7 Estate Planning Twists Everyone Should Know

You learn a lot of interesting things in estate planning.

Most estate planners like what they do because of the variety of issues they face and the interesting things they learn about people. Here’s a collection of issues I’ve come across recently and questions I’ve been asked.

When I was in law school, the transfer on death account (TOD) merited only a footnote in estate planning books.

Now, the TOD is featured in the account applications of almost all financial institutions. Most non-lawyers know about TODs and many use them.

There are details about TODs you should know.

To refresh, you often establish a TOD simply by marking a box on the application and naming a beneficiary or beneficiaries. The effect of this is that after you pass away, legal title to and control of the account automatically transfer to the beneficiary. All the beneficiary has to do is present the financial institution with proof of identity and a copy of your death certificate. The TOD avoids Probate.

An unfortunate consequence of these accounts is people often forget they established TODs. They don’t update the beneficiary as circumstances change. A person might designate their two children as beneficiaries and then forget to add the third child after she’s born. Or a beneficiary might predecease you. In that case, the account goes to your estate and is subject to probate unless you named a new beneficiary.

There also can be unequal inheritances between your children when you don’t coordinate TODs with the rest of your estate plan and with the children’s tax brackets. Or TODs can cause problems between the children when they’re named joint beneficiaries of an account.

Keep in mind that in most states your spouse has legal rights to your assets that supersede the TOD designation. A surviving spouse often can elect to receive a percentage of the as-sets, overriding the TOD designation.

Of course, if you use the TOD designation with too many of your accounts, your estate won’t have any cash. It won’t be able to pay estate expenses, your debts and any taxes due.

Though often called a will substitute, a TOD doesn’t replace other parts of an estate plan. For example, if you be-come unable to manage your accounts, the beneficiary has no right to step in. You still need a power of attorney appointing someone to manage the assets.

More and more people want to ensure any pets that survive them are taken care of.

In most states, the law allows you to provide for pets in your will and estate plan.

Fashion designer Karl Lagerfeld passed away in February. News reports said he confirmed several years ago that his pet cat will receive part of his estate and be well taken care of. Lagerfeld lived in France, which doesn’t allow pets to inherit, but he was a German citizen. Germany allows pets to inherit.

Some years ago, billionaire heiress Leona Helmsley made headlines by leaving $12 million of her $5 billion estate to her dog. A New York court reduced the dog’s inheritance to $2 million but otherwise allowed it.

Generally, the strategy would be to set up a trust to provide for pets. Do so either in your will or during your life. Then, provide in your will that cash or property from the estate be transferred to the trust. You also must name a trustee to ensure that the pets receive proper care. Your estate planner has to check to determine if pets can inherit in your state.

Most often, pets are taken care of informally by a friend or family member who agrees to adopt them. But high-maintenance pets or those with special needs sometimes need a bequest.

A common feature of most wills of married people is the survivorship clause.

The will usually provides that the surviving spouse inherits most of the estate, and the survivorship clause states that the spouse inherits only if he or she survives the other spouse by at least 30 days.

The purpose of the clause is to prevent the cost and delay of two back-to-back probates when the spouses die in a common accident. The clause also prevents litigation over which spouse died first. The clause was more important when most estates were subject

to estate taxes; it prevented the same assets from being taxed twice in a row. But the survivorship clause can cause problems and unintended consequences, as shown in a recent case.

A woman, Jill, passed away, leaving a substantial estate. She left most of the estate to her longtime partner, Joan, to whom she wasn’t married, with any amount left over going to three charities. The will had a 30-day survivorship clause. Joan had a will that left most of her estate to her daughter.

But Joan died two weeks after Jill from unrelated causes. The executor said that meant Joan inherited nothing from the estate, so the daughter inherited nothing from it. He ordered the daughter to re-turn the keys to the houses and vacate the buildings. A court supported the executor.

Pending appeal, the daughter receives nothing and the charities receive the entire estate. Often, lawyers insert survivorship clauses into wills automatically. A survivorship clause is a good idea for a married couple with wills that mirror each other. In other situations, carefully consider the effects of the clause in different scenarios and decide if those are the results you want.

Details and clarity matter.

I’ve seen a number of reports recently making that clear. Actress Elizabeth Hurley’s son, Damian, secured a share of a trust established by his wealthy grandfather after litigation over the meaning of “grandchildren.” The issue in the case was whether the grandfather intended for grandchildren born out of wedlock to benefit from the trust.

The grandfather argued in an affidavit that he only intended grandchildren who grew up in the household of one of his children to benefit from the trust.

But the law in all U.S. states now is that out-of-wedlock children and grandchildren are treated the same as other children and grandchildren. In many states, adopted children also have full rights.

A person has the right to exclude out-of-wedlock or adopted children and grandchildren from benefiting under a will or trust. But the intention must be clearly stated in the documents.

The Washington Post had a long piece focused on problems black farmers had passing their land to succeeding generations.

The Post had to publish a large number of corrections to the piece. Part of the problem for both the farmers and the Post is inaccuracies in wills, trusts and even real estate public records. Simple errors such as omitting to include “Jr.” or “Sr.” after a person’s name can cause the wrong person to become the legal owner of property. The mistake can be duplicated over generations, resulting in rightful heirs being excluded from the property’s ownership.

The dangers of leaving property jointly to multiple heirs also were highlighted by the Post article. Often, at some point the heirs disagree over what to do about the property, especially when it is commercial real estate, including farms, or a small business.

When heirs can’t agree what to do with a property, in most states one or more of the heirs can ask a court for a partition. The court might order a partition in kind. That’s when the property is subdivided. Each individual owns a portion outright and has no rights in the other portions. When it is difficult to divide a property fairly or the owners can’t agree on an acceptable division, the court will order that the property be sold and the proceeds divided among the owners.

It is likely that when one or more heirs are asking for a partition, their relationships have deteriorated. It is easier for an owner to simply leave property jointly to the heirs, but that often causes relationships, and the value of the property, to deteriorate. Consider ways to divide property, leave the heirs different property or add life insurance so heirs inherit equal value without jointly owning property.

Loved ones continue to be hurt when someone dies without a will.

In a case reported in The Boston Globe, a woman lived with her mother and stepfather for decades in a house

the couple owned. In recent years the woman’s husband and their children also lived in the house.

The woman’s mother died first and didn’t have a will. Two years later, the stepfather died, also without a will. Since the father didn’t have a will, the court appointed a lawyer to serve as executor of his estate.

The daughter inherited nothing when the mother died. The husband inherited full title to the property. Since the husband died without a will, state law decides who inherits his estate.

In Massachusetts, a stepdaughter who wasn’t formally adopted doesn’t inherit from the stepparent when there wasn’t a will saying otherwise. The stepdaughter inherited nothing. Instead, it appears that the stepfather’s nieces and nephews in Barbados, most of whom he never met, will inherit the property.

If the stepfather had died first, his wife would have taken title to the property and her daughter eventually would have inherited the house. Since the mother died first, the daughter has no rights.

I’ve said before that you’re likely to be surprised who would inherit your estate if you die without a will. This case is a clear example.