The COVID-19 pandemic has taught us that life is unpredictable. Our estate plans must be prepared for this unpredictability by including alternate procedures. Having provisions in your estate plan that address contingencies is necessary to control for uncertainty and ensure that your wishes are carried out.
One major lesson that we have learned from the coronavirus pandemic is the importance of planning for the unexpected. For estate planning, this means including provisions in your estate plan that address contingencies.
Take, for example, the daughter who was appointed personal representative of her late mother's estate months before the COVID-19 pandemic hit the United States. She now wants to sell her mother's home, which her mother included in her will, but with the probate courts closed, she is stuck. She cannot sell the house without court approval. Even if the estate were in an informal probate process where the court did not need to approve the sale, the daughter would not be able to close the estate with the probate courts closed. However, if the mother had included the home in a living trust, these externally caused delays could have been avoided.
No one could have predicted that a pandemic would close down probate courts indefinitely. However, there are many variables that you can and should plan for, such as beneficiaries predeceasing you or executors and trustees dying, being removed by the court, or otherwise being unable to serve. Working will an experienced estate planning attorney to create alternate plans and periodically reviewing those plans to ensure they are up to date is the best way to make sure that your wishes will be carried out as you intend.
What happens when an executor is unable or unwilling to serve?
A decision that is equally important as picking an executor is choosing an alternate executor. In fact, it is best practice to include multiple alternates in case your second choice is also unable to serve. There are many reasons why an executor may be unable or unwilling to perform his or her duties. For example, your first choice of an executor may:
- Predecease you or pass away during the probate process;
- Become incapacitated;
- Become a convicted felon;
- Not have the time or capability to handle the responsibility;
- Be removed by the court because of incompetence or misconduct; or
- Have a conflict of interest.
If your executor is unable or unwilling to serve and you have not designated an alternate, there will be no one with the legal authority to take action on behalf of the estate. The court will have to name a successor executor on your behalf at a greater cost to the estate. The decision will be out of your control, and the court may appoint someone who you do not trust or otherwise would not want to handle your estate.
What happens if a beneficiary does not survive you?
If your primary beneficiary predeceases you or is otherwise unable to receive an asset, you need to have a backup plan in place. To prepare for this scenario, estate planning professionals recommend you name at least one contingent beneficiary. A contingent beneficiary is the person or organization that receives the assets if the primary beneficiary cannot for any reason. It allows you to remain in control over the future distribution of your wealth, even if life events make your first choice unable or unwilling to receive the property.
For example, the testator should consider what would happen if a child to whom they are leaving a share of their estate fails to survive them. Will the child's share be split between the surviving siblings? Pass to the deceased child's children or spouse? Go to a favorite charity?
Not only should you name contingent beneficiaries in your will but also in your assets that pass outside of probate, like trusts, life insurance, individual retirement accounts, and annuities. Without a contingent beneficiary named, the property will have to go through the probate, costing your family time and expense. The property will transfer in accordance with your will. If there is no will, the assets will transfer according to state intestate laws, and your property may end up with an unintended individual.
Why is it important to review your estate plan?
Even if you put alternate plans in place, it is critical to review and update your estate plan regularly. It is impossible to predict the future and create a plan that is completely resistant to external forces. However, by reviewing and updating your estate plan, you can control for uncertainty. In addition to periodic reviews every few years, you should review your plan when there is a major life event. Examples of events that should trigger a review of your estate plan include:
- Separation or divorce;
- Illness or disability of a beneficiary or yourself;
- Birth, death or marriage of beneficiary or executor;
- Death or change in circumstances of a named guardian;
- Significant increase or decrease in the value of assets;
- Career changes, such as starting a new business.
Even if you have not experienced a significant life change, tax and estate laws are constantly evolving and may change how you want to leave your property. Through regular reviews, you can ensure that your estate plan reflects your wishes.