Dodge estate planning minefields

Some things seem like they should be easy — and they can be easy. However, some things simply appear easy, even when they are very difficult. For example, crossing a field of 50 yards seems simple, right? However, if that field is a minefield, it might be a very hazardous crossing indeed! On the surface, both fields might appear the same to the ordinary person. However, experts can spot the hidden problems which the ordinary person may not.

This is equally true for estate planning. Let’s look at two couples, the Browns and the Robinsons. The Browns have a very substantial and complicated estate that may benefit from tax planning. They own a sizable business. They each have a prior marriage, and their marriage together is somewhat rocky. It’s easy to see the mines in that field and know that they would benefit from consulting with an estate planning attorney.

The Robinsons have more modest assets of approximately $200,000. They have a great marriage and two wonderful kids aged 12 and 15. It appears on the surface that they might be able to save some money and use a “do-it-yourself” estate planning method like online forms or software at little or no cost. The problem is that the Robinsons have a hidden mine in their estate plan.

The Robinsons’ case looks simple to the untrained eye. However, the Robinsons’ primary asset is Jake Robinson’s 401(k),which he started right out of college, before he even met his wife, Sally. Jake named his ex-wife, Allison, as beneficiary. Of course, Jake assumes that his 401(k) will go to his current wife, Sally, because he will name her as the primary beneficiary in his will or trust. Jake doesn’t know what he doesn’t know — i.e., that his will or trust will not control his 401(k).

While the Robinsons could “save” some money by using some free or inexpensive “do-it-yourself” software, doing so will end up costing them everything because Jake’s 401(k) will go to Allison at his death, even if Jake names Sally in his will or trust.

Defusing the mines

Only an experienced estate planning attorney who focuses his or her practice in that field will have the knowledge and expertise to spot and defuse the mines which you may encounter. Some other hazards which you might encounter are:

property ownership issues (joint tenancy, community property, etc.)

assets with beneficiary designations (e.g., brokerage and bank accounts)

life insurance

blended-family issues

leaving assets outright to minor children

Your estate planning attorney can guide you through the minefield to the other side. For example, the attorney would have advised Jake to complete a new beneficiary designation form naming Sally as the primary beneficiary of his 401(k). While Jake could have done this himself, he didn’t know there was a problem. He didn’t know what he didn’t know. Don’t make the same mistake that Jake did. See an experienced estate planning attorney.

Thompson, Sioux Falls, S.D.,is a member of the American Academy of Estate Planning Attorneys and has been engaged in the practice of law for the last 15 years. For more information, or to attend an upcoming seminar, call 605-362-9100 or visit her website, www.cathompsonlaw.com.

This article published in the November, 2011 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.