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Wishes of the deceased over the division of assets must run legal gauntlet before reaching beneficiaries



By DIAN VUJOVICH
SPECIAL TO THE DAILY NEWS

Ask someone who has inherited a tidy sum from a friend, family member or loved one how they feel about their inheritance and there's a good chance they might say that there are lots of other and better ways to get money than through the loss of a loved one. Ask someone who was expecting to inherit a bundle from any of those sources but didn't and they might not be as charitable.

Snafus happen even in the world of properly drawn up wills and trusts as well as in those involving intricate estate plans created by exacting pros.

After all the "i's" have been dotted, the "t's" crossed and tax liabilities planned for, all papers witnessed and notarized wills can be challenged, deathbed marriages voided, and money bequeaths caught in the ugly cross-hairs of a decedent's unpaid debts, liens, federal taxes or diminished resources caused by devastating market conditions, investment scandals or any combination there of. The "investment scandals" being all too familiar experiences for many Palm Beachers.

"You can't gift someone a million dollars if you don't have a million dollars," said Jane Brown, a shareholder at Gunster in Palm Beach who specializes in private wealth services and estate planning.

A common mistake in estate plans is to decide to make large bequests -- but without the funds to do so, she said.

Lack of funds is one of a number of ways someone expecting to be a beneficiary can get the axe. A few of the other ways are when the person creating the will has chosen executors who don't know their exact wishes, selected the wrong executor, made oral promises instead of written ones or not changed their will or trust when circumstances in their life have changed. There also is a lack of understanding about who gets paid first when assets in an estate are to be dispersed.

But before going there, here are two examples of how the rich and famous messed up their intents.

Princes Diana, for instance, probably thought all wishes her will outlined would be carried out to the letter when she appointed her mother and sister as her estate executors. This according to a 2009 Forbes.com story by Ashlea Ebeling titled "Estate Mistakes: Where Heath Ledger And Princess Di Went Wrong."

While her wishes included dividing some of her belongings among her two sons and 17 godchildren, each godchild only received a trinket and not a grander asset because the executors decided who got what. Making sure the executors stated in your will know your exact wishes is essential if a beneficiary's dreams are to come true.

When Heath Ledger died, he had a written will but had not updated it. As a result, everything was left to his parents and sister. Nothing was left to his daughter or for her care and to the child's mother with whom he began a relationship after writing his will.

Making sure your will and trust are clear, concise and current is the first step in securing to whom and how your assets are distributed. The second step is understanding "who's on first" -- who gets paid before any beneficiaries are given their bounty.

Understanding that means realizing there basically are two pools from which an individual or organization can receive any assets when named as beneficiaries. One is via a will. The other is to be named a beneficiary of say an IRA, 401(k), insurance product, pension plan or any other instrument that does not go through probate. Joint tenancy registrations also don't go through probate. One exempt probate asset that needs to be clarified in your will would be to whom you'd like to pass a homestead property in Florida.

Being named a beneficiary on any non-probate assets reaps the biggest rewards. Why? Because, for the most part, they are untouchable by lenders and creditors. For instance, if a wealthy person died when his fortune had turned sour, had debts amounting to millions of dollars but also had a $5 million life insurance policy with a named beneficiary, "The beneficiary would get the $5 million without having to pay any of the (person's) debts," Brown said.

How very sweet for beneficiaries in those situations.

On the other hand, if one was expecting to receive money, stocks, bonds, art or whatever from their great-Aunt Emma when she dies as is specified in her will, if she dies with debts, don't look for an immediate payday; it's the executor's obligation to make sure all debts are paid before tending to the beneficiaries, Brown said.

Richard Barron, a West Palm Beach attorney and specialist is wills, trusts and estates, said a specific Florida statute outlines the order in which a decedent's debts are to be paid.

"Lawyers and personal representative fees get paid first," Barron said. "Next are funeral expenses, federal taxes and then any medical expense incurred during the last 60 days before death."

Credit card debts are last on the list of who gets paid when. In the end, Barron said, "If there's not enough money to pay all the bills, the beneficiary -- or beneficiaries -- gets nothing."

So cross your fingers in hope whomever you're expecting to inherit from dies debt-free.

A caveat to beneficiary money passed to you through an insurance policy or various retirement and pension accounts: If federal taxes are due from the decedent, the IRS can come after the beneficiary to collect the debts. So if whomever you're hoping to inherit from dies with more debts than money, depending on the circumstances you could become a beneficiary who isn't.


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