The Planner's Perspective: With Estate Planning There Is Always A Plan, Even If It Isn't Yours

Paul Morrone |

By Paul Morrone, CFP®, CPA/PFS, MSA

It’s true that we will all die at some point, so one would assume that proactively addressing this risk would be a universally accepted concept, however, over half of all Americans still do not have an estate plan. From a legal standpoint you can either die with a plan or without one. What many fail to realize is that if you elect the latter, the state you die in has ‘intestacy laws’ which dictate how your assets are divided whether you would have intended it to happen that way or not. Many families have the good fortune of having one or more competent, healthy and trustworthy children, but intestacy laws do not always work in the way you would assume.

Most would assume that if they pass, with or without a will, that all their assets would pass to the surviving spouse. Putting the complexities of beneficiary designations and trusts aside, this is not always the case. Under the intestacy succession in the state of Connecticut, the surviving spouse is only entitled to the first $100,000 and one-half of the remaining estate, with the other half going to the children. This could materially jeopardize the surviving spouse’s ability to live financially if suddenly the household wealth was effectively cut in half. It can also pose significant threats related to future ownership of real assets, such as a home, investment real estate or business interests.

The flow chart and inheritance allocations get increasingly more complex depending upon the family composition, which could include other living descendants, parents or other relatives. Of course, some of this risk can be mitigated by owning assets jointly with rights of survivorship, but many times if an individual doesn’t have an estate plan then they also have not addressed the basics of asset ownership, probate mitigation, beneficiary structure and tax planning. Even with joint ownership, there is still the risk of both spouses passing simultaneously, creating an even larger headache for the remaining heirs.

While there are a myriad of scenarios that could occur when an individual passes intestate, the biggest risks may be overlooked by families who do not receive proper guidance and don’t know the right questions to ask. That could spell disaster if a parent or spouse receiving social benefits (i.e. Medicaid) inherits money unexpectedly, subsequently compromising their eligibility for benefits. Worse, it could lead to an estranged relative contesting the estate, potentially walking away with some of your hard-earned wealth intended for those who cared for you during life. Not having a plan leaves you exposed to having your assets divided, somewhat objectively, by the probate court, meaning that if one of your children served as your caretaker for a decade they would be treated as a financial equal to another child whom you may not have spoken to in years. In many cases, the court will also not discriminate against passing assets to heirs that have mental illnesses, addition issues or disabilities.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

US Wealth Management New Haven, LLC and US Financial Advisors, LLC and LPL Financial do not offer legal advice or services.