Estate Planning Pitfalls

An estate plan generally consists of a will and/or trust, a health care directive and a power of attorney. In estate planning, you want to make certain that you are planning for how your assets are managed and your bills are paid during your lifetime, and also planning for the possibility of incapacity or incompetency. As part of putting together an estate plan, it is important that your estate planning goals are not contradicted by other documents that you have completed.

Hypothetical #1: Your goal is to have all of your assets being transferred to your children upon your death. Your will states that all of your assets go to your children upon your death, but your beneficiary designations and your homestead, through a transfer on death deed, have your bank accounts and your homestead being transferred to your parents upon your death.

Analysis: Upon your death, if your parents survive you, your accounts with beneficiary designations and your homestead will be distributed to your parents. That is because beneficiary designations, payable upon death designations, transfer on death deeds, and joint ownership assets pass outside of your will.

Hypothetical #2: Your goal it to have all of your real estate, which are owned by LLC’s pass to certain individuals upon your death through a transfer on death deed.

Analysis: Upon your death, none of your real estate will pass through a transfer on death deed. This is because LLC interests are not able to be passed through a transfer on death deed. Since a company “does not die,” LLC interests must be passed through the LLC’s corporate documents or placed into a trust and then passed through the trust.

Hypothetical #3: You own a business with a friend of yours. The business has a buy-sell agreement. Your goal is to have your business interests passed through a trust to your son and daughter so you create a trust that states that your business interests pass to your son and daughter.

Analysis: Upon your death, most likely you will end up having created a litigation issue between your business partner and your children. That is because a buy-sell agreement dictates what happens to the partners’ business interests. Your trust does not supersede or void your buy-sell agreement. In other words, you cannot change the terms of a buy-sell agreement through your trust.

Hypothetical #4: You have two adult children and you own a business with a friend of yours. Your goal is to have your business partner buy your shares of the business from your estate. You do not have a buy-sell agreement.

Analysis: Upon your death, most likely you will end up having created a litigation issue between your business partner and your children. Your business partner’s new owner is now your son and daughter. If the three of them don’t get along or cannot come to an agreement where there is a buy-out of the other’s business interest, a judge will decide, which could result in the dissolution of the business.

Spangler and de Stefano, PLLP advises businesses and individuals on estate planning and business succession planning.

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 and should not be construed as legal advice.