Sorting It Out Later

 In Learning Center

Sorting It Out Later is Not An Estate Plan. Here’s what I mean by that…

Recently someone came to me to divide assets between the children of a deceased parent. The parent’s first desire was to avoid probate. The parent’s alleged plan was to leave everything to one child through joint ownership and beneficiary designations. Then this child was supposed to “give everyone their share” later on.

While this plan might have worked, it could have come with some real problems. First, it’s important to remember that any time someone tries to pass real estate outside probate, the beneficiaries and their spouses signatures are required to sell the inherited property to the new owner. If one child or their spouse doesn’t agree, the real estate sale doesn’t go forward. There isn’t some easy way to avoid this issue. If the asset passes to someone outside of probate, then the probate court will not have jurisdiction to step in and allow an executor to sell.

The second issue with sorting it out later is that a beneficiary might not share. Money really changes people. Especially unearned money. If you want each beneficiary to inherit equally, then each beneficiary should be named. That way nobody gets left out. This also avoids the one beneficiary saying, “Well this is what Mom or Dad would have wanted, etc.”

The next issue is that sharing among beneficiaries is a gift. This invokes the gift tax laws and someone may have to file a gift tax return. This gift tax return is another additional expense.

Unmarried Couples