When good financial intentions lead to bad results – Daily News



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I have seen this happen several times. Parent believes that their succession is simple and that their children all get along. So the parent avoids doing any estate planning and instead gives creative title to their assets, or a parent sets up an estate plan that tries to treat children equally, whether fair or unfair.

Often, it is these same actions of parents that cause discord among children.

No estate plan

A common measure taken to avoid real estate planning is to titrate the property (usually the family home, but sometimes bank accounts) as “roommates” with another party so that when the first party dies, the assets revert to the roommate. . It works under a narrow set of circumstances – there is only one intended beneficiary and the party that owns the assets has a short life expectancy.

A parent putting a child on title as a joint tenant with the intention, however well-meaning, that one of the named children will “share” with the other children, is a disaster waiting to happen. Upon the death of a parent, there is no legal requirement that Freddie shares with his siblings.

Freddie may well think that he “deserved” the money or some other asset and keep it to himself. This is often the case when the child named in the accounts or real estate is also the child who primarily cared for the parent before his or her death. This child’s resentment towards less involved siblings can cloud their judgment of what mom or dad wanted. The other children will have no legal recourse.

Additionally, while both names are on the account, creditors of both parties may be able to foreclose on the account. Even though Favorite Freddie wants to follow his mother’s wishes, if he has an IRS lien or another creditor, the creditor will likely get the asset before the siblings.

If the assets exceed the creditor after the parents die and Freddie is willing to do what mom or dad wanted, Freddie will still have to consider the tax consequences of excluding his siblings. Any transfer from Freddie to siblings will be considered. a gift from Freddie.

If it is less than the annual donation tax exemption of $ 15,000 per gift recipient, there is no donation tax impact. If it exceeds this amount, Freddie will have to use part of his own gift / inheritance tax exemption. It won’t make Freddie’s heirs happy if Freddie ends up with a taxable estate. There may also be tax consequences if Freddie has to liquidate assets to pay for the shares of his siblings.

Payable on death accounts

In recent years, banks have had to decide that it is easier for them to process a “payable on death” designation than the actual wishes of the customer spelled out in a trust.

Lately I have seen too many clients, after carefully discussing and crafting their estate plan, confronted by a bank employee who advises that instead of setting up an account in the name of the trust, the client should simply fill out the form. “payable on death” form.

The form is seldom sufficient to cover the planning done, the “if not this person, then this person, but never this person” elaborated in the trust, it does not allow the assets to be held in a trust, and is of course unnecessary in incapacity of the client.

In short, don’t take the legal advice of a banker, no matter how good their intentions are.

Trustee errors

On the choice of a trustee

Even when an estate plan is adopted, including a will and a trust, good intentions can go wrong. Clients sometimes have difficulty choosing a trustee. They don’t want to appear to favor someone over someone else, or they don’t want to place a burden on a family member. These are valid concerns.

The job of a trustee is serious work and requires time and attention. Some trust administrations last for up to a year after the death of the trustee, many last for years and years afterward, and some for generations.

Parents are often inclined to name the oldest child, all of their children, the child who lives closest, or the child with the most free time as a trustee. None of these reasons justify the choice of a trustee.

If you choose a child as your guardian, choose the one who has the best financial sense, the one who gets along best with other children, the smartest, the one with the best sense of fairness, the most organized, or the more beautiful (okay, just kidding with the latter).

A trustee

Notice I say “one”.

A single trustee to make the decisions, execute the terms of the trust, and be the primary point of contact for the beneficiaries, the accountant and the lawyer, is usually the best approach. If you only have two kids, of course, name them both. If they don’t agree, they’re just hurting each other.

But what if one of them is really irrational? Does the spouse influence them more than you would like? Do we travel a lot and won’t be available to do our part?

In these and similar situations, name the other child only. Appointing three or four people to serve as co-trustees is unwieldy, even under the best of circumstances – trustees sign a lot of documents and forms and not all of them can be signed electronically; many require a notarized. In addition, if there is a tie in a vote, nothing is done. Not to mention a lawyer or accountant having to talk to multiple trustees is expensive.

Estate planning is one area where your good intentions of keeping it simple and inexpensive could have a permanent and terrible result. As Thomas Edison once said, “A good intention with a bad approach often leads to a bad result.” Having a well thought out estate plan is a gift for your family and other beneficiaries. This is your last gift. It pays to take the time to make informed decisions.

Teresa J. Rhyne is an estate planning and trust administration lawyer in Riverside and Paso Robles, California. She is also the # 1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild”. You can reach her at [email protected]

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