Winning a gold medal in the Olympics is a big deal. It's an even bigger deal when you’re in a sport where nobody pays much attention except during the Olympics. Like, for instance, target shooting.
So let me take you back to 2004. Matthew Emmons, an American shooter, was competing for gold. He was well ahead and on his last shot, all he had to do was hit anywhere on the target, which should have been easy for him. And he hit a target all right. The problem is he aimed at the wrong target and hit the target for the next competitor over. It dropped him all the way out of medal contention and instead of gold, he got nothing.
Now let me tie this into estate planning. I had a situation come up recently which is a good example of a common misconception. Of course, I will change the names, and a few other details, to avoid violating confidentiality.
Harry and Sally (we’ll call them) set up a living trust a few years ago. It had fairly typical terms, in which all of the assets were available to either of them as long as they were alive, but when they were both gone, everything would be split equally between their children, Junior, Buford, and Suzie. They deeded their house into the trust and made arrangements for all their accounts to go to the trust as well. So far, so good.
But then Buford ran into trouble. He was in a nasty divorce and it was costing him a fortune. Over the course of several years of fighting, Harry and Sally gave him a total of $50,000 to pay his lawyer. Then at the end of the case, he had to pay off his ex to avoid losing his house, so they gave him another $50,000.
Harry and Sally did not expect Buford to pay them back during his lifetime, but they felt it was only fair that the money would come out of his inheritance. When they created their trust, they had also signed “pour-over wills” which said that everything goes to the trust. They found out, from an article they read online, that you can change a will with a “codicil.” They found a couple of forms for codicils and signed them, saying that $100,000 would be credited against Buford's share of the estate.
There was just one problem. They were, in effect, aiming at the wrong target.
When you get a pour-over will, the plan is that you will never have to use it. That kind of will is a fail-safe in case something doesn’t get into the trust. For instance, if you are involved in a lawsuit when you die and somebody has to pick up your end of it, or there is an insurance settlement to be collected, or if you made a mistake and didn’t put that credit union account into the trust, then you have a will to get that claim or asset through probate and put it into the trust. But if everything does work right, there is no probate and therefore the will is never used.
Do you see the problem? Harry and Sally put everything into the trust, and the trust still said that everything is to be split equally. They had a provision in their wills which said that $100,000 is credited against Buford’s share, but the wills never came into effect.
Unfortunately, this is a fairly common problem. People often assume that their will covers everything. But not only do assets in a living trust bypass the will, but so do assets that have a direct beneficiary, such as an account with pay-on-death provisions.
The solution would have been to amend the trust to put that provision in, not to add codicils to their wills. That would have been hitting the right target.
Kenneth Kirk is an Anchorage estate planning attorney. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. The names have been changed to protect the innocent. Not Kenneth Kirk’s name of course; he’s kind of fond of it.
