Defusing the Time Bombs in Your Estate Plan

There’s a time bomb ticking in many estate plans. However, you most likely won’t know if the bomb explodes. The question is how big the explosion will be.

The “bomb” is the person or people, you name to act for you. Whether they act during your lifetime or after, they often make or break your estate plan. They can determine the fates of family relationships and financial security. The problem is most people don’t realize the potential effects of their surrogates’ actions and don’t give enough thought to who they rightfully appoint.

There’s a long list of people who could be empowered to act for you at different times. Here is a list of major potential surrogates:

Agent: The person who acts for under a power of attorney or advances medical directive is called an agent.

Trustee: It is common nowadays to have one or more trusts. It is important to set limits in the trust agreement so the trustee (or trustees) can make the final decisions about managing the investments, making distributions, paying taxes and other aspects of managing the trust.

Executor: This person manages and distributes your estate after you pass. The executor has the job of turning the wishes in your will and other estate planning documents into actions.

Social Security representative payee: Social Security will appoint someone to manage the benefits of someone is incapable of doing so. Typically, family and friends fill the role and acts after receiving a request or concern from a friend, family member, or professional advisor. The beneficiary can contact Social Security and ask that a particular individual is appointed.

Long-term care insurance lapse designee: Most insurers now allow the insured to designate a person who will receive a notice if premiums aren’t paid. Some people designate an alternate payee who will receive and manage benefit payments when you aren’t able to.

Agent for funeral decisions: States have different rules about who can make funeral decisions. Some states have laws recognizing the appointment of an agent.

Financial account designees: Many people find it easy when opening a financial account to select the transfer on death (TOD) option or a similar choice. Or they open joint accounts with a relative or friend. The intent is to have someone in place to manage the account when you aren’t able and will inherit it without going through probate.

The first issue with surrogate designations is that different people are named for tasks and responsibilities that overlap. Having different people handling similar issues can be inefficient at best. It can be a major problem when they don’t know or communicate with each other and it can be even worse if they don’t get along.

Make sure to work with your estate planner for consistency and help with avoiding conflicts between the different surrogates.

The second problem is people often are appointed without being asked or even told until they have to act. The person must be comfortable in the role, aware of it ahead of time and able to handle it. Important factors to consider are:

  • Where the person lives

  • How far away they live from you

  • Their own responsibilities, such as family or job authority and duties.

The third problem is the person named to handle these responsibilities needs to be qualified. This is vital because sometimes the person isn’t equipped with the knowledge or ability to handle complex tasks or simply aren’t organized enough to manage their own affairs, let alone someone else’s. Think ahead as well, potential conflicts are another reason someone might not be the best choice. You don’t want an executor or trustee who might have personal conflicts with someone appointed as the beneficiary of your estate.

Quick pointers for reducing problems with surrogate designations:

  • Know all the surrogates you designated and review financial accounts, insurance policies and estate planning documents to feel good about who is appointed to their roles.

  • Understand the different roles. Some positions need a minimum level of financial sophistication while others require an ability to work with your lawyer, accountant or other professionals.

  • Evaluate family members vs. professionals. Most people automatically appoint one or more family members or friends because they are likely to be familiar with you and the rest of your immediate family, know your history/goals.

Unfortunately, there are some disadvantages when appointing family members. Family could be too close, emotional, or biased to handle the job well. On the contrary, appointing one family member could offend other family members and cause conflicts.

With this being said, appointing a professional has pluses and minuses. They, of course, bring experience and expertise, but lack the familiarity with family history, dynamics, or even care. Joint responsibility could resolve family vs. professional issues.

Due to the variety of roles and skill sets necessary, many people will appoint co-trustees with each being assigned different duties. However, some of the positions are too small and discrete for multiple appointees. But, executor, trustee, and agent under a power of attorney are good candidates for co-surrogates who either act as a committee or have separate roles.

If you want help defusing your estate time bomb contact David Veliz at Veliz Katz Law to ensure your estate is in order. Want to know more about estate planning? Read the full article here.


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