole estate when the first of them dies. At the time of the surviving spouse's death, they each want the assets to be split among their children.  Joan has an IRA that accounts for the majority of their net worth. They have a house they own together. They have a brokerage account.


Bob and Joan decided to save money and use a DIY package off the internet to create an estate plan on their own. Unfortunately, doing so had some unintended consequences. They each prepared a trust and put the brokerage account and house in it. They each prepared Wills. Both of these documents left everything to the other of them and at the death of the survivor divided the assets among their three children. Bob and Joan were smiling because they thought they had arranged to avoid probate and also the fee an attorney would have charged to help them plan their estate.


Sadly, they overlooked some important details and left themselves exposed in ways they had not anticipated. They knew they couldn’t put the IRA in the trust during Joan’s lifetime, which is correct. However, they never checked the beneficiary designation on the IRA. People often forget about beneficiary-designated assets when trying to plan their own estates.

Joan had completely forgotten that before she married Bob, she had named her then-boyfriend, Luke, as the beneficiary of her IRA. Since she hadn’t changed that beneficiary designation before her death, when she died, the funds from her IRA (the bulk of her family's assets) went to Luke, not to Bob or the kids. This was the case even though Joan had named Bob as the primary beneficiary of all of her assets in her Will and Trust. Imagine the family’s dismay when they discovered that most of their assets would go to Joan’s old boyfriend, Luke!


Estate Planning may seem simple on the surface. But there are many, many factors to consider. Tax law, property law, family law, public benefits, can all come into play. Don’t be the pennywise and pound foolish person who winds up shortchanged in the end. An Estate Planning attorney can help you avoid any number of pitfalls, like this one Bob and Joan fell into.


Future articles in this series will address other questions about Estate Planning. 

Here is a link to a prior article in the series.

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