Your family members might NOT “do the right thing” when the time comes

December 15, 2014 - Posted by: admin - In category:

taxes - No Responses

Parents want to think the very best of their children and much of the time such children are worthy of their parent’s trust and reliance. However, there are also times when children are not quite as angelic in nature as their parents would like to believe and this is true regardless of whether we are talking about young children or adult children. We see this truth repeated over and over in the world of estate planning.

One “do it yourself” approach that is often used here in Utah is the practice of one or both parents putting a family member “in charge” of their affairs, including their assets and healthcare management through an informal arrangement (i.e. an “understanding” or “promise”). Sometimes the parents will designate the oldest child or a team of the trusted children. In this context, the specified child is then told what the parents would like to have happen later, both with regard to their property and also with regard to any medical decisions that become relevant down the road. This child is then added to the bank account, real estate deed and title of other assets by the parents and this is done with an eye of avoiding the need of hiring an attorney and the sincere hope of avoiding probate and other “messy” situations down the road.

At the core of this approach is the heart-felt belief that the family member (or other individual) who is being placed in this position of trust will “do the right thing” when the time comes and there is no need to have any sort of legal framework put in place as part of this arrangement. We recently added Myth #21 to our website (though it was not included in my recent book about the 20 myths of estate planning) and this is fitting, given that the belief that a family member or other person will simply “do the right thing” is a myth in all too many instances.

The sad reality is that when the critical moment arrives in the future, when that designated person is then expected to follow through with “the plan”, such person can sometimes have a change of heart and instead choose to do what that person wants, what that person views is best (for that person) and the best laid plans that were formulated in earlier times can then be frustrated and forgotten. Even more sad in these types of situations is that where there has been no prior legal framework put in place, sometimes there is nothing that can be done at a later date to force the designated person to adhere to the earlier “agreement and understanding” because such prior arrangement was not a legally binding agreement.

Thankfully things often turn out much better than what is described above.  Sometimes children and others will honor prior understandings and agreements, even if not legally bound to do so. And while these type of informal arrangements can still result in unnecessary taxes and other avoidable expenses, there are certainly many times when these informal arrangements go according to plan. However, the opposite is also true and it is unfortunate and perhaps an ever-increasing trend that someone who is given property and/or responsibility under the understanding that such person will “do the right thing” at the applicable time in the future does NOT actually do so when the time comes.

Why take the chance? Is it worth saving a few bucks and the effort of doing it right on the front end to rely on the hope and belief that things will “work out” in the future? Our clients have come to the wise conclusion that it is NOT worth leaving it such things to chance.

The choice is yours.  Choose wisely.

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