As the “most interesting man in the world” might say: “I don’t always think about estate planning, but when I do, I think that everything I have will go to my family”. And, just as not everyone agrees with his choice of beer, many people who have been through administration of a loved ones’ estate can tell you that he is wrong about this as well.
Since you can’t control what happens after your death, your family members may get into a situation that effectively gives everything, or a substantial portion, of what you earned to someone you never even met. Even someone they never met. Like a creditor.
Your will leaves a substantial sum to your daughter who is 21 when you die. But a year after you die, she is in a car accident and it is determined that she was at fault. The other driver sues her for damages for far more than her insurance covers. If the other driver wins in court, your hard-earned money could fund the other driver’s retirement.
You have an IRA with your son named as the beneficiary. When you die, your son receives the money in your IRA. He gets married and he and his wife (who you never met) have several joint credit card accounts. She loves to spend money and thinks the IRA inheritance is her golden ticket to the mall. In fact, she spends so much money that she and your son have to file for bankruptcy. As soon as the credit card companies find out about the IRA, they may be able to access it. (The U.S. Supreme Court ruled in 2014 that an IRA inherited by a child or grandchild is not protected from creditors, which includes inheritances in Nevada.)
Your son knows that he will get about $500,000 in life insurance from you when you die. So does his wife of ten years who has just filed for divorce. Even when your son has not even received the proceeds from the policy yet, his soon-to-be-ex can lay claim to a portion of even an anticipated inheritance.
Unlike “the most interesting man in the world,” you now know some of the reasons that your family may not inherit your hard-earned assets. An estate planning attorney can help you avoid these scenarios with proper trust planning.
Source: AARP.org, “Make Your Estate Creditor-Proof: Here’s how to ensure assets go to your heirs,” Lynnette Khalfani-Cox, July 30, 2015