Parents Just Don't Understand

One of the issues that often arises in probate and trust administration is that the parents frequently underestimate the ability of their children to fight like it's a holy war. They also do not effectively understand the nature of their assets or what the implications of some of their decisions during life are. For example, I once administered an estate where the single mother died in a car accident at the age of twenty-six. She had made a beneficiary designation during her life with respect to some life insurance she had through her job. In her infinite wisdom, she had designated her co-worker - not her six year old daughter or her sister or father, the people that were going to end up stepping in and actually raising the daughter but a female co-worker. This wouldn't have been such an issue but the co-worker was not the brightest bulb and when the insurance company refused to pay, she lacked the requisite resources and capacity to pursue them and try and collect. The decedent had not understood the implications of making this designation. She had expected that the co-worker would use this money for her daughter's benefit and the co-worker seemed to understand this, as well. However, it did not work out that way, and even if the insurance company had paid, there would have been nothing to force the co-worker to do so.

An estate that I am currently administering is equally interesting. The mother believed that she had almost half of a million dollars that she could dispose of under her Will. Post-death, we learned that actually, her four hundred thousand dollar account was a payable on death account, to her three children. Suddenly, we had an insolvent estate, with not enough money to go around for all the creditors that she had, and we could no longer satisfy the specific bequest she had left for her old and now blind mother. We had an additional problem, the person she wanted to be her personal representative, her son, who had been handing all her financial affairs for her prior to her death, couldn't serve as personal representative, as he was once convicted of a felony. (For those of you playing at home, a DUI or DWI is often a felony.) One more problem for the trifecta, the three children do not communicate in any sort of way that one might characterize as healthy.

Part of the problem when you are drafting an estate plan for someone is you are limited in your knowledge. You often do not know all of the details about the client's children. If you are made aware of the potential relational issues that are sure to arise, it can still be a nightmare to plan around them, however, at least you can plan for them. You also do not know what the person did outside your office that may affect the ultimate disposition of their assets. For example, you do not know if the client has made an account payable on death to someone, like a former spouse. Oftentimes, the client is not even aware of the implications of this, or the fact that these types of designations for insurance policies, retirement accounts, and other various accounts, control.

It gets even better when the daughter, acting as personal representative, decides she needs to hold everything up because she thinks her brother absconded with over eighty thousand dollars of mom's money and you are stuck spending weeks on the phone with the bank, trying to get them to rush statements to you because she does not want the account closed until she has looked. However, you are not allowed to tell any of the other beneficiaries (who are waiting for their money) this information, as it's attorney-client privilege, and you technically represent the daughter. What the daughter fails to realize is that you still have to disclose some financial information to the other beneficiaries when they ask you, and that if you do not, they will end up getting their own attorneys and commence litigation and watch that four hundred thousand dollars evaporate in a matter of months.

It would be more funny if these types of things were not common occurrences. It is almost an estate planner's standard day to encounter heirs that just do not get along. For while the picture perfect families seem to exist on television. They do not appear to exist in our offices, and people need to plan with this in mind.

Are You My Plan Administrator?

In an effort to entertain and educate, I thought I would begin sharing some of my legal war stories* as they happen. This way you can learn from other folks' mistakes and maybe end up better off, in the end.

Most recently, I have been handling the probating of two estates. That statement is slightly inaccurate, however. For one estate (the wife's), I have only begun the process to determine whether probate will even be necessary. Despite what you may have heard, not all assets in an estate are subject to probate. However, it can often be difficult to figure which assets are and which are not. For example, the wife had an IRA and a 401(k), among her other assets. The IRA is not subject to probate, as she named her husband as a beneficiary. However, the 401(k) might be.

The 401(k) was administered by her employer. The company she worked for recently went out of business, and so I can no longer locate the plan administrator or any beneficiary designation forms. As such, I was forced to contact the U.S. Department of Labor and report the case. The agency will attempt to investigate and find my plan administrator, but they warn that it could take several months to do so, if they are able to find him at all. I also had to write a letter to the company managing the money and ask them what would be needed in the event we cannot find the beneficiary designation form. Hopefully, they will actually get back to me. The likelihood is that if a beneficiary designation form cannot be located, the proceeds from the 401(k) will be payable to the decedent's estate, and I will have to begin probate proceedings for her estate, at that point. Unfortunately, there is no way of knowing, and it is going to have the effect of delaying the full administration of both estates for several months.

This all could have been avoided if these people had kept all of their important documents together. Instead, they seemed to keep quite a bit of everything. The heirs are having trouble digging through the mounds of extraneous documents in the home and it is nearly impossible for them to discern what is important and what is just something that should have been thrown away years ago. As it is, the heirs barely found the Wills at all. If, however, these two had kept all their important documents together in one safe place, this could have all been averted. Important documents include: Wills, Trusts, Durable Powers of Attorney, Living Wills, Health-Care Surrogate Designations, insurance documents, beneficiary designation forms, current addresses and phone numbers for all of your beneficiaries. If you thought enough of them to put them in your Will, maybe you should also keep a phone number for them in a conspicuous place. Bank account information, and anything else you think would help someone reconstruct your asset and creditor picture are ideal things to put with these other documents, as well.

*Note that this will now be a category.