Plan “B”

Clients come to me with clear ideas about how they expect things to unfold. They develop their estate plan around these expectations. For example, most husbands anticipate that their wife will outlive them. Most parents anticipate they will die before their children. However, it does not always work out this way. “Bob” came to see me in deep grief. His wife “Barbara” had unexpectedly died of a heart attack. I say “unexpectedly” because most people anticipate they will have some warning, some significant health downturn that will signal to them it is time to get their legal work done or to amend work that had been done in the past. I have explained the danger of this assumption in other posts. Barb died suddenly. Bob wept as he told me, “Paul, I was never supposed to outlive her.” In other cases, a couple may have an only child. They fully expect that child will outlive them and receive the entire estate. Again, life can throw a curve and an unexpected death of all parties at the same time, or loss of a child through an accident or sudden illness, can upset one-tiered estate planning.

I consider estate planning inadequate when alternative situations are not considered. There is nothing wrong with making assumptions about spouses and children surviving, as the statistics often are supportive. Wives tend to outlive husbands. Children most often outlive parents. A thoughtful estate plan, however, accounts for the primary “what if’s”. As you contemplate preparing your will or living trust, turn your assumptions upside down. How do you want to provide for your family if things unfold in a different way? The key here is to have an effective “plan B”. Your first plan, “plan A” is probably to leave everything to your spouse, or if you have none, to leave it to your children. Follow through with the next question, “what if I outlive the main assumption in plan A?” Sometimes clients are unable to make decision because it is so unthinkable or too emotional to consider. When I sit with a younger family, I usually say something like this: “now, imagine far into the future and you have lived to age 104 and outlived one of your children, what would you like done with their share.” That may help you get beyond such mental roadblocks. Normally the plan will be relatively straightforward. If there are grandchildren, then they are included as more remote beneficiaries in such circumstances. If that is your intention, then be sure to let your lawyer know if any of those grandchildren have any special needs that will require additional planning, and be sure there is an adequate trust for underage beneficiaries since having youngsters inherit is problematic without planning. I tell my clients that we are not trying to plan for every situation, but we are trying to anticipate the reasonably foreseeable ones.               

The more difficult cases are those where people have few relatives, or have no wish to leave their estate to those relatives. Believe it or not, not every family gets along in perfect harmony! In such cases, I strongly encourage clients to consider charitable giving as all or part of their “plan B”. In fact, I encourage all my clients to consider charitable giving as part of their plan. As I have explained in another post, the law of every state has a mandatory plan of distribution for an unplanned estate. To accomplish anything apart from that result, you must make and declare your own decisions. That is why it is called your “Will”. These will most certainly evolve over time and you can change them as often as you wish as your life and circumstances develop. However, do your best to make a back up plan that properly reflects your values, and not merely how you assume things are “normally done”. Once you have done so, work with your lawyer to incorporate those values into both your estate planning paperwork, and your beneficiary designations on your retirement plans and life insurance. Once the basic plan is established, it will be relatively easy to bring it up to date from time to time if relationships, personnel, or values change in the future. Remember, a little thoughtful planning can go a long way to avoiding the unintended consequences of an unplanned or partially planned estate. Table

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