Unintended (Avoidable) Estate Planning Outcomes.

People do not plan to fail, but people often fail to plan. This is the case with unintended estate planning outcomes. Let us discussion some common scenarios.

Do one or more children live at home? If so, what is to come of the children in the event that the parent is disabled or dies? Does the parent’s estate and financial planning provide for the children to have a place to live and the necessities and comforts of life? Failing to plan may result in costly and unintended outcomes. Planning may include a special support trust for the children.

Is there a sole proprietorship (business)? A sole proprietorship may need to be transferred into a business entity for purposes of future transfers to family member(s) or a future sale of the business. Otherwise, it may become more difficult to transfer or to sell the business as a going concern, and value may be lost.

Are there retirement plans? If so, the participant will want a power of attorney to appoint an agent to manage the plan if the participant became incapacitated, and will also want to name primary and secondary (alternative) death beneficiaries. Moreover, the participant will want to consider the income tax implications when designating the primary death beneficiaries; that is because depending on who inherits, greater income tax deferral may be possible.

Are any of the death beneficiaries receiving needs based government benefits? If so, perhaps a special needs trust should be part of the estate planning; that way the inherited assets do not disqualify the recipient from continued benefits (e.g., SSI, Medi-Cal, and food stamps).

Are any of the beneficiaries in serious debt to creditors? If so, then consideration should be given to holding such inheritance in a discretionary spendthrift trust. The trustee is authorized to make distributions to or for the benefit of the beneficiary, considering the creditor implications. Special (priority) debts, however, such as unpaid child and spousal support can overcome even discretionary spendthrift trust protections.

Are any of the beneficiaries, for any reason, unable to manage their assets? If so, the consideration should be given to holding such inheritance in a support trust with either a mandatory or discretionary distribution standard for the beneficiary’s health, education, maintenance and support.

Are there special (valuable or sentimental) items of personal property (e.g., jewelry, antiques, and vehicles) to be distributed? If so, such gifts should be itemized on a schedule and the schedule included as part of a will or trust, perhaps as an attached memorandum of personal property gifts.

Is there a need to involve additional persons, besides the successor trustee, in the administration of the trust assets? For example, is there a trusted advisor whose judgment and expertise are important to the investment, management or distribution of trust assets. If so, perhaps a directed trust arrangement should be utilized to appoint the advisor either as a trust director or as a special co-trustee with compartmentalized or segmented authority or trust administration.

Is one or more charities intended as a beneficiary? If so, consideration should be given to how the charitable gift is made; is it given outright without strings or is it managed over time and distributed for special purposes.

Is there a need to update existing estate planning due to life changes that make the planning obsolete. For example, is there a need to change who is the successor trustee? Is there a need to change who inherits? If so, hopefully the person acts while they still have capacity (understanding).

Do designated death beneficiaries on Pay On Death (“POD”) and Transfer on Death (“TOD”) know about their being beneficiaries on these accounts? If not, these accounts may sometimes either be unclaimed or become part of an otherwise unnecessary probate.

The foregoing is not legal advice.  Consult a qualified estate planning attorney for guidance. Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.