A frog was hopping along a dirt road when he came to a fork. He could choose to go to the right or left, but he was not sure which way to go. He consulted countless other frogs, and most told him to take the road to the right since it led to a big pond with lots of lily pads, plenty of flies, and lots of other frogs. But it was a longer path to get to a pond, and it would take a little more hopping to reach the destination.
A few frogs, the lazier and less bright ones, told the frog to go to the left since there were a few puddles on the road to the left, but no pond at the end of the road. “But why should you work so hard?” one sleepy frog said. “Just go to the left and there are guaranteed to be some mud and water soon, and there may be a few flies there, too. At least that’s what I’ve heard.”
The frog sat there, confused. What if the road to the left was the better one? It certainly sounded easier. But the road to the right was considered a better road by everyone the frog respected, and that large pond sounded nice. But what if they were wrong? What if being lazy and going to the left was better?
The frog sat there for hours looking to the left and the right, when, without warning, it was run over by a kid on a bike. The moral of the story? If you can only go right or left, standing in the middle of the road makes no sense.
All too often this is the case with life and estate planning. People know that they have to do something to put a plan together, but some people freeze over making decisions because they are unsure of which course to take. Who should be trustee and handle money for underage beneficiaries? Who should make healthcare decisions if you can’t? What age should beneficiaries be when they take control of their inheritance? How much should go to a spouse or children? Unfortunately, if you do not make your own choices, then all of these decisions are made by the government… and you probably won’t like the outcome.
Trustees and Executors
If you don’t make a decision on who you want as your executors, or the trustees overseeing assets until children reach age 18, then your closest living relatives are put to the front of the list. Then it is up to a court to decide whether or not those relatives are able to handle the job. So your brother whom you don’t trust but who can balance a checkbook? He might get control of your assets. The eighteen year old child who will use the money for their own benefit rather than equally among all of the children? They get power over the checkbook.
“That’s not right!” you may be saying. “People know I would never name my brother or my 18 year old child as executor!” It doesn’t matter. Courts do not care what you might have wanted if you had executed the documents in the correct legal format. You didn’t take the time to make your own choices, in writing and in the proper legal format, so now the law and the courts choose your executors.
More frightening than what happens to your money and assets after you are gone is who would make life and death decisions for you if you were not able. If you don’t make your own choices for healthcare agents ahead of time, then your “next of kin” or closest living relative makes those decisions for you. It doesn’t matter if you have a best friend who is a doctor, or if your cousin is a nurse, it is your children or siblings who may have no medical knowledge whatsoever who would be put in charge of your life. While it doesn’t make individual sense, the law assumes that the people you are most closely related to will care enough to make the best medical decisions if you don’t choose to put alternative wishes in writing. It rarely works perfectly, but, other than creating a healthcare power of attorney and choosing the agents you feel best, it’s probably the best of the alternatives.
Ages of Beneficiaries
Except for a very few things in life, like consuming alcohol and renting a car, being an adult comes at age 18. There is no requirement that being an adult for inheritance under the law means being 18 AND responsible. And so when someone fails to use age limitations in life and estate planning documents, or they fail to use any legal documents at all, then the age of inheritance in most, if not all, states is 18. A beneficiary may not be responsible, but they still get control of their inheritance at 18. (Question: when was the last time you saw an average 18 year old get even $10,000 in cash and put all of the money away to save for the future?)
You should also be aware that naming your minor children as beneficiaries on a bank account or life insurance policy ensures that they inherit at age 18… even if your Will or Trust says they inherit at a later age. Having a pay on death or transfer upon death beneficiary designation means it bypasses probate, bypasses the Will’s age restrictions, and bypasses a trust completely. Having age limits in the right legal documents in combination with the correct beneficiary designations means that you can choose later ages such as, 25, 30 or even 60 if you feel that is appropriate. Leaving these decisions to “the law” means that your right to choose the ages you feel are appropriate for inheritance are meaningless.
Aside from a few rules disallowing the disinheriting of a spouse, you can choose to leave your assets to whomever you choose. Do you want your niece to get a dining room set? No problem. Do you want to make sure that your oldest son gets your extensive fishing and camping gear? No problem. Do you want to leave $10,000 to your church or a charity? No problem. Do you expect for all of this to happen just because a few people were told that’s what you wanted, or you assume that the law just “takes care of it”? Big problem.
The law doesn’t always do what we expect. If you are married and have children in the State of North Carolina, and many other states, then your spouse does not automatically inherit everything. In fact, with two or more children a surviving spouse only gets about 1/3. No children? The spouse only gets half if you have one or more parents living and the inheritance is split with them. And what if you haven’t spoken to a child in 20 years… they can still end up with an inheritance if you fail to plan ahead using the right documents.
There are incredible opportunities to leave behind a legacy of your choosing, whether it is family members, friends, charities, or some combination of all of them. But choosing not to make any choices is a decision to leave the choosing up to the State and the Courts. Why not take advantage of your right to make these decisions?
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