Making final distributions easier to manage

Doug Horn

For most of us our last act is one of generosity. We have gone through our life planning, saving, and consuming and in our final days, we make a gift to our loved ones. Through the use of a will or trust, our wishes are spelled out for a trusted family member or friend to follow instructions and disburse the remaining assets of the estate.

While this may sound easy, there are many potholes that can cause hurt feelings, misinterpretations, added work, and potentially impossible to follow instructions. Very few individuals keep their estate planning documents readily available where they can be reviewed frequently. Most individuals I speak with have not read their plan since it was signed. This is the start of most problems with estate plans. They were written for a time that is now in the past and things have changed but the plan has not.

Estate planning documents are as unique as finger prints. I have yet to find two attorneys whose documents are written in a similar fashion. Some lawyers add language in anticipation of certain events while others draft their documents to address only what is currently known. Some documents are written where only another attorney can comfortably follow the intended instructions while others try to utilize clear and simple directions. While the documents can be many pages in length, generally the instructions for the disposition of assets can be found in one section and may only be a paragraph or two long. There is a great test of whether the instructions will be followed, and this test should be done prior to signing the final copy.

The executor or successor trustee should be asked to review the draft document and without assistance from the owner of the estate, be asked to detail what the document is instructing them to do. It may be surprising, but for some documents the future administrator of the estate fails to interpret the instructions as intended. If this is the case, the draft can be modified and once the instructions are clear the documents can be signed.

Now that the instructions are clear, another question would be if there are more common contingencies considered by the documents? Parents often provide assistance to their children. While everyone is different, some may consider the assistance to one of their children as a gift, and no additional planning is necessary. But, others may consider the assistance as a partial early distribution of that child’s share of the estate, and thus the estate documents must address this type of event. Gifts of specific property are always easy to process, provided that the identified property is still part of the estate. Generally, if an identified asset is no longer part of the estate, then that request cannot be honored and is ignored. This will not be an issue unless the specific gift was part of an allocation process to the children. If one piece is no longer part of the estate, then the distribution to the children may no longer be equal. The document should address this when specific gifts are used.

The use of joint accounts with rights of survivorship (JTWROS) and transfer upon death (TOD) accounts can also cause issues. It is not uncommon during the last year or months of someone’s life that a family member steps in to assist with the finances. Unknowingly, funds could be moved from a savings that had TOD instructions to benefit the grandchildren equally, to a checking that was established as a JTWROS account with the child living closest to the surviving parent. Upon the parent’s passing, the estate administrator now determines the gift to the grandchildren will not occur in the quantity that was intended due to the transfer of funds. Additionally, one of the children will receive additional funds because they were named for convenience purposes as a joint tenant to one or more of the bank accounts; and the Will divides the remaining estate among the children equally.

These and other potential problems can be uncovered by doing a financial fire drill. Doing a test run and seeing what happens to each account can uncover unintended consequences so they can be fixed. Taking time to confirm the instructions and avoiding unintended distributions, will allow the final act of generosity to be handled with fewer complications and in the manner as intended, with love.

For assistance with insurance, estate planning, and managing investments, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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