I asked her how she had done that and she replied that she has her investments in laddered CDs naming each of her children as the payable on death (POD) beneficiary on 1/3 of the total investment so that each child will receive $150,000 when she dies.  I then posed to her a number of scenarios under which that won’t happen, meaning there could very well be an uneven distribution, leading to the same problem that Betty’s family experienced.

 Edna has made a common mistake I see frequently.  She assumes that the amount of money she has and where she has it will remain unchanged.  That is very unlikely.  For example, when  a CD matures she may roll it over to a new one or she may decide not to, either because she needs the money to live on or because she has decided to investment elsewhere.  So what happens if the money is sitting in her checking account when she dies and that CD happened to be money that would have passed to her son, Bob?  Well, Bob won’t receive that money unless he was a co-owner of the checking account.  He’ll receive less than his siblings.  In fact, if his sister, Mary, becomes a co-owner, because she lives nearby and pays Edna’s bills, then Mary will receive “Bob’s share”.   Now, you might say that Mary can just give that money to Bob if everyone agrees that this is what Mom wanted.  Yes, that’s true but assumes that everyone is aware and agrees on what Edna wanted.  It also requires Mary to make a gift to Bob that may have gift tax consequences to Mary.

 Perhaps a bigger concern is long term care, which Edna is completely unaware of.  As she ages she may need assistance at home, in an assisted living facility or even a nursing home.  If so, and she has done no planning for it, she will need to spend down huge chunks of assets towards that care.  Again, that will completely destroy her nice neat division into 3. As each CD comes due and she spends it, her estate plan becomes unbalanced.  And if Mary is managing Edna’s care and she happens to take one of “Bob or brother Joe’s” CDs  that’s a sure way to destroy family harmony.  And that’s clearly the last thing that Edna wants.

 Betty had two children from a first marriage.  Her first husband died when her children were young.  She married for a second time to Bob.  Bob and Betty were married for 20 years and, by all accounts, Bob’s relationship with Betty’s children was great.  Betty had gone to great lengths to set out a plan of distributing assets among her children and Bob and making that plan known to all.  A large part of her assets were held in one investment account which was worth $500,000.  She told her attorney who drafted her will that she wished to leave 50% of the account to her two children and the other 50% to Bob.

 Betty’s attorney prepared her will exactly according to her instructions with a paragraph identifying the investment account and how it was to be distributed.  But, the attorney cautioned Betty that the account needed to remain in her name alone.  He told her not to put another owner on the account and not to name beneficiaries upon her death.  That’s because doing either would override the will.

 Well, you can imagine what happened.  Betty died several years later.  She didn’t change her will but when her children sat down with Bob they got the shock of their life when they learned that the account was no longer just in Betty’s name.  It was now a joint account with right of survivorship.  That means Bob is entitled to 100% of the account and Betty’s kids get nothing, unless Bob decides to honor Betty’s wishes.

 Of course, that’s if it still was Betty’s wish to split the account 50/50.  Maybe it was, maybe it wasn’t..  Only Betty could say for sure and, of course, she could no longer say.  The children suspected that Bob had Betty change the account, although Bob swears that wasn’t the case, that he doesn’t even recall when she made the change.  Imagine how uncomfortable the family situation is now.  The children are talking about filing suit and Bob doesn’t know what to do.

 Just another example of how poor planning can really destroy family harmony and cause a whole lot of pain.

 Then there is Yung-Ching Wang.  Most people probably never heard of Wang but he ranked among Forbes Magazine’s top 200 wealthiest people in the world when he died last year at the age of 91.  Wang was a true success story, born into poverty, the son of Taiwanese farmers, he turned a $700,000 loan from the United States government during the height of the Cold War into a multi billion dollar international manufacturing conglomerate.  His company, Formosa Plastics, became the largest manufacturer of the ubiquitous plastic materials that we find in all kinds of products today. 

By all accounts, Wang was a management guru and a visionary.  His personal life was a little bit more, shall we say, messy.  He left a wife, to whom he was married for 72 years and 9 children.  None of those children, however, were born to his wife.  Oh, and he didn’t have a will.  No written plan of distribution from a man whose rightful heirs is now open to interpretation and who left property and other assets around the United States and around the world.

One of his sons has filed a complaint in New Jersey state court (he was a part time resident there) seeking to be appointed administrator, the official estate representative charged with gathering assets, paying all debts and taxes and distributing the balance to his heirs.  He already has a fight on his hands from two of his sisters.  Had Wang executed a will appointing someone this initial fight could have been avoided.

The battle promises to last for years and drain the estate of countless dollars.  One of the big questions is who the rightful heirs should be, not an easy answer since Wang fathered his children with several different women.  New Jersey’s intestacy laws address distribution of estates when no valid will exists but the laws are not perfect and there, no doubt, will be issues for which clear cut answers don’t exist.  Legal battles will ensue.

The lessons learned from the Michael Jackson and Yung-Ching Wang cases are clear for all of us.  You can save your family much heartache and expense by leaving a clearly thought out estate plan.  In Jackson and Wang’s cases, their estates are so complicated that courts will need to step in at some point to assist in the distribution.  However, Jackson’s family will have a much easier time than Wang’s since Jackson at least took care to express his wishes in writing.  For the average estate that usually is enough to eliminate the fighting the typically ensues when a loved one passes away.

Narrowly or poorly drafted wills can cause unpleasant and expensive results. Let’s take the simple task of designating an executor, the person who is appointed the official representative of the estate and is charged with gathering the assets, paying the debts and taxes, if any, and following the instructions set forth in the will and making final distributions to the heirs. It is a good idea to have one or more backup or alternate executors, in case someone can’t or won’t serve, when the time comes.

Now, most people would think in terms of the executor dying as the reason a back up is necessary, but that is just one possible scenario. Yet, I not infrequently see a will drawn up that states “if my executor dies then I appoint my alternate to serve.” Let’s say Child A is the executor and Child B is the alternate. Mom dies and A doesn’t want to serve. No problem. A will step aside in favor of B, right?. Except that A is alive and the will only provides that B can serve if A has died. So, what now?

B can serve as administrator. Same role and responsibilities but some very important differences. An executor can serve without a bond if the will so provides but an administrator cannot. And that can be an expensive difference. The bond acts similar to an insurance policy in that the company issuing the bond will pay out the inheritance if the assets are lost or misappropriated. The bigger the estate the higher the cost, sometimes tens of thousands of dollars. While a bond can be very important, many close knit families see it as unnecessary. Unfortunately, in our case there is no choice. Had the will stated that the alternate can step in if the executor dies or otherwise can’t or won’t serve, then the bond could have been avoided. A very expensive mistake and a reason you want to be sure that the attorney drafting your will is experienced in estate planning or elder law.