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Common Estate Planning Mistakes

Determining whether or not you should have a trust or a will depends on your unique circumstances and goals.

Hypothetical #1: Barb and Ken are married. Barb has two children from a previous relationship. Barb and Ken’s wills have one-half of the estate being distributed to the other spouse, and the other-half of the estate being distributed to Barb’s children. Barb dies. Ken then does a new will and does not leave anything to Barb’s children.

Analysis: It is not uncommon in “mixed marriages” (i.e., when spouses do not have children together, but at least one spouse has children from a previous relationship), for the surviving spouse to disinherit the deceased spouse’s children. This could have been avoided through a QTIP trust. A QTIP trust avoids the surviving spouse from disinheriting your children from a previous relationship upon your death.

Hypothetical #2: Cindy and Tom have two children, Sally and Chris. Chris is disabled and receives Medical Assistance and SSI. Cindy and Tom have a will that distributes their estate to their two children equally. Cindy and Tom die at the same time.

Analysis: Sally will receive one-half of her parent’s estate. However, Chris’s one-half portion will most likely either: 1) have to be paid to the State for reimbursement of Medical Assistance; and/or 2) Chris will become ineligible for Medical Assistance or SSI until he has spent down the money (in other words the inheritance will be used to pay for Chris’s medical expenses, etc., until it is all used up). This result could have been avoided if Cindy and Tom had a Supplemental Needs Trust (SNT) set up for Chris, and had their will direct Chris’ portion of the estate to the SNT. If there had been a valid SNT in place, Chris would have remained eligible for Medical Assistance and SSI and his portion of the inheritance could have been lawfully used to supplement the government benefits that he would have continued to receive.

Hypothetical #3: Sara and Bruce have a will. However, their estate (which includes life insurance policies of $3 million in Bruce’s name) is worth $4 million. Bruce dies.

Analysis: Bruce’s estate is going to have to pay a large Minnesota estate tax bill. This tax bill could have been avoided if Sara and Bruce had a trust.

Spangler and de Stefano, PLLP help clients with determining and implementing a comprehensive estate plan that is customized to your unique circumstances and goals.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice or tax advice and should not be construed as legal or tax advice advice.