If your beneficiary is no longer alive, what happens to your inheritance?

If your beneficiary is no longer alive, what happens to your inheritance? You may be wondering whether if you leave property to your brother Jim, but he dies before you, would his kids inherit the property in his place? The answer is, only if your will explicitly states as much. To ensure your document is correct, it’s best to say so specifically in various particular ways.

The surest way is to word your will or trust like this: “To my brother Jim, but if he predeceases me, then to his surviving children [insert their full legal names], or to their heirs, __________.” The blank line shows another critical choice, but it’s too complicated to explain here. Call us to assist you.

If you haven’t explicitly worded your documents like that – for example, if your will or trust says “to my brother Jim,” but he has died first, and there’s no mention of his children – then the answer may become unnecessarily complicated. The gift would be saved for his immediate family, thanks to “anti-lapse” laws that all states have on the books, but it’s safer not to rely on those laws. Things might get complicated fast, especially if your brother’s family is a “blended” one with numerous stepchildren.

Attorneys Can Help Ensure Your Will or Trust be Established Correctly

Ensure that your will or trust will work the way you want it to with the best solution, a lawyer. We help families with their estate planning needs and would be honored to meet with you.

It’s important to remember that estate planning is not “one and done.” You should update your plan every five years or so (or sooner if you or a loved one’s health changes) to account for any changes in the lives of your beneficiaries or if your goals have changed.

Many people seeking to avoid a crisis think that adding their children to their bank accounts is an ideal cure. Their primary goal might be to ensure that their children or loved ones have access to their finances in the event of an emergency. Or perhaps they would like to avoid probate. Although this strategy might work for some people in rare circumstances, most of the time it backfires. Here are five things you should consider before adding your children to your bank accounts:

  1. Lawsuits: Let’s face it, lawsuits can be one of those things that creep when you least expect them. Although some professions might be more susceptible to lawsuits, we never know the circumstance that might arise to land our children in a potential lawsuit. That jointly held account will be at risk to your child’s debts, creditors, and potential bankruptcy. Because your child’s name is on your bank account, that asset is legally theirs. If they have a creditor, they could technically use your funds to satisfy a judgment against your child if they are listed as a joint owner.
  2. Divorce: If your child is married and gets divorced, their spouse may try to claim that jointly held asset as a marital asset. This is not to say that the court will agree, but instead of having to defend that claim, better to have the legal distinctions already set in place. There are legal tools that enable you to distinguish your child as your agent versus an owner of that asset.
  3. Your Estate Plan: Most property held jointly means that once you pass, the whole property or asset will pass to the joint owner upon your passing. This can be a problem when you have multiple family members that you would like to inherit that asset. Having a will does not supersede the transfer to the surviving joint owner.
  4. Uncle Sam: Taxes. Taxes. I am sure you and your family would not be opposed to taking advantage of a hefty tax-saving every once in a while. Adding a child to your investment account or property can potentially disqualify them from receiving a step-up in basis. That’s just a fancy way of saying that they could miss out on a huge tax savings opportunity if the investments or real estate grew in value between the time you purchased it and the date of your death. Adding your child as a joint owner hinders this tax saving, which means less in their pocket and more in Uncle Sam’s.
  5. Familial Harmony: I think most of us like to think we know our children and can predict the future. The truth is no one knows what could happen when a true emergency arises. At the end of the day, when your child is listed as a joint owner on your bank account, they could control the whole account. They can legally use all the funds for their own benefit without repercussion. And while you might be thinking that your child would never do that, if they ever have a power of attorney, their attorney-in-fact can also access those funds and cause problems.

The big question becomes: if I should not add my child to my bank account, what other options do I have? The answer to that is different depending on your circumstance, but there are legal tools that can be implemented to help eliminate all of these issues. The bottom line is that there are much more effective estate planning tools that can help you avoid or limit your exposure to these situations such as a Durable Financial Power of Attorney and the use of a Revocable Living Trust that includes detailed disability instructions.

If you have any questions or concerns regarding you or your loved one’s estate planning, please know that support is available, because even the most prepared will need guidance at one turn or another. You can always reach out to Absolute Law Group for a consultation as you prepare for the next step in you or your loved one’s estate planning.

By: lama Alqasemi, esq.

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