A few months back, a friend approached me about writing an article describing an estate planning fiasco that his family narrowly avoided.
He felt if others read this recounting, it might help them to avoid making the same mistakes. After hearing my friend’s story, I felt this true-to-life narrative could be an effective way to help readers avoid making similar blunders. Written in the first person, on behalf of my friend and adding enough vagarity to keep the people involved anonymous, here is the account.
In the early 1990s, my mother and father placed their assets into a living trust. Along with establishing the trust, they created a detailed document that listed all of their assets, along with locations and account numbers. It was a fairly traditional trust in that it named the surviving spouse as the sole trustee of the trust and, when both spouses died, the assets were to split equally among the three children.
Shortly thereafter, my father passed away. As a result, my mother became the sole remaining trustee. As the years went by, my two brothers divorced and remarried. One of my new sisters-in-law brought a young child from her previous marriage. This stepchild was never adopted by my brother because the child’s father was alive and would not give his consent for the adoption. Eventually, both of my brothers passed away. In addition, my mother developed dementia. Therefore, she moved closer to me so I could help care for her
Now that I was becoming responsible for my mother’s well-being, I asked for copies of her estate planning documents. Up until then, my mother was independent, and it did not seem appropriate for me to ask her to provide me with details of her trust.
Likewise, she and my father had always been private about their financial affairs. In reviewing her trust, I realized the documents had never been changed to reflect the new marriages of my siblings nor their stepchild who was dearly loved by everyone in the family. Likewise, original documents were nowhere to be found, only copies. In addition, the list of assets and their locations was out of date
I learned too late the estate plan put together by my parents was sorely out of touch with the reality of our current family dynamics.
Given my mother’s dementia, an attorney explained to me that the courts would not allow changes to their trust. When my mother passed away, the portions for my deceased brothers went entirely to their blood line children. The trust did not include any distribution to their wives nor to the stepchild. It was unfortunate that so many loved ones were, in essence, disinherited by an out-of-date estate plan.
In the end, the family was very fortunate in that the heirs were agreeable about things. The size of the estate wasn’t large. I speculate that helped a lot, a whole lot. My sisters-in-law were fine with the assets passing to the children. Likewise, the blood line children of my brothers shared their portion of the estate with their stepsibling. In the end, my encouragement to your readers is three-fold. First, work with an attorney who specializes in estate planning. When only advice is needed, pay the attorney by the hour, and always go in prepared with questions. Second, keep your wills, trusts, and beneficiary designations in your retirement plans and insurance up to date. This is so important when family dynamics change through death, divorce, remarriage, substance abuse or mental health issues.
Finally, do not allow your respect for your parents’ privacy, or even your own desire for privacy, prevent your family from having open and frank dialogue about important financial matters. My family found out too late. Again, the above story was told to me by a friend who wishes to remain anonymous. I hope all the readers of this column found it to be insightful.
This article was written by Ken Levy, a certified financial planner professional and a principal with Levy, Daniel & McGee Wealth Management. Wells Fargo Advisors Financial Network is not a legal or tax advisor. Investment products and services through Wells Fargo Advisors Financial Network, LLC (WFAFN) Member SIPC.