The Accidental Plan

When defining an estate plan, what should you consider? The first thing that often comes to mind is the Last Will and Testament. This well-known document dictates how an individual's assets should be distributed after death. However, the Will does not control everything. This can often lead to unintended consequences in a person's estate plan.

First, joint ownership. Many assets can be owned jointly between two or more people. Naming a spouse or a child on an account or a house as an owner has the same effect. When an individual passes away, the surviving owner(s) now own the property. This may be an issue, if one child was named on the account for convenience purposes but does not want to share the account with their other siblings. 

Second, beneficiaries. Bank accounts, life insurance policies, IRAs, and even cars often have beneficiary designations. If so, assets that an individual owned in their name alone will then pass to the named beneficiaries. Again, the terms of the Will are not considered. This can lead to divisions of property that are not what the deceased wanted. The most common error is to name beneficiary A to account 1 and 2 and beneficiary B on account 3, on the assumption that the accounts will exist at the time of death and have the same amount of assets as at the time the beneficiary was named. This may lead to disproportional shares later because account values go up and down.

After joint owners and beneficiary designations, the other assets, known as the residue or remainder, are then controlled by the Will. However, this process is not immediate. The Will expresses the wishes of the deceased. The Executor has the job of carrying out those wishes. Since a Will can be changed multiple times during lifetime, the named Executor has no authority until after a probate court has approved them. Beneficiaries are given an opportunity to contest the Will, if they can show that the deceased either did not have mental capacity to sign the document or had been unduly influenced to write it with the terms stated.

Once approved, the Executor's role is to safeguard and inventory any property that the deceased owned. This is not an easy task, and the Executor does not get to change the wishes of the deceased. Whatever assets the deceased had that were not jointly owned and which did not have a beneficiary named must be divided in whatever way the Will states. This process, known as probate, takes about 6-8 months in a simple estate. The first five months are legally required, so that creditors can make themselves known and submit proof of their claim. In general, most of the estate work can be done in 3-4 months.

Whatever your plan may be, remember that there are many parts at work, controlling where things will go. The Will is actually the "catch-all." It is a very important document, but other planning tools must be carefully looked at to ensure that your estate plan is not accidental.