This third article focuses on protecting beneficiaries by keeping in mind the differing needs of the beneficiaries and the need for different planning as a result.
The first article in the series showed how an estate plan prepares one for incapacity during life and not just for the distribution of assets at death. The second article in the series focused on how an estate plan should take into consideration the potential for future Long-Term Care (“LTC”) needs.
Often, when people think of “estate planning” they think it’s only about deciding who gets the assets. However, how they get the assets may be even more important.
The default under state law, in other words the cookie-cutter estate plan you didn’t know you already had, is to give assets outright to the children (and maybe other blood relatives, depending upon the state) upon the death of the surviving spouse. There are many reasons this one-size-fits-all plan isn’t ideal for protecting the beneficiaries in the vast majority of situations. Not only doesn’t it take into consideration that you may want to leave a different share of the assets to different beneficiaries, but it doesn’t consider that different ways of leaving assets may be appropriate for different beneficiaries.
A Look at a Typical Family
Let’s look at the Jones family. Bill and Mary Jones have three grown children, John, Susan, and Bobby. Each of them has different needs and abilities. John is an anesthesiologist. He has problems with substance abuse and has serious asset protection concerns. Susan is responsible and has amassed a great deal of wealth in the stock market. Bobby is a responsible elementary school teacher but is in a problematic marriage.
Bill and Mary love each of their children and they can demonstrate that love by leaving their assets to them (at the death of the surviving spouse) in a manner that is protecting beneficiaries in their different situations. John has asset protection concerns, so an outright distribution of assets would put those assets at risk, a purely discretionary trust with a third-party trustee would be more beneficial to John. Susan doesn’t have creditor risk, but could face a tax problem. Leaving the assets for Susan in a trust that will remain outside of Susan’s own taxable estate would serve her best. She could even serve as trustee and make distributions to herself as needed for her health and support. Bobby has neither creditor risk nor a tax problem. John and Mary can leave his share of the assets in a trust over which Bobby has complete control and from which he can withdraw whenever he wants. By leaving assets to Bobby in this manner, they remain his separate assets and not marital assets.
Bill and Mary love their children and have crafted an estate plan which considers the individual needs of each of them, thus protecting beneficiaries. They are leaving the assets in three very different ways because each child has very different needs.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
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