We want to show you a few real life cautionary tales to help you understand how probate can work with or against you.
First, let’s define probate. Probate is the court-supervised process by which your assets are gathered up and inventoried; any debts you have are paid, and any remaining assets are distributed. Without establishing your will correctly or updating when necessary, there are significant problems that may arise when you pass away. A properly carried out will or estate plan with legal assistance provides a smooth probate proceeding.
Real Life Consequence #1: Death of Parents to Minor Children.
If two parents pass away and leave no will there are major consequences. The technical term for this is called dying intestate. For instance, the probate court will appoint the guardian of the children. If the parents had a will, they could specify their preference for guardianship of the children. In addition, the assets and property of the two parents will be designated by the court. This takes away the control of the people closest to the parents, such as the family or loved ones.
?Since the children are underage, where does all the money go?
If the children are minors, they should not be held responsible for handling the money and assets until they reach adulthood. The guardian appointed by the court will decide on the appropriation of assets, money and life insurance policies before the children reach 18 years of age.
Takeaway: If you have minor children, make sure to prepare your will with an assigned guardian.
Real Life Consequence #2: Making Sure Your Fiduciaries Are Prepared for the Job
Lets take a look at this scenario: Woman has a son and a daughter, and makes both children equal beneficiaries of her will and trust. In her declining years, her son begins to take care of her physically and manages her finances as a power of attorney. The daughter has a lot of her own health issues, and so is not able to help as much. The son and daughter don’t get along and since mom doesn’t want to deal with squabbling children, she changed the children as co-trustees to make the son the sole trustee. This made sense to her since the son was doing all the work anyway. Once the woman passed, the daughter, who did not know of the trust amendment, was angry and thought the son manipulated their mother into making the change. She filed a petition demanding the trustee, her brother, provide an accounting of all assets from when the power of attorney was executed, several years before her death. The son was a good son, and at the trial no one disputed that he took great care of his mother, taking her to all her medical appointments, providing her with everything she needed. However, the son was a terrible trustee. He ran a landscaping business that was often cash based. Record keeping was not his strong suit to put it mildly. A trustee owes a fiduciary obligation to the trust and all the beneficiaries to keep 100% accurate records of all transactions. An accounting record was produced based on subpoenaed bank records, but this was both very expensive to produce and there were items for which there was no explanation. Instead of inheriting roughly $200,000 from the trust (her 50% share), the sister obtained a judgment against her brother for roughly $800,000. The brother was held personally liable because of his failure to keep records. While the case eventually settled pending an appeal, several things can be learned from this cautionary tale.
Takeaway: This is an example of how just doing a one-size –its-all estate plan can go horribly wrong. The woman had all the right estate planning documents, but without the guidance of experienced counsel in both the preparation and administration, they failed to produce the desired result. A Trust is a wonderful estate-planning tool, but must not be done casually or without professional guidance.
Real Life Consequence #3: Failure to Update Document and Divorce
When a couple divorce, it is very important to update the Life Insurance Policy as well as will or estate plan. After a divorce, when an ex-spouse dies without changing updating the beneficiaries on the life insurance policy, the kids automatically inherit the assets. Without updating after a divorce, probate court automatically revokes the provision in the Life Insurance Policy naming the former spouse as beneficiary. However, the former spouse does get the life insurance proceeds, because the divorce does not change the beneficiary designations under the life insurance policy.
Takeaway: It is very important to update ALL estate planning documents, including beneficiary designations on life insurance policies and other accounts upon divorce.
These are three real life problems that may arise if you don’t properly write and update your end-of-life planning documents.
Robert.L.Shepard offers estate planning legal services designed to avoid probate, reduce estate taxes, protect assets and creating irrevocable trusts.
To learn more about him, visit his website.
To learn more about him, visit his website.