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Mary Owens: Understanding the importance of proper estate planning

Mary Owens
Columnist

Joe Smalley loved his kids ever so much. Naturally, he wanted what was best for them. As he got older, he decided he needed to write a will. His estate was simple; he owned a house with a mortgage, had a moderate sized traditional IRA, and a small checking account. He had three children and wanted to treat them reasonably equally.

Joe had a will prepared and was pleased with himself that he finally got the task off his list. He wanted his daughter, Jean, to have his house since she was there to nurse her mother through a very difficult death. It was a trying time for the family, and Jean had stepped up to the plate, quitting her job to assist both her parents for over two years. As much as Jean tried to provide for all the care for her mother, she still needed additional assistance. Jean was a small person and was not able to lift her mother in and out of the shower or dress her without the help of a trained provider. She simply wasn’t strong enough, so Joe took a $50,000 line of credit on his home to pay for a home health aide. Still, Jean provided essential care, staying up long nights with her mother so Joe could rest. He grieved so much during his wife’s long passing and did not know what he would have done without Jean being there. She was a godsend to both, and Joe let her know that he was going to leave the house to her.

Jean had recently gone back to work, but was required to transfer out of the area to secure a job. Joe would have preferred for her to be the executor of his estate, but Jean insisted that one of her two brothers be named since they lived locally. Joe appointed his younger son, Eric, as his personal representative, and sat down with him to discuss exactly how he wanted his assets handled. He explained that the entire house was to go to Jean. Currently, the home was in the sole name of Joe Smalley, as a single man. Joe then explained that the beneficiaries for his IRA were already updated to be split 50/50 between Eric and his brother David.

Eric was not pleased with his father’s decision. He found it unfair that his sister was getting more than he. Joe explained that Jean had made significant personal sacrifices for the family, and this was her reward for acting so unselfishly. He also explained that there was a mortgage on the house and the real net value was lower than it appeared. Eric was still not happy. All he could remember was that there was a home health aide in the house every single day, so what was Jean doing to care for their mom? He thought she was just taking advantage of the situation and resented it. Eric told his brother David about their dad’s will, but David thought that it was perfectly fair. He told Eric to “back off” and that it was not up to them how their father should divide his estate. This only agitated Eric more.

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Do you understand how your estate will be distributed after your death? Time for some serious homework.

Several years later, Joe’s line of credit came due. He tried to refinance the house to roll the line of credit into a new first mortgage, but with his meager income, he could not qualify for a new loan. He had no alternative than to pull $50,000 from his IRA to pay off the line of credit. When Eric heard that the IRA had been significantly decreased, he was furious, and determined to get what he believed to be his fair share. He devised a plan and convinced his father that in order to avoid probate, he should add Eric’s name to the house as a joint tenant. Eric promised Joe that he would deed the house over to his sister after Joe’s death. Tired and not feeling well, Joe relented about a month before his death, believing that the wishes in his will would still be carried out.

After Joe’s funeral, his will was distributed to the family. Jean believed she would be getting the house, but Eric informed her that was not the case. He alone owned the house and maybe he would give her one third of the proceeds when he sold it. Jean sobbed, thinking that her father had betrayed her. David figured what his brother had done and was outraged. He was going to fight for his sister and hired an attorney. The war was on!

Everything went wrong because poor Joe did not understand how his house title would pass upon his death. When he put his house in joint tenancy, it overrode what was written in his will. Instead of his house going to his daughter, she got nothing. Jean, who had stood by him in his time of need inherited only an attorney bill. Furthermore, the value of Joe’s IRA was lower than he ever imagined it would be at the time of his death, leaving David with very little as well. Nothing he desired took place; and Jean and David would never speak to Eric again.

Joe tried to accomplish what he wanted for his family but none of it went as he planned. Above all, his family was broken, and his will meaningless.

Do you understand how your estate will be distributed after your death? Time for some serious homework.

We will discuss next month how this entire sad mess could have been easily avoided.

Mary Owens, Principal/Branch Manager, RJFS, 426 Sutton Way, Suite 110, Grass Valley, 530-272-7500. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Owens Estate and Wealth Strategies Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax, legal or mortgage issues, these matters should be discussed with the appropriate professional. Any opinions are those of Mary Owens and not necessarily those of Raymond James.


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