What are some pitfalls in planning?

Host: What are some pitfalls in planning? William Conway: One of the most important things that I think we can talk about is that planning by using Joint Tenant Rights of Survivorship, planning by using beneficiary designations, which most people think is a plan is going out of plan at all and the reason it's not a plan is because people are subjecting the assets to forces on which they have no control. If we take a simple example, we have a happily married couple with teenage children and those children are named as secondary beneficiaries on mom and dad s life insurance policies. Mom and dad hold all the assets as Joint Tenant Rights of Survivorship, meaning that if mom died first or dad died first, the survivor would receive all those assets. So, they think they appoint them, they think that since all the assets would go to mom at the death of dad and in the circumstance at the date of death or death of both of them, the assets will flow to their children, that that is an adequate plan. But a lot of things can happen, lot of things can go wrong and one of the things that can go wrong is that dad and mom can accidentally disinherit the children. They are not intentionally doing this, no one meant to do it, but it just happens. But say mom passes away, the kids are now in their 20s or 30s and dad remarries, he remarries happily, that is no problem. He and his new wife are living well and really happily and because the assets that they put together as a family and the transfer of the assets work so smoothly and part because dad was not thinking that clearly when he remarried, he titles all of the assets that he and mom had accumulated as Joint Tenant Rights of Survivorship with his new spouse. His new life insurance policies are based upon or the life insurance policies in his life are based upon the transfer to his new wife. He assumes that those assets will one day be transferred to his own children, but in the circumstance of his death, his wife, now much older does not think to include those children in her plan.

The assets accidentally do not go to the children, they have been accidentally disinherited, not because mom did not intended giving assets to her children, she certainly did, not because dad did no intend giving to his children, he absolutely did. In part, not necessarily because there was any maliciousness on the part of the second spouse, she just did not think to include those children in her plans either. So, we have an accidental disinheritance. Another circumstance might be that happened much earlier in life. Perhaps mom passed away and then dad passed away very soon thereafter. We now have a beneficiary designation going to young children, perhaps teenage children, not yet of the age of 18.

Who is going to be in charge of controlling these assets? Mom did not name anybody, dad did not name anybody, but no one is illegally able to control those assets for the children until they reach the age of 18. They must have somebody to control those assets, when before they reach the age of 18. We now have a court determining who that person is going to be. It would not be someone the mom selected, it would not be someone dad selected, it is just the court determining that. Now, let us assume that works out, alright not perfectly, we now have a young man, a young woman, their two teenage children, they are 18 year old children now, 19 year old children of mom and dad inheriting large sums of money.

We obviously, do not have much of disagreement among people to think that 18 year olds, 19 year olds, 20 year olds are not good custodians of money, not again necessarily because they are bad people, but just because they have no life experience. They become the quintessential opportunistic opportunity for somebody to separate the foal from this money. So, Joint Tenant Rights of Survivorship and beneficiary designations are in themselves, not a plan. They allow for accidental disinheritance, they allow for assets to be taken away from people that otherwise you would not be able to. One more case, in the circumstance that mom and dad pass away, the child to whom it might otherwise have gone, let us assume that he or she has had an automobile accident. He or she might also be incapacitated at the time of the receipt of the resources and now we have a circumstance where once again, a court has come into play to be able to control the resources for that incapacitated person. So, planning is important to maintain control. You want to make sure that we are maintaining control on the circumstance of incapacity, in circumstance of disability, in the circumstance of death, in the circumstance of taxation.