Estate planning is more than just a legal formality – it’s a safeguard for your family, your assets, and your legacy. For high-net worth individuals, it’s essential to have a comprehensive and updated estate plan. Without one, your estate might end up in the hands of the state or be divided in ways you never intended. Worse yet, failing to plan can leave your loved ones with unintended burdens.
Let’s explore how not having an estate plan – or not having a current estate plan can have significant financial (and emotional) consequences for your family.
Case Study #1: The Family with Frozen Funds
A husband passes away without a Will, leaving behind the spouse and four minor children. The husband had approximately $800,000 in assets in his name alone, while the spouse had very little in her name. Since there was no Will, the state’s laws regarding intestacy will be applied. Under these laws, the surviving spouse receives $100,000 plus half of the remaining estate, $350,000 in this case. The children receive the remaining one-half of the estate. However, since they are minors, a Guardian Ad Litem* is appointed to oversee the children’s funds, which are locked until they turn 18.
Intestate
If a person dies without a Will, they are said to have died intestate. Dying “in intestacy” means that a state probate court will have to determine how their assets are to be distributed. – source: Investopedia
Each state has its own rules as to how assets will be distributed in the case that the decedent does not have a valid Will.
The consequences of not having an estate plan
Without an estate plan, funds that could have supported the spouse and children are locked, and large sums may be distributed without restriction to the children at a young age.
Bryan Keilty of Drew Law P.C. explains, “At a minimum, a Will leaving all the assets to the surviving spouse would have avoided this, but because minor children were involved, a revocable Trust to hold assets for the children’s benefit instead of distributing directly would also be the preferred course.”
*The definition, responsibilities, and costs associated with a Guardian Ad Litem vary and are determined by state law and the specific scenario.
Case Study #2: The Outdated Beneficiary Designation
Life changes. Not just in your own life but in the lives of those around you. Scenarios that made sense when establishing your estate plan can change drastically over time. Neglecting to review and evaluate the appropriateness of your chosen beneficiaries can result in unintended consequences. Consider a single mother who passes away, leaving behind two children in college. Her $200,000 life insurance policy was taken out before her children were born and still lists her mother, now on Medicaid and in a nursing home, as the beneficiary.
The consequences of not having an updated estate plan
In this case, the death benefit from the insurance policy is used to repay Medicaid for nursing home care, leaving the children without financial support or the ability to pay for college.
Keilty says, “This could have been avoided by establishing a revocable Trust as the beneficiary of the life insurance policy, which could have paid for college and the children’s other needs.”
Key Takeaway
Something is almost always better than nothing. However, intentional planning, which is reviewed and updated regularly with a knowledgeable estate attorney, is the preferred path. Don’t forget to review the essential documents that create the foundation of your estate plan.
This article is intended to be educational and thought-provoking rather than financial advice. When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals. During our financial planning process, we examine these factors and many others to determine appropriate financial strategies for YOU.