Sharks in The Waters!

By: Nikki M. Vasconez, Esq.

If your estate plan is 10-20 years old or you don’t have an estate plan at all, you are inviting the sharks in the water to come in and take a bite out of your cash accounts, eat up all your stock, and divvy up the rest of your goods among their shark friends! By having a solid, up-to-date estate plan, you are avoiding the sharks and ensuring that everything you’ve worked so hard to create, is passed along to whomever YOU decide.

Below are some common estate planning mishaps that will invite the sharks to the party:

1. “I’ll just put beneficiaries on everything.”

I hear this comment far too often. Now, don’t get me wrong: adding beneficiaries to some of your accounts is a great estate planning tool—when done correctly! You have to be very careful when doing this because you may unintentionally be left with unequal distribution. Let’s say you have two children and you want to leave each of them $100,000. Your Vanguard account has $100,000 and your Morgan Stanley account has $100,000. “Perfect!” you say to yourself. “I’ll leave one account to my daughter and the other to my son. That way, they’ll both get $100,000.” What happens when twenty years from now your Vanguard account has $150,000 and your Morgan Stanley account only has $50,000! The sharks just ate a huge portion of one of your child’s inheritance.

Second, your beneficiary designation may conflict with your will. Sticking with the above example, let’s say in 2010 you listed your daughter as the beneficiary of your Vanguard account and your son as the beneficiary of your Morgan Stanley account. Fast forward ten years: your daughter is doing very well and has a great job; your son is struggling a bit and could use a financial boost. You go to a lawyer to draft your will, and in your will you provide that your son shall inherit the funds from BOTH the Vanguard and Morgan Stanley accounts. Your previous beneficiary designation now conflicts with your Will. Which one controls?!… The beneficiary designation controls! Your son just lost a HUGE portion of his supposed inheritance. The sharks have struck again.

2. “I’ll make everything joint.”

This is another statement I hear frequently. We run into the same issue as above with the potentiality for unequal distribution. If one account is joint with your daughter and the other joint with your son, what happens when the account balances are wildly different when you pass away?

By adding your son or daughter to your account, you’ve just given up control! If they get divorced or sued, guess where all of “your” money is going? Right out of your account into the hands of others.

If your child predeceases you, now you’re paying inheritance tax on your own money!

Lastly, if your stock is now worth a fortune and you add your daughter as joint owner, she now inherits your basis. If she ever wants to sell the stock, she’s going to be hammered with capital gains tax. BUT, if she were to simply inherit the stock when you pass, she would avoid capital gains tax entirely (this is true for a house and other investments). Be careful! You can be creating a much bigger tax for your beneficiary by making them joint on the account.

As I always say to my clients, “Love them enough not to leave a mess!” Let us help you create an estate plan that avoids all these potential sharks lurking in the water.

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HighPoint Law Offices PC

At HighPoint Law Offices we support individuals, families, and businesses of all backgrounds with estate planning services that address their unique wishes, goals, and challenges.

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