A simple estate plan may lead to complicated results
Q: My wife and I are in our 80s and in good health. We have no real estate or debts. Our possessions are minimal. We have money-market accounts and CDs, but the amounts are nowhere near estate-tax level. We plan to leave our estate to our three children and four charities. Can this be accomplished with seven money-market accounts in the names of my wife and myself, with the other eventual recipients listed as PODs (pay on death)? We have a checking account in which our son is a partner. A list of all personal items and designated heirs will be held by all three children. It looks to me as if things should work smoothly. What do you think?
H.D.W., Logan, Utah
A: Your "targeted bucket" estate plan approach sounds simple. "But the devil, as usual, is in the details," says Raymond Benton, a certified financial planner in Denver.
Unless the assets in each of the proposed accounts are left untouched and the amounts are identical, problems may arise, says Mr. Benton.
As you access the accounts to pay expenses, and since CDs and money markets earn differing amounts, Benton believes that over time, some accounts will be bigger than others. While the distributions at death will be smooth - the accounts will pass to the named beneficiary - the final amounts given may not be perceived as equitable by your heirs.
You also say that your son is a "partner" on your bank account. If it is held as "joint tenancy with right of survivorship," it will pass directly to your son. Thus, any of his creditors might be able to dun his portion of the account even during your lifetimes. These problems can be avoided by registering the son as power of attorney on the account rather than as a joint owner.
And, Benton asks, what about disability or incapacity? If your power of attorney is not specified as "durable," it may lose efficacy in the event of your disability. If it was written for financial purposes, it may not contain language specific to let health decisions be made on your behalf.
A revocable living trust or a "standby" trust might be a better solution and would provide better protection against conservatorship or guardianship proceedings. Benton points out that the need for security, flexibility, and stability in planning for smaller estates is more urgent than for larger ones, since resources are more limited and mistakes can be more damaging. A good resource on these issues is www.nolo.com, which contains self-help legal information.