Estate Planning Is A Process

There is no question that it is ideal for every adult to have a will, and to consider signing both financial and health care powers of attorney. These planning tactics ultimately define the concept of “estate planning”. It is very important to thoughtfully complete the process of preparing such documents. 

The Process

• Schedule a routine meeting with your attorney (every 3 to 5 years)

• Update attorney on any changes that happen to take place (divorce, children, new job, death)

• Keep your estate planning files in a safe, yet accessible place

• Keep track of your assets

• Pay attention to new planning opportunities that may arise, new benefits and new laws that pass

• Consult with your attorney if you have any questions or concerns regarding your estate



Example

Here is an example of why you need to update your estate plan. Consider Clarence Smith (not his real name) from Illinois. He is the father of two young children. He and the children’s mother have recently undergone a difficult divorce. He wants to ensure that his sister manages his estate, and acts as trustee for the benefit of his kids. Smith even signed a will, which detailed those changes — thus, naming his sister as personal representative (executor), as trustee for the kids’ benefit, and leaving his entire estate to his children’s’ trusts.

Shortly after the divorce was finalized, Clarence tragically took his own life. His sister initiated a probate proceeding, and his will was admitted to probate. But one of Clarence’s principal assets was his 401(k) plan, set up through his work. What would become of that retirement plan?

Smith’s 401(k) account simply did not name a beneficiary. In that case, would it pass to his estate, and thus to the trust for his children? No, as it turns out.

Like many 401(k) plans, Clarence spelled out what happens when no beneficiary is named. According to the plan’s summary documents, in that case the participant’s spouse would be the beneficiary, and if there was no spouse then the participant’s children would become beneficiaries. Since Clarence’s divorce was final at the time of his death, that made his kids beneficiaries of his retirement plan.

Problem solved. That’s also what Smith’s will specified, right? Well, not quite. Clarence’s will would have left all of his money in that trust, controlled by his sister. If his children are the direct beneficiaries of his retirement plan, then their mother — Smith’s ex-wife — would have priority to manage the funds until the kids reached the age of majority.

Smith’s sister filed a petition with the probate court, asking to be named as the custodian of the retirement accounts for the benefit of the children as specified in the will. The probate court agreed, and ordered the proceeds paid into accounts under his sister’s control. The children’s’ mother objected, and appealed the decision.

The Illinois Court of Appeals disagreed and overruled the probate court’s order. The appellate judges noted that Clarence’s ex-wife, the only parent of the two children, had the clear priority to serve as conservator of their funds, or custodian of any money in a Uniform Transfer to Minors Act (UTMA) account, or in any other capacity.

Furthermore, the proceeds from Clarence’s 401(k) were not within the control of the probate court, said the appellate judges. His will did not control where the proceeds went, since the summary plan documents themselves made clear that they went directly to the beneficiaries. The Court of Appeals directed the probate court to reverse its order and leave Smith’s sister out of the loop with regard to his retirement assets.

Conclusion

This story is illustrative of a problem we see on a routine basis. If a client carefully considers his or her estate planning, and signs documents perfectly calculated to accomplish their goals, the inquiry (and, often, our task) is not completed. Beneficiary designations and titling arrangements can undo the best-laid plans. What’s worse: even if everything gets done, and done right, at the time of our office appointment, changes in documents, life arrangements or circumstances can undo the good work of careful estate planning.

All of that is why we ask a lot of questions about insurance beneficiaries, retirement arrangements, and financial account titling. That is also why we ask clients to come back and visit with us every five years or so — or, as in Clarence’s case, when they get divorced, have children, get married, change employment arrangements or have other major life changes.

Interested In Working Together?

If you need any help regarding your business estate, or other legal matters please reach out to us directly here and schedule a call with one of our paralegals on our scheduling page here.