Sunday, April 15, 2007

Joint Ownership Bypasses Estate Plan

If you have assets that you own jointly, whether it is with a spouse, a child, grandchild or someone else, that asset will typically pass automatically to the surviving joint owner. It doesn't matter if you have a super-duper-deluxe will/trust, the joint ownership designation bypasses your estate plan and potentially short circuits any plan you may have.

For some situations, holding assets jointly might be sufficient for transferring your assets upon your death. For example, a husband and wife with no kids from a prior relationship and with modest assets. However, consider the following scenarios and the unexpected result:

Scenario 1 - John Washington has two kids. He loves them both and wants to make sure they are treated equally with their inheritance. One of his kids, Chris, lives nearby and helps John out with payment of his bills and expenses. To give Chris some flexibility, John adds Chris as a joint owner on his bank accounts so that Chris can help out without John's signature. When John passes away, those bank accounts will go automatically to Chris and his sibling will be cut out. While Chris may choose to share the joint accounts with his sibling, there is no guarantee that he will share and it may end up that Chris receives more than his "fair share". Or, what if Chris has a judgment or tax lien against him? Chris' judgment creditor could garnish the bank accounts and take John's money away for payment on Chris' debt.

Scenario 2 - Wife and Husband are both in a second marriage with kids from a prior marriage. H and W both want to preserve some assets for the children of their first marriage. But if H and W maintain joint bank accounts, those assets will pass to the survivor, and then the survivor will be able to select who ultimately receives those assets, which may be their own kids to the exclusion of their deceased spouse's kids.

Reviewing ownership information is one of the key components to your estate plan. Be sure your estate planner has all the information on how your assets are owned.

Monday, April 09, 2007

The Wonderful World of Trusts - Pt. 1

Trusts can be an important part of your estate plan. A trust is not just for the "uber-rich", but rather it is a basic procedure to control who, how and when your beneficiaries inherit your assets. For example, if you have young kids that would inherit your estate upon you and your spouse's passing, you can delay their receipt of those funds until a later point in time when they are hopefully more mature. Otherwise, without a trust, they could get a large lump sum at the ripe old age of 18 in Iowa. While it may seem hard to believe, 18 year olds are not known for being particularly frugal with their funds; whether it is $10.00 or $100,000. With a properly structured trust, you could delay receipt of those funds until later in their life, or upon achieving a milestone or some other identifable point in their life that you choose. Plus you can control how much they have access to of the trust funds until that point.

If you have young children or young grandchildren, trusts are an important-and critical-tool to act in their best interest and for their own protection. While you may not be able to be there to provide financial direction and guidance, a trust will enable them to hopefully make the right decisions at appropriate times.

Tuesday, April 03, 2007

Best Not to Wait Until its Too Late

I was recently reminded by a client's situation of a good reason to not delay your plans concerning your wealth transfer. After putting together a detailed outline of changes and ideas concerning his estate plan on his computer, he failed to contact me to implement his ideas with the necessary legal formalities, believing that he was in good health and had plenty of time to get to these changes taken care of formally.

Oops. Unfortunately, he experienced some health complications and passed away without having had made those changes. Now I am left with the unenviable task of attempting to explain to a widow why we won't be able to implement his intended changes with his estate plan despite his "informal" planning.

If you have changes to your planning, don't delay. Contact your advisor to avoid this same mistake.