Common Estate Plan Problems

Problems with Joint Tenancy

There is a loss of full control of the asset during your lifetime because the other joint tenant must consent to and join in any sale. (This applies to a second marriage or a child on the title with a parent.)

The last joint tenant to die owns and controls the asset.

Joint Tenancy (JT) avoids probate on the death of the first joint tenant, but, with one exception, it guarantees probate on the death of the last joint tenant who owns the property, which can cost significant legal fees and expenses.

JT can lead to the wrong persons receiving the asset, such as children of a first marriage being totally disinherited for the value of the asset, or one child receiving the asset to the exclusion of other children. Part of jointly owned assets may be lost if there is a divorce.

JT with a second spouse should be avoided because it creates a presumption the asset is now “marital property” for purposes of divorce.

A will or revocable living trust does not control or involve assets titled in joint tenancy, and beneficiary designations control over a will or a trust (unless the property is titled in the trust).

Assets in JT are not available to fund a tax-saving trust, if needed, which could lead to possible or higher federal estate taxes.

Gift tax issues may arise if joint tenancies are created for anyone other than a spouse, such as adding one or more children to the title. In addition, such a transfer can’t avoid capital gains taxes like a trust can.

Problems with General Power of Attorney

What Is It? Lawyers will prepare a “durable general power of attorney” for you to sign so that you will have named someone to manage your money if you become disabled.

Purposes: It may help preserve your privacy and avoid the expenses and delays that would happen in a conservatorship court proceeding if you became mentally incapacitated by stroke, car accident, fall, or dementia.

Problems with a Power of Attorney

1.)   Misuse: It appoints another person to handle all of your assets and property, without limitation, so it can easily be abused. It’s like a blank check so you really have to trust the person you name as agent or successor agent. Your agent is not limited to the funds in your bank account

2.)   Nobody Has to Accept It: Nobody has to accept a POA for property and financial assets. It can be refused for any reason or for no reason with impunity. Therefore, it can be the weakest of documents. Now that many banks are typically part of a large national holding company, the general form of POA for property doesn’t have to be accepted. Many banks will not accept a POA which was given to a spouse more than one year ago, and many national financial brokers will accept no POA for property that is not on their own current form, which may be changed at any time without notice. Title Insurance Companies also may not accept a POA that is over one year old and that doesn’t describe the real property by Lot and Block.

3.)   No Instructions: It contains no instructions about how to manage your assets and what to do with them.

4.)   May Not Avoid Guardianship: If it is not accepted, the need for a conservatorship and/or guardianship proceeding arises. Neither you nor your family wants this to happen.

5.)   Does Not Work After Death: It doesn’t work after your death so it doesn’t avoid the court proceedings on your death called “probate.”

Problems with Wills

Wills take effect only on your death.

Wills don’t apply to a lifetime mental disability. Wills can create the necessity for “lifetime probate” (conservatorship and guardianship).

Wills only apply to assets owned by you alone that don’t pass by “operation of law,” such as joint tenancy assets, life insurance, and beneficiary-designated assets. Upon the death of the second spouse real estate and other assets owned by the spouse must be probated. If real estate is owned in more than one state, more than one probate will occur. This event is both a huge hassle for the family and involves significant and needless expense. Wills generally assure probate for some assets and can help create expenses, legal fees, and time delays.

Wills are public with a lack of privacy.

Wills don’t necessarily fit all the different estate planning situations and goals. They often are not customized to your overall estate planning needs.

All wills are not created equal. There is a difference in quality.

Wills don’t provide estate preservation from creditors and predators of your adult or minor children and grandchildren.

Wills don’t make it as easy as trusts to do overall planning: death tax planning, business planning, income tax planning, and “generation-skipping” planning.

Will planning doesn’t always include a review of assets and how they are titled. In other words, the entire plan is not coordinated.

Changes of wills must be signed with the formalities required by law.


Two BIG Problems with Pay on Death or Transfer on Death Beneficiaries

It is so easy to name pay on death beneficiaries on your checking and savings accounts! Beware of estate planning techniques that are easy for you to set up. Estate planning techniques that are easy for you to set up are probably not going to accomplish very much. Texas and New Mexico laws allow you to name someone to receive the cash from your checking and savings account upon your death. NM 45-6-223 (1992). Tex. Estates Section 113.004 (2015). These are called pay on death beneficiaries. You probably don’t think of naming a beneficiary on your account as “estate planning.” Anytime you you make a decision to leave what you have to whom you want upon your death, you are planning your estate. Estate planning attorneys have had at least seven years of education before advising you of the strategies and consequences of estate planning. The individual helping you to set up your checking and savings account is probably not an estate planning attorney. This blog focuses on two big problems with pay on death beneficiaries.

1.)   Who is the contingency beneficiary if your pay on death or transfer on death beneficiary dies before you? Some pay on death accounts don’t have a provision on the account form for a contingent beneficiary.
The signature card that includes ownership details of your checking and savings account isn’t really a card; it is the account contract. This is where the pay on death beneficiary is listed in addition to the name of the person who owns the account. I have seen many of these that are only one page. There isn’t much room for naming contingency beneficiaries. Last will and testaments and trusts, however, are usually more than one page. Often, these legal documents drawn up by an attorney are ten or twenty pages. Naturally, there are many more opportunities to include contingency provisions.

2.)   If your pay on death or transfer on death beneficiary dies when you are incapacitated, how will you change your beneficiary designations? If you become substantially unable to make legal and financial decisions because of a heart attack, stroke, or dementia, you won’t be able to make changes to your beneficiaries. 
While you are alive and healthy, you retain the right to make beneficiary changes to your checking and savings account. You lose the right to make changes if you become substantially unable to make your own decisions because of accident or illness. Using a last will or trust with contingent beneficiary provisions allows you to have peace of mind because you know that if you lose the ability to make changes and the beneficiary of your account dies unexpectedly, the contingent beneficiary will already be in place.

These are the two BIG problems with pay on death beneficiaries. As a bonus for checking out our website, consider the following additional reasons for visiting your favorite estate planning or elder law attorney in Georgetown, Texas; San Antonio, Texas; or anywhere in New Mexico.

Your situation is probably more complicated if you answer “yes” to any of the following questions: 

1.)   Do you want your estate planning to be simple for your beneficiaries to carry out?

2.)   Do you want to keep the property in the family?

3.)   Do you have children from a prior relationship?

4.)   Does your spouse have children from a prior relationship?

5.)   Are you worried that the assets you have accumulated might be used to enrich a replacement spouse?

6.)   Would the beneficiaries of your property be good business partners?

7.)   Are you planning for government benefits to pay for your long term assisted or nursing home care?

8.)   Are any of your beneficiaries disabled, incapacitated, or receiving any means tested government benefit?

9.)   Would your beneficiaries use your financial legacy for positive purposes or negative purposes (unhealthy addictions to alcohol, drugs, gambling, or pornography)?

10.)   Does the value of your family business, retirement fund, savings, and real estate equal or exceed $5.5 million? 

***NOTHING IN THIS ARTICLE IS TO BE CONSIDERED AS THE RENDERING OF LEGAL ADVICE FOR SPECIFIC CASES, OR CREATING AN ATTORNEY-CLIENT RELATIONSHIP, AND READERS ARE RESPONSIBLE FOR OBTAINING SUCH ADVICE FROM THEIR OWN LEGAL COUNSEL. THIS ARTICLE IS INTENDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY, AND NO WARRANTY OR REPRESENTATION IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.***