Do you remember the big earthquake? No, not the big, big earthquake in 1964. I’m talking about the fairly big earthquake of November 2018. The ’64 Good Friday Quake was a 9.2. The Point McKenzie quake six years ago was only a 7.1. Still, enough to shake a lot of people up, including yours truly.
One important lesson the architects and engineers learned over the years was the importance of flex. At this point I had better pause to note that for younger readers, the word “flex” has a different meaning. To them, if you flex on someone, you’re showing off. It comes from flexing your muscles, but can mean bragging about just about anything.
But to most Senior Voice readers, flex means flexibility. And that’s what the architects and engineers discovered. If a building, or a bridge, or whatever you’re designing, doesn’t have enough flex, it is more likely to be damaged in an earthquake. Most people think that if something is rigid, it’s less likely to break. In truth, if it’s too rigid, it can be brittle. It may withstand a small shake, but in a big one it will shatter. So nowadays they design structures so they can move a little bit, and as a result they’re more-or-less earthquake-proof.
The same principle applies to estate plans.
I occasionally get people who come in with overly inflexible plans. Everything is specifically directed. This kid gets the house, this other kid the cabin, the third kid gets the bank account, the IRA goes to a favored charity. And about all that is left is a few hundred bucks in a checking account, and some furniture.
There is no flexibility in that kind of plan. If anything goes wrong, the whole plan shatters. For instance, if there are unexpected expenses, where does the money come from? It can't just come from the bank account, because that is going to one specific heir. Everybody has to contribute proportionately. But the other kids are getting real estate, which means that unless they want to sell it right away, they would have to come up with cash out of their own pockets to pay their portion of those unexpected expenses.
Ironically, it was the 2018 earthquake which shook loose a lot of these problems. I saw a number of estates where there wasn't a whole lot of cash to go with the house, and now the house needed $50,000 or more in repairs and restructuring before it could be sold. If none of the heirs was able—or willing—to loan money to the estate, the house just sat there unoccupied, accumulating debt for property taxes and utilities and the like.
People often underestimate the costs that may come up. And sometimes when I point out that there may be unanticipated costs which could throw this proposed plan into chaos, the clients push back. They insist, in response to each example I give, that “that's not going to happen because….” Well, folks, I've seen those kinds of things happen. If you don't have any flexibility in your plan, those kinds of things can be devastating.
On the other hand, there is such a thing as too much flexibility in an estate plan. Sometimes people say, “I'll just leave everything to Junior, and he'll split things up among the others as he sees fit”. That can also go wrong about six ways from Sunday. If Junior dies, or is in the middle of a divorce, or is having financial problems, or maybe has a spouse who doesn't want him to give up the money, it will cause a huge mess (and a lot of family disharmony). A plan like that is the equivalent of one of those big display balloon things you see outside of car dealerships, where the balloon goes up and flops down as the air blows through it.
Or maybe it’s like a building with a cinderblock foundation but no cement between the blocks. You can pick your metaphor. Just don’t do it.
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. Then you can flex on your friends (young people version).
