Pittsburgh Family Law Services, P.C. Blog

Beware of the quick estate plan: why you shouldn't just leave everything to beneficiaries

Beware of the quick estate plan:  why you shouldn't just leave everything to direct beneficiaries
Social media is a wonderful platform to get information, and that includes information about estate planning.  But that doesn’t mean everything on there makes sense for your situation.  The one I’m seeing more recently is more or less the following text:  

  IMPORTANT information to get your affairs in order 
 Make sure all bank accounts have direct beneficiaries. The beneficiary need only go to the bank with your death certificate and an ID of their own.
  TOD = Transfer On Death deed if you own a home. Completing this document and filing it with your county saves your heirs THOUSANDS. This document allows you to transfer ownership of your home to your designee. All they need to do is take their ID and your death certificate to the county building and the deed is signed over. Doing this will avoid the home having to go through probate.
 Living Will: Allows one to put in writing exactly what you want done in the event you cannot speak for yourself when it comes to healthcare decisions as well as other final decisions.
 Durable Power of Attorney: Allows one to designate a person to make legal decisions if you are no longer competent to do so.
 Power of Attorney for Healthcare: This document allows one to designate someone to make healthcare decisions for them.
 Last Will and Testament: Designates to whom personal belongings will go to.
 Funeral Planning Declaration: Allows one to say exactly one’s wishes as far as disposition of the body and the services.
If the above documents are done, you can AVOID probate.
If all the above is not done, you have to open an estate account at the bank. All money that doesn’t have direct beneficiaries goes into this account. You have to have an attorney to open the estate account. The attorney also has to publicize your passing in the newspaper or post publication at the county courthouse, to allow anyone to make a claim on your property. - It’s a complete PAIN.
   Make a list of all banks and account numbers, all investment institutions with account numbers, lists of credit cards, utility accounts, etc. Leave clear instructions as to how and when these things are paid.
Make sure heirs know where life insurance policies are located.  
 Make 100% sure SOMEONE knows your Apple ID, bank ID account logins and passwords!
  Make sure you have titles for all vehicles, campers, etc!
Set up a TRUST for intended beneficiaries, especially those that are too young, and appoint a trustee of said trust.
 MOST IMPORTANTLY!!!! - Talk with those closest to you and make all your wishes KNOWN. Talk to those whom you’ve designated, as well as those close to you whom you did not designate. - Do this to explain why your decisions were made and to avoid any lingering questions or hurt feelings.
 Hope this helps!  Hope this lights a spark to encourage all your friends and family to take care of these things to make it easier for those we all leave behind!
My hope is that the above list at least helps you start an important conversation with your loved ones...
(REPOST-I DID) and it’s a very necessary conversation

This post actually contains a lot of generally good information.  Its most valuable part is in telling people that the time to start talking about estate planning is before you actually need it.  Powers of Attorney, funeral planning, and telling people who you’ve designated as your Agent are all extremely important and will prevent a lot of strain if people follow this advice.  

However, there are some problems with following this advice exactly.  First, the act of listing direct beneficiaries and transfers on death for every single asset is being done to avoid probate.  The general probate process described in the post is correct and yes, paperwork needs to be filed, and account needs to be opened, and it needs to be advertised.  This process is far less cumbersome in Pennsylvania than in many other states and probate should not be feared. Sometimes it can’t be avoided, and if you find yourself in that position, it is far easier to handle in Pennsylvania—you can even do it yourself without an attorney (my own non-lawyer mom did when my grandmother died years ago!).  It will go more smoothly with a lawyer but it is something you can do on your own.  

The biggest problem with this post though is saying that naming direct beneficiaries is the best way to plan for distribution.  First, it’s obvious that whoever wrote the post isn’t from Pennsylvania.  Pennsylvania doesn’t have a Transfer on Death Deed for real estate, so that’s not an option.  You can name direct beneficiaries of other assets or even own accounts jointly with your intended recipient.  It can indeed work if everyone dies in the expected order and if there is no dispute about who would inherit from you.  But that “if” is very important. 

How could it go wrong?  Let’s take a hypothetical couple named June and Johnny.  This is a second marriage for June, and she has children from her first marriage.  Johnny loves her children just as if they were his own.  They know it’s important to plan for when they pass away but with their incredibly busy lives, they don’t have the time to write up a Will.  They decide that because they own their house together, they’ll just make sure they’re each direct beneficiaries and that they’re both co-owners of all accounts.  “This will be easy,” they both thought.  They know that statistically, June is likely to outlive Johnny.  So when Johnny passes away, everything will go to June and then when she passes away, everything will be split between her children.  
Unfortunately, this isn’t what happens.  June tragically passes away in a car crash.  Just like they planned, everything goes to Johnny.  This was unexpected but will still be easy, right?  Johnny loves June’s kids and there’s no question that he wants them to inherit from him.  He even goes out of his way to formally adopt her children, making them legally indistinguishable from his own biological children.  All seems to be going well.  A few years later though, Johnny remarries.

There are no issues between his children and his new wife.  They all get along well.  But his wife doesn’t view his children as “hers.”  That’s not a problem, because they all still get along well! But like Johnny and June, they also never talk about who should receive what in an inheritance. Instead, they just name each other beneficiaries and co-owners.  It seems easiest.  Now, however, Johnny passes away unexpectedly, and everything automatically passes to his wife.

His wife, upon realizing that nobody knows how much time they have, finally creates a formal estate plan.  However, she doesn’t leave anything for Johnny’s children.  They’re not her children, they have a good relationship, but they’re not especially close.  She’s really close with her nieces and nephews and so leaves everything to them.  Now, Johnny’s children are ultimately disinherited, and they will not receive anything.  Was this what Johnny wanted?  It certainly wasn’t at the time he and June first talked about everything.  But there’s no going back and getting a do-over.  

This is only one way in which relying on direct beneficiaries and co-ownership can go horribly wrong.  If Johnny had spoken with an estate planning attorney after getting remarried, the attorney would have pointed out the risk of using this method and would have directed him to a different approach.  This may have been a standard Will-based estate plan.  It may also have been a trust, which would avoid the probate process—and the lawyer would have explained that trusts aren’t only for the rich and famous.  Johnny could have set up a trust which would create a separate share for his wife and a separate share for his children.  He also could have written a Will directing that his spouse receive a certain percentage and his children receive a certain percentage.  Or, maybe he would have decided he trusted his wife enough and would proceed as he did initially.  But it would have been a fully-informed decision.  

The challenge in estate planning is that you ultimately won’t be there to make sure your wishes are carried out.  It requires you to trust the people you’re appointing and the people who by default will make the decisions if you don’t appoint anyone.  If you feel strongly about having your estate distributed a certain way, then it’s critical you have those intentions written down in a fully-enforceable document.  An estate planning lawyer will help you identify your priorities and help you create a plan that is in line with what you ultimately want to have happen.  It’s no secret that proper estate planning requires an investment of time and finances.  It’s an investment well-spent because it will require far more of your loved ones down the line if your wishes aren’t immediately clear.  

Before taking any major steps in estate planning, take the time to speak with an attorney who can help you identify your goals and the estate planning method that will work best for you.