Top 3 Things That Overcomplicate an Estate

Far too often, the general public has ideas about estate planning they get from popular television shows, to the point they believe that it is mandatory to have a lawyer read the will to a well-dressed family in front of a roaring fireplace with everyone sipping brandy from large sifter glasses. As entertaining and dramatic as those scenes are, that’s not what actually happens, and it is extremely inefficient to pay an attorney by the hour to run through that exercise. But that one television show notion is not really the most overcomplicating thing. There are many other notions that become a big part of the actual estate planning world, and it’s surprising that more estate planners just go along with those notions and not explain how they can make things more complicated than they need to be. Here are the top three:

 Co-“Anything” Agents: Some of the more dramatic plot devices in “estate television” involve two brothers being co-executors and one of them being killed off. Unfortunately, many people believe that having co-executors (or co-powers of attorney or co-trustees) will help spread the workload and provide some kind of “check and balance” so one person isn’t running roughshod over the other beneficiaries. Unfortunately, in today’s financial world it doesn’t matter how specific the document is in letting one co-trustee (or co-executor or co-power of attorney) handle things independently, the institutions will insist on all of the co-agents to sign off on an action. This means that if you have three co-agents, the amount of paperwork has basically tripled. That’s not what most people intend, but that is the growing reality for financial institutions. And before you get upset at the financial institutions, they have a very good reason for this policy; if co-agents are allowed to act independently, one agent issues orders, and then the other agent tries to order them to do something different, then they could end up dragged into a lawsuit.

As a planning matter, co-agents that are in place to “provide a check and balance” against each other is more of an indication that they probably shouldn’t be agents in the first place. However, most people believe that they have to name their adult children as trustees, executors, and power of attorney agents, but they don’t. When I explain this to my clients, they often will go to their own siblings, cousins, or friends. At least until they see some more growth and maturity in their children down the road, and then they may update their choices and documents.

Thinking in Terms of Things Rather Than Percentages: Another overcomplicating estate decision is giving away things to beneficiaries instead of percentages. Again, this comes from television when the lawyer reads off the Will of an extremely wealthy person who leaves the Malibu mansion and Ferrari to one child, the stock portfolio with XYZ Investors, Inc. and two Landrovers to the other child, and then… dramatic pause… they leave everything else to the mistress instead of the wife. Gasp! And then the mistress ends up dead, and the murder mystery plot advances.

Yes, it makes for good drama, but unless you are actually updating your documents every year, the chances that your “stuff” changes are very high. What happens if the mansion in Malibu is sold? Child one may be out of luck. What if the deceased person also moved their account with XYZ Investors, Inc. to ABC Brokers, LLC? Sounds like the kids might be completely out of luck and the mistress gets almost everything. The far better planning technique would have been to divide things according to percentages, so maybe the mistress got 40% and each child received 30%, and then leave the actual asset appropriation to the trustee. This way you don’t have to make an update each time you sell some property or change financial advisors since the plan calls for percentages. (However, if you plan on disinheriting your spouse, you should probably seek more advanced legal advice. And not just about estate planning.)

“If/then” Bequests: These were largely in law school cases studied, but they do pop up in television every now and the, and the courts have often struck down some of these as against public policy and therefore are void. I remember seeing some show or movie, this time more of a romantic comedy, where the deceased grandfather left a sizeable estate to a grandchild… but only if they were married by a certain age. “As John Doe frantically seeks a bride to get his grandfather’s estate, hilarity ensues and he finds the true meaning of love” or something like that. When my clients approach these situations, though, they are less likely to provide conditions that a beneficiary be married to get an inheritance, but may want to make sure 1) they are not married to a particular person, 2) they are allowed to spend money on certain things but not others, or 3) they reach certain educational goals by a certain age to get the money early.

With all of these contingencies, it’s “controlling the inheritance from beyond the grave,” which is fine, but it’s doing it in such a way that it overcomplicates things, makes it harder for your trustee to administer things fairly, and opens up the terms to potential lawsuits. The far easier method is to set up the estate in such a way that your trustee can use their judgment to take care of the beneficiary with as much discretion as possible. If there are issues with the person a beneficiary is married to, then using a set up for “in-law planning” using an Asset Management Trust and an IRA Trust might be ideal so the trustee can determine what to pay for or not as well as “buy major assets” such as a house in the name of the trust, which then must go to the beneficiary’s descendants rather than their spouse. (Check out the full, free webinar at www.inlawplanningwebinar.com. If the issue is irresponsible spending, then the same type of setup can be used to give the trustee full discretion for life. If the issue is encouraging education, then using the typical age of inheritance of 40 but allowing the trustee to give some or all of the inheritance early and then separately discussing educational goals and giving the money early with the trustee. This gives the trustee final say and avoids potential conflicts around whether a four-year degree from Duke University is the same as a four-year online degree from Joe’s College of Basketweaving and Beanie Baby Repair.

Estate planning can be complicated enough, but keeping certain planning decisions simple and flexible can make things much easier for your heirs and the people managing your affairs after you are gone.