Lessons from 9/11

September 1, 2011

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

We are rapidly approaching the tenth anniversary of the September 11th tragedy. There is much to be learned from an estate planning perspective in the aftermath.  

Many of those who perished died without having executed a Last Will and Testament. If you die without a Will, the state in which you are domiciled at the time of your death will determine under the laws of intestacy where the property you held in your own name will pass. It takes many people by surprise, but the list of intestate takers or heirs may not be the people you want to inherit and they might not take in the percentages or shares you would want.

If you are not married but have a significant other, parent or other family member whom you help support, such person will not be protected. If you are married and have children, the division of property between your spouse and your children may not be to your liking. Intestate succession does not account for any philanthropic planning you may desire.

The families of many September 11th victims had to deal with legal complications because their loved ones died without having a validly executed Will. If under the laws of intestacy in the state of your domicile your minor children inherit some of your property, the Court might appoint a guardian or guardian ad litem to represent the minor’s or minors’ interest. This may create an expense which will be paid from your property and may create a delay in distributing your property. Your spouse, the surviving parent of your young children, might need to work through a stranger to get the funds needed to pay the costs of his or her children. Many people don’t want their children to inherit significant sums of money at a young age, but prefer the money be held in a trust. This type of planning cannot be done under the laws of intestacy.

The laws of intestate succession do not in any way help you with transfer tax planning. Currently Federal estate tax is due on all estates valued over $5,000,000 unless the spouse is the taker. State estate tax differs among the various states.

There are many planning opportunities that are available before you die, but evaporate when you die. Sophisticated estate planners can help you title or divide assets between spouses. They can assist you in setting up structures which might freeze or minimize the value of assets you own. They can assist you in setting up structures which will protect the inheritors of your property from creditors.

Estate planning can also help you plan for the succession of assets which do not pass via a Will, but rather via beneficiary designation. Many assets, such as proceeds of insurance policies, retirement plans or annuities pass to the parties named in the beneficiary designation form. The organization with which you hold the account frequently names your Estate as the default beneficiary in cases where you do not name one yourself. We have now gone full circle back to the intestate takers named by law, which may not be what you wish. In the case of a qualified plan, such as an IRA, distributions and the income tax placed on them will need to be accelerated if your Estate is the beneficiary.

September 11th taught us that life can be fragile. You may not have any control over tragedy and sadness. However, you can prepare for the future. Proper estate planning, having in place a validly executed Last Will and Testament, and proper tax planning can at least guarantee that the people you wish will inherit your estate in the manner and fashion you desire.