What do you do when you inherit a mess? Where do you start? How do you move forward? Part of one woman’s solution, Heather Parker, was to become an estate planning attorney to help others avoid the same mess she experienced in her family.
Most of us can’t choose that response but let’s take a look at her three pieces of advice, encourage you to think about your situation, and share some resources/experiences to help each other.
Before doing anything else, knowing exactly what there is and how it is owned/titled is crucial in an inheritance situation. “Before even delving into the details of a will/trust, understanding exactly how a title is held (i.e., with right of survivorship, etc.) will dictate what happens to that asset when one person dies,” according to Heather.
If the asset is owned by a single person, does it have a beneficiary designation (Payable on Death POD, Transfer on Death TOD, or named beneficiary like on an IRA)? What if there is no named beneficiary or that beneficiary is already deceased?
Heather knows from experience that the probate court may need to get involved. Whether the asset has been titled in a trust or not can determine how it is handled, and whether a probate case will be necessary.
Action Step #1
It is extremely important to be sure you have all of the asset information organized in one place, for your sake and for anyone who is helping you. Compiling a comprehensive list of the inherited estate, often called a net worth statement, can help provide a big picture of the situation as well as begin to organize a “plan of attack” for dealing with everything.
One format example, that lists account numbers, titles, beneficiaries, and dollar values by asset category all in one worksheet, can be found at Mind Money Motion.
I witnessed a successor trustee, a nephew who agreed to serve in that role for his aunt, fly across the country numerous times (he lived on the East Coast but his deceased aunt had lived on the West Coast) because he ran out of time on most trips to drive to various local banks with death certificates only to arrive and find out she no longer had accounts open at that particular bank.
There was no current list of assets, only random old statements of various accounts, which made the organization and distribution process much longer and more frustrating than needed.
Seek Professional Help
Most often, estate settling and distribution is NOT best accomplished as a DIY process. Estate planning attorneys can tell you how they have seen too many times where families have tried to prepare and settle an inheritance on their own because they felt their situation was really “simple.”
According to Heather, the translation is that families want the result to be simple, but that means addressing and dealing with all of the “what-ifs” in advance, which is rarely done without an estate planning attorney involved.
Heather gives some common examples. “For instance, passing everything to children, equally, seems simple enough, but what if, at the time of my passing, one of my children is in the middle of a divorce, or is being sued after a car accident (happens every day)? The way I structured the distribution to my children can be the difference between my child receiving everything I wanted for them, my soon-to-be ex-son or daughter-in-law, or some creditor, getting half or more! Or what if my child is receiving disability when I pass? An inheritance could disqualify them from benefits, unless it is structured correctly in an estate plan, and within a trust to protect against this exact situation.”
Action Step #2
At the time of inheriting “a mess,” it’s too late to go back and update documents so the next best thing you can do is to seek legal advice before proceeding with the distribution of the estate. Take your list of assets and any estate documents (will and/or trust) to an estate planning attorney, not just a friend or neighbor who is an attorney.
Even if it is just a one-time visit, your time and money will be well spent to get clarity, direction, and advice about the legal aspect of distribution and your duties whether you move forward with ongoing attorney involvement or not.
I remember talking with a woman who took care of all the account distributions on her own after her spouse passed away. She thought it seemed simple enough to do the online transfer of his accounts to hers. She was so glad she didn’t even need to wait on hold to talk with anyone at the large investment company where all of their accounts were held.
She inadvertently made two mistakes: transferring his IRA to her taxable account (she was surprised it worked online with no pop-up tax or other alerts) making a large addition to her taxable income that year AND then distributing the bulk of that IRA transfer to her deceased husband’s adult children because she knew that’s what he wanted (after she paid the tax on all of it herself first and now would be required to file a gift tax return for “gifting” more than the annual exclusion amount).
One visit with a financial advisor or tax advisor in advance of that online transfer would have avoided both of those costly mistakes.
Protect Your Family from the Same Mistakes
I have heard this same statement from every estate planning attorney I have worked with over the past 20 years: “We have seen so many situations where a family member made a mistake or missed something, and it resulted in unintended consequences.”
Heather gives some common examples. A spouse neglects to name a beneficiary on an investment account or forgets that the timeshare they bought is only in one spouse’s name, or a vehicle is titled in one spouse’s name because that is the person who went to the dealership. Most people just presume that a spouse will be able to “handle” assets owned by the other spouse simply because they are married. The law doesn’t see it that way, in many instances.
In the case of the missing beneficiary – it often becomes necessary to open a probate case simply because that spouse forgot to designate a beneficiary. The timeshare and vehicle situation also can trigger probate cases because the value of those assets is sufficient to do so. Even worse, timeshares are usually located in other states, so not only are you dealing with a probate case in your state but in at least one additional state too, all because titling and beneficiaries were not set up properly.
Action Step #3
Use your experience as motivation to do better for your family. Put your wishes in writing in updated legal documents and create a list of assets. I offer a free workshop, Get Your Docs in a Row, numerous checklists, and even a Loss Checklist Bundle specific to this topic to help you get started.
As Heather says in her complimentary online educational webinars, “Proper planning now is a gift to your family – to avoid the mess later. Your planning now will allow for those loved ones to remember you the way you would like, for all the love and good times you had together, not for the mess you left them to deal with after you passed.”
Part 2 of this series will reflect your stories, tips, and encouragement so please share in the comments below or send me a message on my website. Let’s help each other!
This article was first published at 60 and Me – a community that helps women over 60 live happy, healthy and financially secure lives.