It is important to have a coordinated estate plan


The property plan includes various moving parts. The unlockable fund may be the cornerstone of the plan, but it’s important to consider how other parts of the plan work for… or against… the plan.

Let’s look at a simple example. John had three children and wished to leave his property to them equally. He had $6 million in various assets. John hired a lawyer to help him with a revocable trust and left everything on equal footing to his three children. The trust is beautifully crafted. He had an absolute will pour into honesty. Will this achieve its goal?

not necessarily. Some of John’s $6 million assets may not be controlled by the Trust or Pourover Will. Let’s say John had an IRA. The designation of the beneficiary in the IRA will control who will receive those assets. If the designation of the beneficiary of an IRA is in favor of John’s Trust, the IRA will pass on the terms of John’s Trust. Often, retirement accounts and other assets have beneficiary designations that predate the trust and have not been updated. Often when an IRA is created, it contains only a small amount. In John’s case, the IRA opened with $5,000. He called the person he was dating at the time, Betty. This beneficiary designation has never changed. He never really thought about it years later when his wife passed away and rolled her retirement plan into his IRA. He also didn’t think about it when he left his job and entered his 401k into his IRA. Now he has $3 million in his IRA. Upon his death, this asset, as designated by the beneficiary, will be transferred to Betty.

Betty could take $3 million and not look back. You will not be legally obligated to give it to John’s children. In this case, John’s sons would be on half of their inheritance. If Betty is a collaborator, she may give away the $3 million to the IRA and pass it on to the potential beneficiary. In John’s case, he did not name the potential beneficiary. So, we will look at the guardianship agreement. In John’s case, the agreement states that if the primary beneficiary is not present and there is no potential beneficiary, the assets will go to his estate.

By going through the probate validation process, the assets will pass at the will of John Purover into his trust. This will obtain the assets for John’s three children. However, the IRA had been unnecessarily curtailed by the expenses of the probate process.

This turmoil could have been avoided if John and his attorney had orchestrated the estate’s plan. John could change the beneficiary designation on his IRA. He could have named his children on the spot, if that was convenient, or he could have named his reversible chest. Without estate plan coordination, a large portion of the assets can go in unintended ways, just like in this example.

Stephen C. Hartnett, JD, LLM
Education Manager
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128
www.aaepa.com

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