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INTRO: The estate planning "game" is one every adult plays, but some play more actively and more intelligently than others. The challenge lies in understanding how all the rules work, and thus the optimal way to play. This can be pretty tricky and difficult without expert professional advice.
Sadly, if you lose this game, your loved ones usually suffer. Despite people's best intentions, unintended consequences happen all too frequently, as described in the hypothetical examples below.
Family #1: Judy has two adult children, John and Jane. Judy's primary assets are a $1 Million home, with no mortgage; and a $200,000 bank account.
Family #2: Bob has two adult children, Bill and Betty. Bob's primary asset is his $1 Million 401K.
Relevant Facts: Judy and Bob each divorced their first spouses, have been happily married for 15 years and live in Judy's home. They keep a small joint checking account for routine living expenses, but otherwise maintain separate assets.
Judy and Bob know that all responsible adults do Wills. Thinking they don't need a lawyer, they download basic Will forms from the internet, and each sign one. Each Will states that on the death of the testator, all assets go to the testator's children, in equal shares. It is simple and they are satisfied.
1) Judy takes out a home equity credit line on her home. In order to qualify, Bob's income is needed. So Bob goes on title with Judy, as required by the lender. Their neighbor (who seems like a pretty smart guy) tells them that he and his wife hold title to their home as "joint tenants", as do most married people. So, Judy and Bob tell their lender that they'll take title as joint tenants.
2) In case anything ever happens suddenly to Judy, she wants one her children to have authority to access funds from her bank account. She thinks about adding both John and Jane to her account, but decides against that since the kids don't get along well. So, Judy adds John as a signer.
3) Bob lists his children, Bill and Betty, as beneficiaries of his 401K so that they'll receive the bulk of his assets.
PART TWO: Rob explores the harsh unintended consequences on the death of Judy and on the death of Bob in The Law and Unintended Consequences - Part Two.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.
ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, "Summary" Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.