In recent columns, I explained why your estate plan should address more than what happens to your things when you die. Today, I address why your estate plan needs to be protected . . . from you.
Because few of us know when we will pass away, or face other complications of life, an appropriate estate plan should be designed to ensure you decide what happens and when. Unfortunately, even if you have a Will or trust, other decisions you make can undermine that plan.
Take the example of a widowed parent who wants to divide her assets equally among her children when she passes. Of course, she should have a Will or a trust drafted to reflect her wishes. But if she also adds a child to her financial accounts, as innocuous as this move seems, she has potentially jeopardized her intended estate plan.
That child now “owns” those accounts as well. Money can be withdrawn or “borrowed” from that account by either the parent or the child. Upon the parent’s passing, that child may “forget” that money was part of the estate that was to be shared among all the children. Even if that child is honorable, the funds in those accounts are subject to the creditors and predators of the child.
Another example is the way parents identify beneficiaries to receive the proceeds from their retirement plans (such as IRAs), insurance policies and annuities. That money will go to designated beneficiaries . . . no matter what you state in your Will or trust. Again, if only one child is listed as the beneficiary (perhaps for convenience) the same risks apply.
These types of well-intended decisions sacrifice the protections provided by proper estate planning because they result in unintended conveyance of ownership, relinquished control and increased risk. No matter how carefully a Will or trust is drafted, a lapse in judgment or a step taken for the sake of convenience may create results you never intended.
Future columns will address how the same goals can be accomplished but without the risks described above, and without significant additional cost or complexity.
© 2015 Steven J Wright