When people think about “estate planning,” they typically think that this simply entails executing a Last Will and Testament (“Will”) and Advance Directives (e.g., Power of Attorney, Health Care Proxy). However, even “simple” estate planning (in which estate tax planning is a non-issue) involves so much more. It is not sufficient to simply write a will or trust and leave the rest to chance. The following are some examples of the items many people tend to forget or misunderstand in their own estate planning.
People create Wills to establish what happens to their money and assets when they pass away. In these estate planning documents, they can name beneficiaries to inherit money and/or other assets. They can give specific bequests of sums or specific sentimental items. When drafting a Will, it is important to consider alternative beneficiaries in the event of the prior death of a primary beneficiary. If overlooked, a gift to a primary beneficiary who is not able to take possession of the gift may pass as though the individual did not have a will at all. This means that state law, and not the decedent (the person who passed away), will determine who inherits the property, and the property will pass to the legal heirs.
Heirs are the family members who are supposed to inherit by law if no document exists. In the event that a person dies without an estate plan, his or her legal heirs acquire the assets according to state law. Heirs include relatives – such as spouses, children, and parents – and exclude friends and organizations.
Beneficiaries are those named in a Will. While beneficiaries can be the family of the decedent, they do not have to be related to the person who made the Will. Beneficiaries can also be friends, charity organizations, or other entities. They are specifically named in a person’s Will. People can choose their beneficiaries, but not their heirs. With a Will, an individual can disinherit an heir who would have otherwise received a portion of his or her estate under state law. Until an individual’s death, he or she can change the will, adding and removing beneficiaries.
People can make specific bequests to individuals, gifting objects or sums of money. A grandmother might leave her grandchild her jewelry or an individual may leave a pet and a specific amount of money for the pet’s care to an individual. In a Will, you may opt to give beneficiaries the entire residuary estate (assets remaining after specific bequests/amounts are paid to specific people), or a portion of it.
When an estate has sufficient value, the Will must go through “probate,” a process wherein the estate representative (Executor) must prove the validity of the Will to the appropriate Court. Designating specific beneficiaries on an individual’s financial accounts is the simplest way to avoid probate. Assets such as payable on death (POD) accounts, joint accounts or assets held by a Trust do not have to pass through probate. A Will applies to the remaining assets outside of the POD or Trust.
The executor prepares a Notice of Appointment form and sends it to everyone legally “interested” in the estate, including beneficiaries, heirs, and creditors. The form provides the Executor’s name and address as well as the probate court overseeing the matter. During probate, the court validates the Will and approves the Executor named in the Will. The Executor is responsible for distributing the assets to the named beneficiaries.
State laws govern the probate of estates. The length of time it takes to receive the Executor’s notice depends on the state. State laws also require those possessing wills to file them with the court within a set time frame after a person’s death. The time frame for receiving a bequest depends on several factors, which may include the complexity of the estate and the type of inheritance one receives. Resolving the estates of people who left behind significant assets and multiple accounts and investments can take years.
Sometimes, individuals expect a loved one’s Will to name them and are surprised when they receive nothing. An individual may intend to disinherit an heir such as an estranged child. In this case, he/she can avoid any potential confusion by explicitly stating in his/her Will that the heir receives nothing. Perhaps an individual has a large net worth but wishes to effectively disinherit an heir. He or she may opt to leave that individual a smaller portion of the estate than other heirs. This individual might want to include a “no-contest clause” which states that the heir receiving less would lose his or her share entirely if the Will were challenged in court.
In other cases, a Will can appear to disinherit a person even if the testator did not intend to do so. A greedy individual might have unduly influenced the Testator or perhaps the Testator lacked the requisite mental capacity to execute the document. Interested individuals (heirs or other beneficiaries) can raise legal challenges when they suspect a Will is invalid.
Disinherited surviving spouses can also bring legal challenges. When a person disinherits his or her spouse, certain statutes give the spouse the right to recover a portion of the estate.
These are just a few frequently overlooked items in an estate plan. It is advisable to contact an experienced estate planning and elder law attorney to discuss one’s estate plan and ensure that it addresses all of one’s concerns.
Bio- Ronald A. Fatoullah, Esq. is the founder of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Stacey Meshnick, Esq. is a senior staff attorney at the firm who has chaired the firm’s Medicaid department for over 15 years. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Brightside Advisors, a wealth management firm with offices in New York and Los Angeles.
