How Your Family Can Inadvertently be a Threat to Your Estate Part 1

Previously, we made the statement that your family can be one of the biggest threats to your estate. The reality is, even if they do not intend to be, the actions and the decisions of your spouse or children can dramatically impact whether your estate is passed on the way you desire.

Your family, just like all families, must deal with the complications of life. These are the challenges that come, usually unexpectedly, that seem to throw a wrench in the plans we have for ourselves and our loved ones. Of course, our own complications of life will be unique, at least to some degree. But for estate planning purposes, we will focus on three categories: Blended families, flawed choices, and bad fortune.

Before we discuss these categories specifically, we will give an example of how a trust can help protect against the complications of life.

A widowed client had questions regarding her estate plan. She loved her two children equally and wanted her estate to be split between them.

However, her son struggled with a serious addiction to drugs. It was apparent that if she used a Will to distribute her estate to her children, her son would likely soon be dead. A Will would be effective to get him the money, but it would have no ability to control what he did with the money once he received it. It was highly likely he would use the money to purchase drugs.

So instead of using a Will, we created a trust. The trust provided that, on her death, her son’s half of the estate was not to be given to him. Instead, that money remained in his mother’s trust, and provided for someone she trusted to act as the new trustee. This new trustee was instructed to pay the son’s (appropriate) expenses directly. The money did not go directly to him. For example, rent was paid directly to the landlord. Even though the money was to be used for the benefit of the son, the trust allowed my client to maintain control over how the money was used, even after her passing. This is something a Will could not do.

We explained how a son’s drug addiction was a serious threat to his mother’s estate plan. Even though he had no desire or intention to interfere with his mother’s wishes, his choices required that she take extra precautions to ensure any inheritance helped-rather than harmed-her son. A trust allowed her to accomplish this even after she passed away.

Even though this son’s flawed choices created the hurdle his mother had to overcome, there are other complications of life in which no one is at fault. These circumstances should also be addressed. Perhaps the most common example is the blended family.

How can a blended family be a risk to your estate? Consider the following example. You pass away before spouse and children. Like most people, you want what you left behind to be available for your spouse and then ultimately for your children.

But what happens if your spouse remarries? Will your estate be used for your spouse’s benefit or for the benefit of the new spouse? If your spouse and his or her new partner start spending “generously,” whose money are they using? For recently widowed seniors, might this new spouse even be a predator willing to marry to be taken care of and have access to the (even relatively small) estate you left behind?

Even if this is not a concern, what happens to your money if your spouse passes away before his or her new spouse? Does your money go to your children, or does it go to the new spouse or his/her children?

That could never happen to your spouse, mother or father you say? You may be right. But what if that loved one begins to experience some of the frailties of age? Could he or she be susceptible to clouded judgment from loneliness, a decline in health and/or potential pressure from a suitor whose motives may not be entirely sincere? Proper planning can help you or your family be prepared.