Aretha Franklin had a net worth of $80 million at the time of her death. Yet despite her fame, wealth, and lawyer’s attempts, she left no will or trust. She was divorced with four grown children, one who has special needs.
What are theconsequences of leaving no will or trust for your loved ones?
If we look at Franklin’s case, it could mean that her four children won’t receive the inheritances as she wished, family squabbles over who feels entitled to what may delay payments, her estate could receive a large tax bill, it will have to address royalties and copyrights, and all this information will go public.
What’s more, if we look at the case of Prince, another accomplished artist who left no will, it’s been over two years since his death and his heirs have still not received anything from his estate.
Here is the issue: None of us knows when we’re going to die. And while we may not have the worth of Aretha Franklin or Prince, we surely don’t want what we do have being spent away on unnecessary court proceedings and legal fees.
So . . . what do you do?
1. Get a will, at the very least.
This can prevent disputes among heirs. It names an executor of the will and guardian in the case of minor children. Keep in mind, however, that even with a will in place, the estate must go through probate in order to transfer property to beneficiaries.
2. Or get a living trust.
In the case of Franklin, this could have minimized the estate’s tax burden, retained privacy, passed assets to the heirs quickly, and prevented family disputes. Done correctly, a living trust avoids probate.
This trust is not subject to probate court and allows your child to receive both your funds and governmental benefits.
Of course, everyone’s situation is different. Consult an estate attorney to figure out what is best for you and your family.
Nobody likes this process. It forces us to answer some tough questions, confront some rough realities, and put it all on paper. That may be why only 42% of US adults currently have a will or living trust. They think they’re going to live well into their 80s or 90s and that there’s plenty of time. But here’s the cold, hard truth: we don’t know when we’re going to die. Why not get a will or trust done now? When your time comes, whenever that may be, your loved ones will be grateful you did.
This statement was never truer than for estate planning. By some accounts, 70% of adult Americans have no will or trust in place for their loves ones. Furthermore, others who initially did prepare an estate plan have failed to update it in light of changing circumstances in their lives.
You can benefit from avoiding the 8 most common estate planning mistakes that I have seen people make.
1. FAILURE TO PRESERVE YOUR INHERITANCE FOR YOUR GRANDCHILDREN SHOULD YOUR SON/DAUGHTER DIE AND THEIR SURVIVING SPOUSE REMARRY
You need to take steps in drafting your estate plan to assure that your assets are distributed to your grandchildren should your son/daughter die and not left to your daughter-in-law/son-in-law who could eventually remarry and end up using your inheritance with the new wife/husband and his/her step kids – all of whom have no familial relationship to you.
2. FAILURE TO AVOID A GUARDIANSHIP PROCEEDING FOR YOUR CHILDREN
If you have children, have you considered who would raise them if for some reason you or their other parent couldn’t. While this is not an easy subject to contemplate, having a guardian arrangement spelled out as part of your estate plan will ensure they will be properly cared for by someone you trust and have chosen. A legal guardian is a person who is given the legal authority and responsibility to take care of your children’s needs, such as providing food, education, medical care, dental care and shelter. If you have minor children it is imperative to have a plan in place to protect them in the event you cannot.
3. FAILURE TO PUT YOUR REAL PROPERTY BACK IN AN EXISTING TRUST AFTER A REFINANCING
Did you know that most home refinancings require that your home be transferred out of a living trust back to your own name(s), at least until after the new lender has recorded its new mortgage or deed of trust on the property? The problem is that is most cases, no one ever thinks to transfer your real property back into the trust. This failure can result in an unforeseen probate of your home at the death of the second spouse.
4. FAILURE TO ENSURE THAT YOUR ASSETS ARE DISTRIBUTED THE WAY YOU WANT AND NOT PURSUANT TO THE GOVERNMENT’S DEFAULT PLAN FOR YOU
Everyone has an estate plan. It is either the one we have created or the default so-called Plan B of the state in which we live. In our experience, it is very unlikely that a state’s default plan is what clients would really want. State laws vary, but generally they have it set for the assets go outright to the closest family members. Whom a state considers to be “closest” can be complicated in non nuclear families. Non family members, like an unmarried partner, will not receive any of the assets. This failure to act could cause family member fights over their inheritance.
5. HAVING A WILL MEANS YOU HAVE A TICKET TO ATTEND THE DREADED PROBATE PROCESS, WHICH COSTS YOUR FAMILY TIME AND MONEY
Having only a will is a just ticket to participate in the dreaded probate process costing your family time and money. Additionally, for those who don’t have a will, their assets will probably have to go through the intestate (“no will”) proceeding. Either of these scenarios will require that your assets go through probate before they can be fully distributed to the heirs. Probate proceedings vary from state to state, but many view the time, cost, and loss of privacy and control that come with probate as unnecessary evils which can – and should be – avoided.
6. AN OLDER PERSON HOLDING TITLE TO THEIR REAL ESTATE IN JOINT TENANCY WITH A CHILD OR GRANDCHILD
Many older people add an adult child (or grandchild) to the title of their assets (especially their home) as a joint owner in order to avoid probate. However, this type of jointly titled property can create all kinds of problems, including:
When a joint owner is added, the original owner loses control
Jointly owned assets are exposed to the joint owner’s possible misuse of them
Part of these assets could be lost to the joint owner’s creditors
The assets could become part of a joint owner’s divorce proceedings
7. FAILURE TO PROTECT FAMILY MEMBERS WITH DRUG, ALCOHOL, OR GAMBLING ISSUES
Many parents with a trust fear that an inheritance left to a child may be lost because of poor money handling skills or a drug, alcohol or gambling addiction of their children. With a living trust, you can instruct the successor trustee to retain a person’s inheritance in trust and instruct the trustee to make payments, as needed, directly to third parties for rent, insurance, car payments, etc. to keep it out of their hands.
8. FAILURE TO HAVE POWERS OF ATTORNEY FOR UNMARRIED ADULT CHILDREN
Let’s say you have a college student or a young adult over 18 who is unmarried. They are no longer minors that you have the legal authority to make decisions for. The law now classifies them as adults with the legal right to privacy. If they have not prepared a Power of Attorney (“POA”), problems could arise if they are out of the country or incapacitated with matters such as:
Driver’s license or vehicle registration renewals
Registration/admission for college
Tax return filing
Banking transactions
Ongoing legal matters (e.g., pending lawsuit from that fender-bender a few months back or speaking with child’s landlord)
Jury duty summons
Passport renewal
I often urge clients to prod their adult children to draft POA on or around their 18th birthdays. So don’t forget a POA and make it one of the most important things on your to-do list.
