When someone takes the time to create a Will or Trust that sets out their wishes for the distribution of their estate at death, they often experience a feeling of relief knowing that their assets will be distributed in accordance with their wishes. However, if the estate plan is not carefully crafted and then reviewed and adjusted from time to time, the intended results may not be achieved. 

Read on for 5 ways in which the best laid estate plans can be derailed. 

1. Assets are distributed other than by way of the Will or Trust.  In some ways a Will is the “distributor of last resort.”  For example, if you own assets jointly with another person, or if you designate a beneficiary to receive an account (‘pay-on-death’ or ‘transfer-on-death’), then those assets are not going to pass under your Will or Trust.  If someone provides for specific bequests in her Will, such as $5,000 to my sister Jane or $1,000 to the Animal Rescue League, but has her children as joint owners or pay-on-death beneficiaries on all of her accounts, then those specific bequests will not be paid.  Make sure you understand how your assets will be distributed and that you own your assets in a way that will achieve your distribution goals. 
2. Taxes are not factored in – part 1. There are two types of taxes to be concerned about when planning your estate:  income tax and estate tax.  For the most part, inherited assets are not income taxable to the recipient.  For example, if my aunty leaves me $50,000 in her Will, that is not taxable income to me.  However, qualified retirement accounts such as IRAs and 401ks are an exception to this rule.  If my aunty names me as the beneficiary of her $50,000 IRA, that will be taxable income to me.  Consequently, I will not actually receive a $50,000 bequest; it will be diminished by the state and federal income taxes I must pay. 
3. Taxes are not factored in – part 2.  Estate taxes are imposed on the value of the assets that a person owns at death and that are distributed to someone other than a spouse or charity.  Currently, the federal law provides for a very large exemption from estate tax of almost $11.6 million per person.  That means that if the value of a person’s estate is less than $11.6 million, there is no estate tax payable to the IRS.  Massachusetts has its own estate tax system which allows for an exemption of $1 million dollars.  If your estate is more than $1 million, be aware that the amount you will be passing on to your beneficiaries will be less than the full value of your estate. In addition to being aware of the tax liability, it is also important to specify in your estate plan who is going to bear the burden of the tax.  For example, say you have a family business worth $2 million and other assets (home, investments, retirement accounts) totaling $2 million.  Your daughter works in the business so in your Will you leave the business to her.  Your Will then leaves the rest of your estate (the residue) to your son.  There will be $280,000 of estate tax payable to Massachusetts.  Who will pay that tax?  Should it be borne equally by your children.  If so, does the business have the liquidity to pay its share?  Should the tax be paid entirely from the residue of your estate (the share going to your son)? What’s ‘fair’?  Your estate plan should state your intentions. 
4. Estate assets change over time and the estate plan is not updated.  It is very important to review and update your estate plan from time to time because things change.  This happens often with distributions of tangible personal property such as jewelry and collectibles.  I have seen a number of situations where the Will or accompanying memorandum leaves a particular piece of jewelry to a someone but that item has been sold or cannot be found when the testator dies.  It is particularly troublesome when the item cannot be located and no one has any information about whether it was sold or intentionally given away during the deceased’s lifetime – it’s in those situations that the finger-pointing begins… 
5. The possibility that a beneficiary will predecease the testator is not factored into the planning.  Your Will or Trust should include provisions stating what will happen in the event one or more of your beneficiaries predeceases you.  For example, if you leave $10,000 to your grandchildren Gary and Caroline in your Will, what should happen to that bequest if Gary predeceases you? Should Gary’s share be distributed to Gary’s children? Should it be distributed entirely to Caroline? Should it lapse?  

These are just a few of the pitfalls that can derail your intentions for the distribution of your assets after your death. When you take the time to consider and decide how your estate should be distributed among the people you care about, make sure that your wishes are actually carried out at your death by working with an experienced estate planning attorney  to create your Will or Trust, and then reviewing your estate plan with your attorney every few years.  Happy planning! 

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit our website at www.ssbllc.com or call 781/461-1020.

August, 2020

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