The Leaky Will

As a young family, planning for your future and your children’s future is essential. One crucial aspect of this process is creating a will and testamentary plan to ensure that your assets are distributed according to your wishes upon your passing. However, there is a common mistake many people make, which I call “The Leaky Will.” This blog post will discuss the implications of naming beneficiaries on your employee benefits and other accounts, which may seem like a simple and effective solution, but often creates unintended consequences that could undermine your estate planning efforts.

The Allure of Bypassing Probate

At first glance, it may seem like a good idea to name beneficiaries on your employee benefits and other accounts, such as life insurance policies, retirement accounts, and investment portfolios. By doing this, these assets will bypass probate – the legal process through which a deceased person’s assets are distributed. Probate can be time-consuming, expensive, and public, so avoiding it may seem like an attractive option.

However, while bypassing probate might appear advantageous, it also means that these assets will circumvent the administrative provisions in your will and any testamentary planning for tax planning at the death of the spouse or trust provisions for the children. In other words, your well-intended estate planning efforts might not have the desired outcomes, leaving your family with potential legal and financial issues.

The Risks of Naming Underage Beneficiaries

Naming underage children as beneficiaries on your accounts is another common mistake that can lead to unintended consequences. If your children are named as beneficiaries and are still minors when you pass away, a conservatorship may be required. A conservatorship is a court-appointed individual or entity that will manage the minor’s financial affairs until they reach the age of majority. This process can be costly, time-consuming, and may not align with your wishes for how your assets should be managed.

The Forms Mislead Us

The reason many people fall into the trap of creating a “Leaky Will” is the forms provided by financial institutions and employers. These forms often have designated spaces to list beneficiaries, encouraging you to name your spouse and children. While this may seem like a straightforward solution, it can lead to the complications discussed earlier.

A Better Approach to Estate Planning: The Joint Revocable Living Trust

To avoid creating a “Leaky Will,” it’s essential to work with an experienced attorney who can help you navigate the complexities of estate planning. One powerful tool that you might consider is establishing a joint revocable living trust. This approach can offer several benefits, including the ability to avoid probate, consolidate the administration of assets, and provide a clear plan for your family’s future.

A joint revocable living trust is a legal entity created by you and your spouse that holds your assets during your lifetimes. You maintain control over the assets in the trust and can make changes to the trust as needed. Upon the death of one spouse, the trust provisions dictate how assets are distributed or managed, ensuring that your wishes are carried out.

Avoiding Probate and Simplifying Administration

By placing your assets in a joint revocable living trust and naming the trust as the beneficiary of your accounts, you can effectively avoid the probate process. This means that your assets can be distributed more quickly and privately, without the need for court intervention. Furthermore, since the trust consolidates the administration of all your assets, it simplifies the process for your surviving spouse and other family members.

Ease of Naming Beneficiaries

A significant advantage of using a joint revocable living trust is that you can name the trust as the beneficiary on your employee benefits and other accounts, instead of listing individual beneficiaries. Your attorney can guide you through this process, ensuring that your accounts are aligned with your trust and overall estate plan.

Cost and Complexity: A Matter of Perspective

When considering the costs and complexity of a joint revocable living trust compared to a traditional will-based plan, it’s essential to recognize that this is not an “apple to apple comparison.” Although the initial cost of setting up a trust may be higher, it’s important to remember that the trust is doing more to protect your family’s future and manage your assets.

In a trust-based plan, both clients and attorneys typically spend more time and effort discussing and considering additional options that are often overlooked in will-based planning. These options can provide added flexibility, control, and protection for your loved ones, making the investment worthwhile.

Furthermore, a significant advantage of a joint revocable living trust is its ease of amendment as time goes by. Life is full of changes, and your estate plan should be able to adapt to new circumstances, such as the birth of additional children, changes in your financial situation, or updates to tax laws. Trusts can be easily amended to accommodate these changes, whereas wills are often discarded and replaced, requiring you to start the planning process from scratch. This flexibility can save you time and money in the long run.

In Conclusion

The joint revocable living trust is an effective solution for young families looking to avoid the pitfalls of a “Leaky Will.” While the initial costs may be higher than a traditional will-based plan, the long-term benefits, flexibility, and comprehensive nature of trust-based planning make it a wise investment in your family’s future. By working with an experienced attorney to establish a trust and align your accounts, you can protect your family’s future and ensure that your assets are managed and distributed according to your wishes. Embracing this proactive approach to estate planning can provide peace of mind and financial security for your loved ones, allowing you to focus on what matters most: enjoying your time together as a family.