How to avoid unexpected and unwanted consequences
The following situation demonstrates the importance of regular and timely reviews of an estate plan. It also points up the desirability of including sufficient flexibility in an estate plan to allow for unanticipated circumstances.
A certified public accountant referred her client, Edith, to us. Edith’s husband, Walter, had died several years ago, and she asked us to review the administration of Walter’s estate, an administration that was being handled by another firm. Apparently, the estate had not yet been completely settled. The accountant had reviewed the federal estate tax return and had found errors, which led her to question the handling of the administration of the estate generally.
Walter had been head-strong, enjoyed being in control, and was accustomed to doing things according to his rules. He was an attorney by profession although he did not fully understand nor practice in the area of estate planning. Nonetheless, he drafted his own estate plan. He failed, however, to review and update his estate plan in the last several years of his life, despite the numerous financial and personal changes he experienced. The result was a plan that, in the end, failed to accomplish his most cherished goals. He had bequeathed certain assets that he thought had minimal value to his grandchildren, with the balance to be distributed to his children after his wife?s death. His primary goal was to ultimately benefit his children, but as it turned out, he had given the bulk of his estate to his grandchildren, at the expense of his children, due to the increase in value of assets bequeathed to his grandchildren after he drafted his estate plan.
We met with Walter’s wife and daughters, and reviewed the administration of his estate. They had already spent over $80,000 in legal fees and expenses on the administration, in part because Walter’s plan did not address a number of issues that required resolution at his death. We felt that it was in the estate’s best interest not to intervene and instead to allow the existing attorneys to close it. We were left, however, to deal with Walter’s mostly inflexible estate plan.
Most estate plans provide for some flexibility and post-mortem estate planning options. In his estate plan, Walter had left his wife little “wiggle room” to amend his plan to accommodate changed circumstances. As a result, we had few options. We immediately had Edith set up her own estate plan with her own assets, wherein she was able to primarily benefit her children. We also had her exercise a limited power of appointment that Walter had given her in his trust; unfortunately, the power was available for only limited assets, leaving the remainder to be distributed primarily to grandchildren, which Walter thought was appropriate when he drafted his plan, but which was no longer desirable in view of the changed circumstances and which he would no longer have wanted if he were alive.
With some additional, limited post-mortem estate planning, Edith will be able, over time, to direct more of Walter’s assets to their children. Considering her age, however, it is doubtful that she will have sufficient time to successfully affect the bulk of the assets in Walter’s estate.
Had Walter engaged in a regular review of his estate plan with an experienced estate planning attorney, his plan could have incorporated the flexibility necessary to avoid these pitfalls. It is impossible to predict the future, so, keeping your estate plan flexible and up-to-date is crucial and can often serve to rescue what otherwise would have been an undesirable and unintended result.