If you want to structure your legal affairs so as to (1) keep your assets in your family; (2) leave assets to loved ones protected from lawsuits; (3) have your loved ones be able to take steps to qualify you for government benefits such as Medicaid; (4) avoid the acceleration of income taxes on retirement accounts; (5) avoid estate taxes; and (6) keep your affairs private and out of the view of the general public, then you need a good estate plan.
A good estate plan for you and your family will also avoid the “last minute switcheroo.”
Without careful guidance and representation from a qualified attorney, you will not achieve all of the above-stated benefits. After having represented more than 2,000 people over the course of more than 19 years, I have seen many cases where the survivor altered the ultimate distribution of assets, sometimes disinheriting people that the first spouse did not want disinherited.
This is “the last minute switcheroo” most want to avoid. The solution to this is to leave assets “in trust” with vested remainder interests and/or to use an agreement not to alter the plan. Let’s say, for example, Jason and Jennifer (the clients) have two children: Frank and Charlotte. The clients are in their late 60’s, and they want to make sure Frank and Charlotte will inherit what is left over in equal shares. They also want to make sure that it will not be subject to loss in divorce if either of their children get divorced. They also want to make sure their kids can try and qualify them for Medicaid should they become disabled. What should Jennifer and Jason do?
They should each make sure their papers direct their assets (upon survivor’s passing) go to their children in two separate trusts. Each child can be the trustee of their own trust. Each child will therefore have total control of the trust which is for their benefit. It will be protected from loss if they get sued (exceptions: IRS and child support). But, in all other cases, the creditors will be out of luck. This is like a built-in prenuptial agreement for your assets. Jason and Jennifer can also make sure when their kids pass that the remaining funds will go to grandchildren, and not in-laws.
If Jason and Jennifer do not sign an agreement not to alter the plan, then if Jennifer survives, there is nothing preventing her from being taken advantage of by someone else in the future or from her getting remarried and changing the disposition of her property. Under South Carolina law, an agreement not to alter the plan gives the children rights that are enforceable in court.
So, if Jennifer survives and then redirects her property to a new love interest, or if she is unduly influenced to change her papers, the children (Frank and Charlotte) will be able to assert their rights in court. They could have Jennifer’s new will or amendment to her trust set aside. This preserves their inheritance, and avoids the last minute switcheroo.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com