While many people know that they need basic estate planning documents, they hope to avoid the expense of retaining a New Mexico Estate Planning Attorney to carry out this objective. While some are tempted to use self-held legal forms and software programs to create their own estate planning instruments, subtle details often are missed when people do not have experienced estate planning professionals developing a coherent estate plan and skillfully drafting legal instruments. Sometimes the most minor change can cause considerable expense when parties do not obtain legal advice. Unfortunately, “an ounce of prevention can be worth a pound of cure” as the saying goes so money saved on legal fees today may turn out to be very costly in the future.
One of the best ways to understand the cost of proceeding without legal advice is to look at a simple example of a costly mistake that resulted from a very basic estate planning error. By way of background, many bank accounts, life insurance policies and retirement benefits do not pass to beneficiaries through a will or living trust, but rather they contain an explicit beneficiary designation. These designations need to be updated and revised on a periodic basis because of divorce, death of a loved one, birth of a child/grandchild and other significant life events. Most people do not consider obtaining legal advice when performing this type of task because it seems so basic and straightforward. Unfortunately, even the process of changing your beneficiary designations on a checking or savings account can have unforeseen consequences without legal counsel as the example below explains.
A couple decided that they should change the beneficiary designation on their bank account because they were getting older and wanted to ensure that their daughter could access the account if necessary. The daughter had no connection to the account other than having her name added. She made no deposits or withdrawals nor did she use or benefit from the funds in the account in any manner. When the daughter predeceased the couple, however, they were shocked to receive an tax bill. Since the daughters name was added to the account she was considered a one-third owner of the funds. The couple found that they had no option but to pay thousands of dollars after “inheriting” the funds from their own bank account.
While changing the beneficiaries on a life insurance policy or bank account can seem like a minor matter, tasks as simple as this may cost your beneficiaries a significant portion of your financial legacy if not done correctly. This scenario is not the only way this simple addition of their daughter on the account could have become a problem. If the daughter had creditors looking to collect unpaid financial obligations, lawsuit judgments, unpaid child support or tax debts, the creditors might have attempted to levy against the bank account to satisfy the obligation.
There are simple solutions that could have prevented this problem, such as changing the way the daughter was listed on the account or use of a living trust and/or power of attorney. Individuals may face tens of thousands or even hundreds of thousands of dollars in avoidable tax liability or unanticipated creditor claims by making this type of mistake depending on the value of the asset.
The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case. You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.
The moral of the story is that a small investment in estate planning legal advice today could yield substantial savings in the future. If you have estate planning questions or concerns, the experienced New Mexico Estate Planning Lawyers at Jay Goodman & Associates, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your options. Call us today to schedule your free consultation at (505) 989-8117 to learn about your rights and options.
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