Avoiding Unintended Consequences is Wise

Outdated plans can wreak havoc on an estate and can cause unintended consequences. The primary goal for most people when planning their estate is to ensure there will be no surprises in terms of taxes and distributions.

We recently had a case where mom had a trust (created by another attorney) that had been amended four times. In her fourth amendment, she included a formula spelling out who gets what, mostly in terms of percentages. Then it dictated that if the trust assets were below a certain amount ($800,000) then the percentages would be pro-rated down.

In the course of administering this trust and the estate, we determined that many of mom’s assets were owned jointly with the right of survivorship with her daughter. The result was that there was much less in the trust than intended. Accordingly, the percentage distributions had to be prorated down because more than half of her assets passed to her daughter automatically. As a result, the other beneficiaries’ share that mom intended for them to inherit was cut in half. I do not think it was what mom intended.

However, there is nothing that can be done about it now. It is wise to make sure your goals will be fulfilled. As the above example illustrates, an ounce of prevention is worth a pound of cure.

Contributed by Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.