Maya Angelou said, “If you’re going to live, leave a legacy. Make a mark on the world that can’t be erased.” Unfortunately, many people don’t do that. Instead, they leave a legacy of chaos and hurt feelings. That’s what can happen if you fail to plan your legal affairs. And one of the worst things that can happen to your children is if you leave them nothing when you die. In that case, your legacy could be a lingering question about how much you cared about them. So, if you want to avoid disinheriting your own children, keep reading.
Two Conflicting Goals
If you are married (or in a committed relationship) and you have children, you have two conflicting estate planning goals. On one hand, you want to take care of your spouse or life partner if you should die first. You want your spouse or partner to be able to continue living in the house. You want your spouse or partner to be able to keep the car and have access to money to live on.
But you also have another goal. You want your children or other loved ones to inherit something when you die. For instance, you want your children and grandchildren to get your family heirlooms. You want your kids to get family photographs. Then after your spouse dies, you want the rest of your money to go your children and grandchildren.
Here’s the issue. These goals are often in conflict. By taking care of your spouse or partner, you create a situation in which your kids could end up with nothing. And if you give everything to your kids when you die, your spouse could get kicked out of the house and end up destitute.
Only careful estate planning can provide a balanced solution that ensures your wishes are carried out.
The Danger of Owning House in Joint Tenancy
Most spouses own their family home as joint tenants with right of survivorship. Then if one spouse dies, the other takes title. No need for a probate. It’s simple.
But in that simplicity is a danger. Here’s what I mean…
Imagine that Husband and Wife own a house in joint tenancy with right of survivorship. They have two children. Husband dies. Wife is lonely and remarries. Wife wants to show her love and commitment to New Husband. So, Wife retitles the house into her and New Husband’s name as joint tenants with right of survivorship. Then Wife dies. The house now belongs to New Husband. The children get nothing.
What can the children do? Nothing.
Notice how easy it was for Husband and Wife to leave nothing to their children. And by nothing, I also mean all their family photographs, Husband’s father’s military medals, and toys that the children grew up with. The children get nothing. And there is legally nothing that the children can do about it.
In the story above, Husband and Wife were probably trying to save money at the time. After all, a joint tenancy deed only costs a couple hundred dollars. But a comprehensive estate plan will cost more than that. And owning a house as joint tenants seemed so easy and logical.
It Only Takes Two Steps to Accidentally Disinherit Your Children
Let’s review what happened in the example above. Here’s what could happen to your children…
Step one: You own property in joint tenancy with someone else (your spouse, for example). When you die, the surviving owner now owns the property 100%.
Step two: The surviving owner thinks owning property in joint tenancy is a great idea. After all, it worked the first time, right? So, the surviving owner names another person (a new spouse perhaps) as the new joint owner of the property. Then the surviving owner (the one you originally owned the property with) dies.
What’s the result? Now the property belongs to a stranger … someone you never intended to own the property. And your children get nothing.
Don’t Do These If You Want to Avoid Disinheriting Your Children
The two-step process for accidentally disinheriting your children can happen in a lot of different ways. Here’s a list of common ways people unintentionally leave nothing to their kids and loved ones:
- Owning real estate in joint tenancy with right of survivorship with your spouse. (This is just like in the example above. When you die, your spouse gets the house. Your spouse remarries and titles the house in joint tenancy with new spouse. Your spouse then dies. Now the new spouse–a stranger to you–now owns your house. Your kids get nothing.)
- Naming your spouse as pay on death beneficiary of a bank account. (You die, and your spouse gets the account. Your spouse remarries, and adds the new spouse as pay on death beneficiary of the account. Your spouse then dies. Now the new spouse–a stranger to you–gets the account. Your kids get nothing.)
- Having your life insurance payable to your spouse. (You die, and your spouse gets the insurance proceeds. The life insurance money goes into an account and gets spent. There were no protections or instructions on the money. None of the money gets to your kids.)
- Having your life insurance payable to minor children. (Minor children can’t have an account in their name. So, someone needs to set up a conservatorship for them. Then your kids get the money when they are 18, and quickly blow it. Why? Because that’s what kids do.)
- Including a power of appointment in the trust or will. (Attorneys include these in documents for tax planning purposes. However, if your spouse has a power of appointment, they can use it to write your child out of the trust even after you have died.)
This is only a partial list. There are many other ways that money can end up in the hands of someone you never intended.
That’s why it’s better to go to a lawyer for a comprehensive estate plan. The lawyer can help make sure your money and property actually go to the people you want.
Avoid Disinheriting Your Children with an Estate Plan
To avoid disinheriting your children, you need a comprehensive estate plan. The benefits of comprehensive estate planning include:
- Peace of mind from knowing it is done right. You don’t have to worry about it anymore. You don’t have to be concerned about what will happen when you die or become incapacitated.
- Avoiding Court. Nothing good happens in court. It takes a long time, it is expensive, and it is public.
- You remain in control.
- You minimize delays and costs.
Use a Well-Prepared Trust.
You want the most flexibility and control over the disposition of your assets when you die. The best way to get that flexibility and control is with a trust. Your trust can be set up so that:
- You have control during your lifetime.
- There is no need for probate after you die or become incapacitated.
- Your spouse or significant other is taken care of during his/her lifetime.
- After your spouse or significant other dies, whatever is left over goes to the people or charities that you have named.
- Your family heirlooms go to people you have designated.
If you want to ensure that your estate plan will work, you need to see an estate-planning attorney. Preparing the estate plan documents is only part of the solution. You also need to have the life insurance titled correctly. Also, retirement plans such as 401(k)s and IRAs may need special attention.
If you want to make sure your children will receive something when you die, make sure that your assets are in a trust. And that trust needs to become irrevocable after you die or become incapacitated. You don’t want someone changing your documents after you are gone.
To learn how to avoid disinheriting your children, schedule a Strategy Session. We’re here to help.