Estate Planning Senario: PLANNING FAILURES AND THE CONSEQUENCES THAT FOLLOW

ESTATE PLANNING SCENARIO: PLANNING FAILURES AND THE CONSEQUENCES THAT FOLLOW

By: Alan Orlowsky

Let's Talk about....... An Estate Planning scenario that examines the planning failures and the consequences that follow. This is scenario number 1 and will be posting 2 additional scenarios later this week.

Sam and Susan were happily married and living in the western suburbs of Chicago.  This was the second marriage for each of them and they each came to the marriage with two biological teenage children.  All four children lived in the family residence.  Because Sam’s first wife had died in an auto accident, Susan had become the de facto mother to Sam’s children and became a stay at home mom/step-mom.  In all respects the family was your typical blended family and  were doing quite well, including Sam, who had a good job and the salary to go with it.  Unfortunately, Sam became very ill and ultimately medical tests revealed that he had pancreatic cancer and only a short time to live. 

Sam did not have a Will Prepared.

Prior to this time, although aware of his need for an estate plan to protect Susan and the children, Sam had done little or no planning.  As such, he immediately contacted his brother’s attorney to have a will and trust prepared.  But by then the die was cast because Sam had failed to purchase the life insurance the family would require.  Notwithstanding this fatal mistake, Sam established a will and trust whereby Susan would inherit the house and his children the $250,000 he had in an IRA account.  He appointed his brother as trustee of the IRA and all other assets were given to Susan. Unfortunately, along with the assets Susan was to receive, she was responsible for all the liabilities, including a large mortgage on the residence.  It was a disaster...the numbers didn’t work.  Susan realized that she would be forced to get a job and put the house up for sale in a housing market that was in shambles.  If she was lucky a sale would generate sufficient funds to pay off the mortgage.  If a buyer could not be found then Susan would be facing foreclosure!  In either case the children would be uprooted from their home and maybe from their friends as well.

Sam's Brother in Law refused to release funds.

 Sam died within three months of the diagnosis.  Susan was now the sole parent/step-parent to the Sam’s children.  Although the children were not adopted she took on the responsibility for raising them.  She listed the house and got a job, quickly ran out of money.  During this time she requested funds from her brother-in-law, the trustee of the trust which held the IRA.  The funds were needed to help pay for the support of Sam’s children.  He refused to make distribution!  His refusal, although we never will really know, I believe was due to some past perceived slight or disagreement.  In any case, the trustee was in violation of the terms of the trust and had turned against his own sister-in-law!  Ultimately through legal pressure the funds were released, but the damage had been done, not only to the trustee’s nephews, but also to Susan.

The lessons to be learned from this story are typical.  People fail to adequately plan for their families because it is uncomfortable to confront mortality and the difficult decisions and commitments that need to be made when planning for death.  It is much easier to procrastinate.   As with Sam, nobody wants to believe that he or she will suffer a premature death.....but it happens all the time! Susan failed as well.  She never encouraged Sam to prepare for the unthinkable.  Although your chances of living a long life are good, the consequences of dying prematurely are horrendous.....as Susan discovered to her dismay. 

If you have questions about this post or about a particular legal situation related to this scenario please contact Alan Orlowsky by calling 847-325-5559 or visit our website www.orlowskywilson.com