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In 2008 Congress proclaimed the third week of October as Estate Planning Week which makes it Estate Planning Month. HMMM….. I wonder how much that has to do with Tennessee vs Alabama? Anyway as with any successful financial strategy Estate Planning is critical to give loved ones a peace of mind. It should be done as a team: the owners of the asset, the financial advisor, trustee, accountant and attorney. This helps ensure that your wishes are carried out like a well-executed play and that all your documents and investments match your wishes and protect your loved ones from losing money to taxes and others.
I asked Rebecca Abbott, an Estate Planning Attorney here in Knoxville to explain the importance of an estate plan.
I’ve been an estate planning lawyer for 29 years now, and from my experience, most of my Tennessee clients need three basic estate planning documents: (1) a Last Will and Testament, (2) a Durable General Power of Attorney, and (3) an Advance Directive for Healthcare. Many people understand this, but what they don’t realize is the other important element to estate planning: their non-probate assets. Non-probate assets are those not controlled by your Will, like your life insurance policy payable to an individual, your IRA, or your bank account that names a pay-on-death beneficiary.
A few years ago, I prepared a Will for my client Jeff (not his real name) who had four children. Jeff named all four children as equal beneficiaries in his Will. Without me knowing, Jeff later went to his bank and added his daughter Betsy (not her real name) who lives in town as a co-signer on his checking account and CD’s. Therefore, when Jeff died a year later, Betsy, as the joint tenant with right of survivorship, became the legal owner of Jeff’s checking account and CD’s . Did Jeff really want Betsy to have all of those accounts at his death when his Will stated otherwise? Betsy argued yes, because she helped care for Jeff, drove him places, helped with errands, etc. Betsy’s three brothers argued no, and that Jeff had put Betsy’s name on his accounts for convenience only. What happened? Betsy kept all of the monies in Jeff’s accounts for herself, and Jeff’s family was torn apart.
I can’t tell you how many times I have seen strife and confusion caused when the titling of non-probate assets and/or beneficiary designations on accounts conflicts with the terms of the Will. I always advise my clients with multiple children not to have just one child named as a co-owner on their bank accounts, so as to avoid the above scenario. Do you want to give more to a child who is caring for you? Then make special provisions in your Will to clarify your wishes. Another problem with adding your child as a co-owner of your bank account? Your child’s creditors can seize that account!
"But", you ask, "what if someone needs to pay my bills if I get sick?" That’s what the Durable General Power of Attorney is for. If your child is named on the Power of Attorney, then that child can act as agent signatory on your accounts without him being considered a co-owner of the account and without the risk of his creditors seizing your accounts.
Looking at the big picture is key to good estate planning. The provisions in your Will and your non-probate assets should "dove-tail" and not conflict. If you have IRAs, then the beneficiary designations should be set up to avoid early payment of income tax. Life insurance is another non-probate asset that can add flexibility to an estate plan if the beneficiary designations are set up correctly. Even if you have a Will and powers of attorney, don’t forget to step back and carefully look at the big picture of your estate plan.