Once you've created an estate plan, it is important to keep it up to date. . .Read more
Your Estate Plan: What Legacy Will You Leave?
- March 19th, 2007
Estate planning is primarily about how to pass your property on after your death to the recipients of your estate with a minimum of fuss, expense and taxes.
But it's about a lot more as well. Over more than 15 years of practicing estate and elder law planning, I have seen many families torn asunder by poorly planned estates. (Of course, the cracks were already present.)
Whether and how you plan your estate can mean that your children will or will not be on speaking terms after you're gone. It can determine whether they will be shortchanged by Medicaid claims or estate taxes, or will be less financially pressed due to what you are able to leave them.
What Can Go Wrong
There's the father who set up a trust for his life insurance, but never transferred the policy into the trust and who had a large IRA with no named beneficiary. More than half of his estate went unnecessarily to estate and income taxes.
There's the uncle who wanted to leave his estate to one niece. We know this from a series of statements found in his safe deposit box. But he never executed a will. As a result, another niece and nephew also shared in his estate.
Other cases involve family members fighting over who should be administrator of an estate or whether a jointly-held account should be shared equally among all the children. Without a clearly appointed executor, family members have been known to take property from the house of a deceased parent or other relative, creating animosity and family splits that can be permanent.
Finally, I've seem many instances of funds going to disabled beneficiaries receiving public benefits. Without a trust, this generosity can result in loss of Medicaid or Supplemental Security Income for the disabled heir, greatly reducing the benefit of the gift.
Full Employment for Lawyers
These are cases of being penny wise and pound foolish. The effort to avoid attorneys fees often means greater attorneys fees having to be paid by the heirs as they fight over the spoils or pay to clear up a title problem. It's a lot cheaper to execute a high-quality estate plan than to clean up the mess left by no estate plan or one that's poorly thought out.
These are negative legacies that can be avoided. But what about positive legacies?
The most important positive legacy is not to create strife for your heirs. Make sure your estate is set up so that it will pass to heirs with as little hassle and expense as possible.
You need not only to be fair in how you distribute your estate, but you also need to appear fair. The more open the process, the more likely your heirs will feel that it's been handled fairly.
This is one reason I discourage the use of joint accounts as a way of distributing estates (unless there's only one child). I've seen many instances where a parent has had joint accounts with each child and tried to keep their value more or less equal. Inevitably, the parent falls ill, one account is spent down to pay for her care, and the children do not share equally.
The question of what's fair can be very difficult. Children have different needs. One may be closer to you or provide more care and assistance as you age. In most instances, however, the distribution of an estate becomes a proxy for love and even the distant or well-off child will feel hurt if the estate is not evenly divided.
It's generally better to take care of a child in need or compensate a child who provides extra care during your life. If you make unequal distributions among children, make sure everyone knows why.
Doing Even More
Your estate plan can be an ideal means to leave a positive legacy through charitable bequests. While you may not be able to give large amounts during life, think about how you can make an impact through your estate. Not only do these gifts help individuals and organizations in need, they set an example for your children and grandchildren.
I had one client with quite successful, but somewhat selfish children. She contemplated leaving all of her funds to a private foundation with her children appointed as trustees with the obligation of giving the money away. So far, she hasn't taken that step.
Some attorneys and consultants work with clients to create "ethical wills." These are statements of your values that you would like to pass on to your family. I've heard others comment that if your family doesn't know your values by the time of your death, it's too late then.
Gifts to family members and friends who don't expect a legacy, but could really use the money can also be extremely important in their lives. Another wealthy client is taking care of the education of the children of nieces and nephews who have chosen more altruistic, but less lucrative careers.
In short, your estate plan is a powerful tool for helping others -- whether or not they are your children -- when you no longer need your assets for your own support. Don't let it go to waste.
Harry S. Margolis is the managing attorney of Margolis & Associates, a law firm based in Boston, Massachusetts, specializing in estate and elder law solutions for individual clients and their families.
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