Personalized Estate Planning for Special Circumstances

by Daniel A. Bechtold and C. Kelley Corbridge

Estate planning is a very personalized process because of each individual’s unique needs and circumstances. Personal situations may require specialized planning and drafting, and it is important that your estate planning attorney is made aware of these needs and circumstances so that they may be addressed.

What follows is a sample of the types of situations that may require specialized planning:

Re-Evaluation of Distribution Plans

You should periodically examine your asset values, asset titling (including beneficiary designations) and how those assets will be distributed after death. Changes in both real estate and stock market values have potentially impacted many clients’ distribution plans. The ultimate size of the estate may be significantly smaller than when the distribution plan was first created. These valuation changes can have a significant impact on your intended heirs when a portion of the bequests are in the nature of specific dollar amount gifts rather than expressed as a percentage of the estate. In some situations, the dollar bequest may “consume” a significantly larger portion of the estate and leave less for the “remainder” beneficiaries. Additionally, alternate distribution arrangements outside of the will or trust (i.e. beneficiary designations for IRA’s, insurance, annuities, pay-on-death accounts, etc.) may sometimes result in insufficient assets to fulfill the distribution scheme.

Second Marriages – Minimizing Future Conflicts

Second marriages are frequently fraught with emotional issues for both the new spouse and the children from a prior marriage. Add money and inheritances to the mix and you have the potential for litigation after the first spouse’s death. Such problems may be minimized through the use of proper planning, including the use of an independent 3 rd party Trustee, nuptial agreements, careful analysis of asset titling and beneficiary designations, and especially a broad understanding by all of the parties of what to expect at the time of each spouse’s death. These are issues that take an in-depth discussion and analysis during the spouses’ lifetimes. Furthermore, the planning for these issues may change over time, depending on the longevity of the marriage.

Heirs With Problems Managing Money:

There are many ways to leave an inheritance to your heirs: outright; in Trust; annuity payouts over a lifetime; discretionary distributions; and incentive distributions, are some of the more common methods. The distribution plan for a particular heir may be customized based upon that heir’s individual needs, abilities and circumstances. Additionally, the choice of the “decision-maker” may be critical to this choice – both to prevent family disharmony as well as to insure your wishes are being fulfilled.

Heirs with Creditor Issues:

Clients are frequently worried about their children’s inheritance being exposed to creditors of the child, including divorcing spouses. Given the recent economic downturn, these creditor problems are reaching greater numbers of children and heirs. There are certain estate planning techniques, including limiting access of the child through a Trust, that may be created to minimize creditor exposure and still retain benefits for the child.

Heirs with Substance Abuse Issues:

Children (or grandchildren) often make bad choices in life, including the choice to partake in illegal or addictive substances. Distributing assets directly to such children may simply exacerbate such problems, while disinheriting such children provides no incentive or assistance to conquer the addiction. Trusts may be created to assist such children with needed treatment or to withhold funds if the addictive behavior continues or returns.

Heirs with Special Needs:

Periodically parents have disabled adult children who are eligible for public aid. Leaving funds outright to such children (or even in a trust that is not carefully drafted) may result in disqualifying those children from that public assistance. A properly drafted “special needs trust” may allow such disabled children to continue receiving public aid, while providing additional support to improve the quality of such child’s life.