I often tell clients that I could probably host a day-long “story time” to share things I have seen and come across in my time in this field. Just when you think you have seen it all, something else gets thrown at you. With that said, meet Fred and Wilma.
Fred and Wilma did not have any children together, but both have surviving siblings. Fred has a retirement account worth about $300,000, which lists Wilma as the primary beneficiary. Fred passes away and the retirement account rolls over to Wilma. Suddenly, and tragically, Wilma passes within a few days of the account rolling over into her name. Unfortunately, because the timing of things, Wilma did not have the opportunity to designate beneficiaries. Therefore, the once-Fred’s, now-Wilma’s retirement account falls to Wilma’s “estate” causing her family to go through probate.
To complicate matters, Fred and Wilma had not done any estate planning, so neither had a Last Will and Testament. Because of this, the once-Fred’s, now-Wilma’s account goes according to the intestacy laws of Indiana. Put simply, Wilma’s estate would be distributed to her living siblings. Now, take a step back and think about this from a “big picture” perspective. The $300,000 was Fred’s retirement account and presumably, he likely would not want such funds to end up being distributed to Wilma’s siblings, but instead likely to his own “blood” siblings.
Two lessons here for you! First, let this serve as a big ol’ classic example of the importance of getting your estate plan done. Having something, anything written down (that was validly executed) would have helped. What if Wilma would not have even wanted her “estate” to fall to her siblings? What if she would have been fine with it falling to most of her siblings, but then there was that sister of hers? Unfortunately, without an estate plan, your estate will be—no ifs, ands, or buts –distributed according to your state intestacy laws. Consider the act of doing a Will or a Trust equates to you saying “heck with the intestacy laws, I want to make the decisions!”
Second, let this also serve as a big ol’ classic example of the danger of purely relying on beneficiary designations. I often hear that an easy way to avoid probate is to just put beneficiary designations on everything. While this is “on paper” is a legitimate way to avoid probate, there are an immense amount of risks associated with this plan as it is extremely difficult (if not impossible) to account for all of life’s twists and turns. Exhibit A: Fred and Wilma! Consider the possibility that Fred could have listed Wilma as the beneficiary, and listed their Trust as the contingent beneficiary. Listing the Trust as the beneficiary is a beautiful contingency plan because, in its truest sense, it allows for you to set the rules. You have the ability to say, “If Person A dies, this happens” and “If Person B dies, this happens” and finally “If Person A and B dies, this happens.”
It is difficult to think about all of the “what-ifs” that can occur, but that is our job – that is our responsibility. In fact, I catch myself in meetings saying quite frequently, “Now, I have another somewhat off-the-wall question for you … “ Unfortunately, there is a reason behind those off-the-wall questions because the list of “what-ifs” seems to be endless sometimes; fortunately, however, we have the experience to catch them and plan for them. Pairing up with us turns into a team effort as we, of course, need to get your input and your goals, but we also need to mold that input, and those goals into an estate plan that will stand up against life’s inevitable twists and turns.
We would love to have you at our next "Making the Pieces Fit" workshop. You'll learn ALL you need to know about the fundamentals of Estate Planning. Just CLICK HERE and register and we'll save you a seat!
All the best,
Jennifer Rozelle
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