Even with proper estate planning, clients can take actions that unintentionally “undo” their estate planning desires.
It is not uncommon for an elderly client to set up a joint account with a child or other caretaker to facilitate such party’s handling of the client’s financial affairs. In such situations, the joint account will transfer to the joint account holder without probate of the account. Frequently, a client will not consider this aspect of setting up a joint account which may result in an imbalance in the division of a client’s estate.
Life Time Gifts
From time to time, a client will make monetary gifts to a child when the child is in need. It is often the intention of the client (and the understanding of the family) that these gifts should be considered part of the child’s inheritance; however, without putting into place the appropriate paperwork, these gifts will not “legally” be considered in connection with the division of the client’s estate.
As with gifts, a client will make loans to a child when the child is in need, and it is the intention of the client (and the understanding of the family) that these loans will be paid back to the client. Unless such loans are properly documented, it is difficult to determine the amount of the loans, and/or to enforce repayment of the same. Even if the loans are documented between the client and the borrower, the documentation may be misplaced or destroyed prior to repayment. Without repayment of the loan, it could result in the loan amount remaining with the borrower and the reduction of the estate of the funds that would have otherwise been received.
Life insurance policies and retirement accounts will be distributed to the named beneficiaries. If there is not a named beneficiary, then such amounts will most likely be payable to the client’s estate. Clients do not revisit the beneficiary designations on a regular basis. This can lead to the payment of these amounts to individuals designated years ago who the client no longer would want to receive such funds. For example, a client may designate a brother or sister as a primary or secondary beneficiary of a life insurance policy with the idea that the brother or sister will see that the funds are used to take care of a client’s minor children. However, the funds may not be paid until years later and the payee may not remember or appreciate the purpose for the payment.
One way to address these types of issues is the inclusion of an advancement clause within a client’s estate planning documents. An advancement clause creates the presumption that gifts given to a person’s heir during that person’s life are intended as an advance on what that heir would inherit upon the death of the client. The concept of an advancement clause could be extended to assets received on the death of the client from a non-probate asset.
Another way to help address these types of issues is by sharing information with the client’s beneficiaries and legal counsel. If the client’s beneficiaries are aware of the intention of the client by creating joint accounts and/or making gifts, loans, and/or beneficiary designations, then the client’s wishes will be known to the affected parties, which could lead to the beneficiaries working together to see that the client’s wishes are honored. A client’s sharing of information with his or her attorney can help the attorney advise the client on how to document and address such items within the client’s estate planning.
For help with planning the disposition of your estate according to your intentions, please contact Isaac T. Heintz at 513-943-6654.