estate planningtrustswills

The Unintended Beneficiary You Should Guard Against

By August 28, 2013No Comments
Dueling Uncles

Photo: R. Parzychowski, Plock, Poland

Because approximately 70% of Americans die intestate, that is without a will or some form of legal instrument transferring their estate assets, the probate courts are busy, at least in Illinois. Also busy are folks who want a piece of the pie but are not legally entitled to the smallest crumb of crust. Yet, courts are busy because these folks have misrepresented themselves and rightful heirs must prove their relationships. Worse are situations where heirs don’t have the means to claim their inheritances through the court system and, thus, must relinquish assets that might have been helpful to them or their families.

This is the thorny bush that members of blended families and other non-traditional families often experience. So, below are a few primary estate planning documents and ways to prevent assets from falling into the no-good-son-in-law’s or dastardly step-daughter’s hands.

Power of attorney for property

Problem: The designated agent can empty your bank accounts before you die.

Answer: Name an intended beneficiary under your will as agent and provide explicit instructions in the power of attorney narrowing the agent’s authority to access the accounts strictly for your benefit, e.g., pay your bills and daily living expenses. Furthermore, provide that the agent can only deplete all resources if it is absolutely necessary for your health or well-being. Use clear, explicit, unambiguous, plain language. If you must name someone who is not an intended beneficiary under your will or trust, make sure that an intended beneficiary has a copy of the power of attorney and narrow the authority more, providing that the agent cannot withdraw more than a particular percentage unless your health and well-being will be jeopardized and that the withdrawal information is shared with intended beneficiaries of your will. Will this stop someone from taking your account to zero if he or she really wants to? No, but it will give intended beneficiaries evidence for court.

Power of attorney for healthcare

Problem: With the right amount of authority, the designated agent can kill you.

Answer: Enough said.

Will

Problem: The wrong person might inherit your estate.

Answer: Explicitly state  who will inherit what. Having a trust prepared is even better because then you don’t have to state your intentions explicitly in your will. However, make sure that powers of appointment, i.e., the authority to bequest your gifts to others, are limited in the manner you intend your gifts to be distributed.

For example, if you die, leaving a great deal of wealth to your loving step-daughter whose husband is a sloth unworthy of an earwig’s toenail, you probably want language in your will or trust to prevent the sloth from inheriting your assets through your step-daughter in case she dies before they divorce.

Revocable Living Trust

Problem: The wrong person might inherit your estate and cause probate anyway.

Answer: The primary reason for preparing a trust is to prevent your heirs from having to probate your estate. However, if you don’t want to cause your intended beneficiaries to lose some or all of their inheritance in litigation proving their relationship and proving the disinherited was, in fact, soundly and legally disinherited, see the above, “Will,” have an in terrorem provision, and, while you’re lucid, write a letter to the disinherited spendthrift stating your reasons for disinheriting him or her. Upon your death, leave instructions for the trustee to deliver the letter with a copy of the in terrorem provision. You might want to have co-trustees in this case: one who’s a family member and one who is a disinterested party.

Probate courts and lawyers are often unintended third party beneficiaries to wills or trusts, but they don’t have to be if estate planning documents are prepared with cautious forethought and care.

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