Traditional Estate Planning

Traditional Estate Planning

by Jill Eshman

My clients expect their estate planning will cause their property to go to whom they want, the way they want, when they want. They expect it will minimize the impact of taxes, professional fees, and court costs. They also expect their estate planning will help them keep control of their property while they are alive and healthy, and provide for themselves and their loved ones if they become disabled.

Traditional estate planning often falls short of these goals.

Understanding the advantages and disadvantages of various modern and traditional estate planning techniques will benefit not just you, but your family for generations to come.

Traditional estate planning is focused on the transfer of ownership of assets at the time of the owner’s death. Its cornerstone is the will. Too often, traditional estate planning lawyers treated the creation of an estate plan as a transaction. They would also often ignore the client’s assets that are not usually subject to probate. It relied on the durable power of attorney to protect the client from having an expensive court order and administered guardianship in case of incapacity.

In today’s world, with a proliferation of non-probate assets, a more mobile society, and increased longevity, traditional estate planning often falls short of the clients’ estate planning goals. It does not provide for your disability; it does not necessarily give what you have to whom you want, the way you want, and when you want; it will not avoid probate; and it too often ignores or inadequately deals with non-probate assets.

“Non-probate” assets are those that pass on death automatically by operation of law (i.e. due to a right of survivorship, joint tenancy or transfer on death accounts), and others by beneficiary designation without being involved in the probate process. In the traditional estate planning days, pretty much the only non-probate asset was life insurance. In modern times, the portion of the typical estate that is non-probate assets has dramatically increased.

Where benefit and retirement plans for the worker and the worker’s spouse were once the norm, today the norm is the defined contribution plan, which passes by beneficiary designation. Today’s planners must also deal with right of survivorship property, IRAs, and all sorts of annuities. 

The proliferation of these types of non-probate assets, especially accounts with transfer on death or right of survivorship provisions, have likely led many to the false conclusion that they do not need to invest their time and money in estate planning to avoid probate and meet their estate planning goals. Nothing could be further from the truth.

For an example, reliance on the most typical non-probate account provision, joint ownership with right of survival, creates risks for the asset owner that are seldom considered. Adding a joint or co-owner exposes the affected asset to the joint or co-owner’s liabilities, increasing the owner’s risk of being named in a lawsuit or losing the asset to a creditor of the joint or co-owner. There is also the risk that the joint or co-owner will not be able to resist the temptation to take or use the property while its original owner is still living.

With some assets, especially real estate, all owners must sign to transact business. If a co-owner (including an owner’s spouse) is unable to do so because of incapacity, a guardianship may be required to have someone able to act for the incapacitated owner.

With right of survivorship property, when one owner dies, full ownership usually does transfer to the surviving owner without probate; but what if that owner dies without adding a new joint owner, or if both owners die at the same time? Then the asset must pass through probate before it can go to the heirs. And because a will does not control most jointly-owned assets, someone in your family could become unintentionally disinherited when the property transfers automatically on death.

In general, joint ownership with right of survivorship is often relied upon as a probate-avoidance mechanism, but its risks are often not considered.

Moreover, avoidance of probate is not guaranteed with non-probate transfers. If “my estate” is listed as the beneficiary, or if a valid beneficiary is not named, the affected non-probate assets will have to go through probate, which will determine who gets what part of the estate. Similarly, if a minor is the beneficiary, the asset holder will probably insist on there being a court-appointed and supervised guardian to receive the assets and manage them for the minor.

There is, however, one kind of non-probate asset system that has been demonstrated to work exceedingly well to meet all of the client’s estate planning goals: the revocable living trust. Property that is held in a revocable living trust will bypass probate and can be used by the trustee to care for the incapacitated owner without court involvement or interference. Other non-probate assets that name the client’s revocable living trust as the beneficiary will also bypass probate.

Because of this improvement over traditional estate planning, revocable living trusts are a staple of modern estate planning. At J Eshman Law, as your estate planning lawyer and member of your professional financial and legal team, we can help you create a revocable living trust as a part of your estate planning process for lifetime planning and to minimize the involvement of probate court so your assets are managed and passed on according to your wishes.