“Ghost”: Estate Planning Case Study

Situation:

Couple in late twenties or early thirties have recently purchased a New York City loft and done extensive renovations. One partner is a money manager, the other is a potter.  Most of the income is likely provided by the money manager, who is murdered and dies on the spot.

Issues:

Unmarried, substantial assets, surviving partner without resources to purchase or maintain partner’s assets on her own.

In the supremely romantic movie “Ghost,” Sam Wheat and Molly Jensen are a visibly loving couple who have just moved into a New York City loft in a not-yet-gentrified area.  We can surmise that they have purchased it, rather than rented, based on the extensive interior renovations they are doing themselves. Because we know that Sam works in a money management or investment firm handling exceptionally large amounts of money, and that Molly is a potter who is currently spending the bulk of her time working on their new loft, we can guess that Sam makes a fair amount of money and is either the sole or primary income for the couple. Since they have purchased and are working on the loft together, we can guess that they intend to be permanent partners, despite not having married.

Marriage gives each partner to the union certain legal rights to property held or acquired during the marriage. This protects partners whose cash earning, or cash resources are unequal, so that they can continue to have a means to provide for their needs until adjustments to being single can be made.

But when partners are unmarried, even if they intend to share their economic resources as well as their lives, the law does not recognize that partnership without other documents that acknowledge and create it.  This means things like a will, or joint title to property, or payable on death and beneficiary designations on accounts are essential.

Here’s what would have happened if Sam and Molly did not do any sort of planning: If the loft was titled in Sam’s name alone because it was purchased with Sam’s money or based on his income, and he left no will, then the loft would legally pass to either his parents, any children he had with a previous partner, or his siblings.  Molly would lose her home.  Even if Sam had put Molly’s name on the deed as a joint owner with right of survivorship, if he failed to leave her any of his cash accounts in a will or with beneficiary designations, then she would have had to sell the loft for lack of money to pay the mortgage, taxes, and insurance.

Similarly, if Sam and Molly were both on the title to the loft and both owners of the cash accounts, unless the form of ownership specifically included a right of survivorship, then Molly would likely only own one half of everything after Sam’s death with his half going, again, to the parents, kids, or siblings.

Imagine Molly’s state when she realized Sam is present and wants to inhabit Oda Mae’s body so he can feel her again – instead of the iconic, bittersweet, love scene we all swoon over, most probably Molly would have been whipping his sorry ass for leaving her homeless and without immediate means to take care of herself. That would have been a very different movie.

Planning matters. When you are ready, give us a call at 833-Red-Boot (833-733-2668), email legal@parkercounsel.com , or make an appointment here to talk about your needs.

Harry Potter and the Great Estate Planning Fiasco

A lot of families find it helpful to hear what other families have done in their estate planning, and they get ideas from what others have done.  It’s most helpful, I think, when you know something about the family itself, so let’s talk about Harry Potter. (We have previously discussed Batman here)

Who will care for the orphan?

Harry was famously orphaned as an infant when his parents were murdered by Voldemort. At the time, though, it was believed that Sirius Black had either killed them or was involved in their killing.  Because Harry’s parents, James and Lily, had named Sirius as Harry’s godfather, under wizarding law that would mean he was the designated guardian for Harry in the event something happened to the parents, which of course, it did.  But because it was believed that Sirius was involved in the killing, Dumbledore stepped in and took Harry to be raised by his relatives, the Dursleys, which in hindsight was a very bad deal for Harry.

[If you’re interested in more case studies and discussion about how the wizarding world handles it orphans, like Tom Riddle and Teddy Lupin, you might want to check out this chatboard. ]

In the muggle world, if a family had named a designated guardian for the child who was determined to have killed the parents, a court, much like Dumbledore, would likely determine that person not to be a suitable guardian, and refuse to appoint them, even though the parent’s had named that person.  A judge will always look to see if the named person is otherwise suitable at the time the appointment comes along, thus protecting the child much as Dumbledore attempted to do.

While James and Lily could not have predicted that Sirius would be alleged to have been involved in their murder, they could have predicted that for a variety of reasons Sirius might not be able to serve as guardian when the time arose, and their best course of action would have been to name backup guardians.  With an apparently large number of close friends in the wizarding world, naming a backup to Sirius would have allowed Dumbledore to consider other people as guardian before turning to the Dursley’s, and Harry might have been spared the closet and abuse he endured as a young child.

How to handle the money

Lily and James also would have needed to create a plan for the property and money they had, and how that would be left to Harry.  Kids who inherit from their parents while still minors are never handed the keys to the bank account, but they generally do get full access and control of the property and money as soon as they turn either 18 or 21, depending on the state. In the wizarding world the age is 17, so Harry would have gotten full control of everything in the Gringott’s Vault as soon as he turned 17, which is a scary thought for most parents. Butter Beer for all!

The better way for the Potters to have done this would have been to appoint a trusted person – and some back up people since Sirius would likely have been their first choice – to act as trustee for the property until Harry reached an age that they felt he would be able to appropriately handle the money.   Until that time, the trustee would make decisions about spending for Harry’s benefit.  The actual age chosen by each set of parents depends on what they know about their child, their own philosophy of money and adulthood, and the amount of money likely to be available. The scenes where Harry heads to the Gringott’s vault at the beginning of each school year and grabs a bunch of money, with no supervision and no thought about budgeting or accounting, should make every parent cringe.  Setting up your estate plan to avoid that is easily accomplished.

If you’re ready to avoid your own estate planning fiasco, call or email us for a quick consultation on how we might be able to help. legal@parkercounsel.com or 833-RED-BOOT (833-733-2668)