Wills, Trusts & Dying Intestate: How They Differ

Most people understand that having some sort of an estate plan is, as Martha Stewart would say, a “good thing.” However, many of us don’t take the steps to get that estate plan in place because we don’t understand the nuances between wills and trusts – and dying without either.

Here’s what will generally happen if you die, intestate (without a will or trust), with a will, and with a trust. For this example, we’re assuming you have children, but no spouse:

  1. If you should die intestate, your estate will go through probate and all the world will know what you owned, what you owed, and who got what. Your mortgage company, car loan company, and credit card companies will all seek payment on balances you owed at the time of your death.

After that, state law will decide who gets what and when.

  • For example, if your only heirs are your children and you have not provided any instructions, state law will mandate divvying up proceeds equally.
  • Your older children will get their shares immediately if they’ve attained adulthood.
  • But, the court will appoint a guardian to manage the money for your minor children until they become adults.
  • Shockingly, that guardian can charge a lot of money and be a total stranger – as can the guardian who raises your child.
  • Yes, if you die without a valid will, the court, not you, will decide who raises your minor children.

Keep in mind that since your death has been published to alert valid creditors, it’s not uncommon for predators (fake creditors) to come forth and make demands for payment – even if they’re not owed anything.

The bottom line? Dying intestate allows state law and the court to make all the decisions on your behalf – regardless of what your intent might have been. Publicity is guaranteed.

  1. If you should die with a valid will, your assets will still go through the probate process. However, after creditors have been satisfied, the remaining assets go to whom you’ve identified in your will.
  • So, if you want to leave money to your children and name a guardian for the minor ones, the court will usually abide by your wishes.
  • The same holds true if you specified that you wanted to give assets to a charity, your Aunt Betty, or your neighbor.
  • Keep in mind that predatory creditors are still an issue as your death has been publicized. Even with a will, probate is a public process.

The bottom line? While a court oversees the process, having a will allows you to tell the court exactly how you want your estate to be handled. But, a public probate is still guaranteed.

  1. If you’ve created a trust, you’ve taken control of your estate plan and your assets. Trust assets are not subject to the probate process and one of the most important benefits of trusts is that they are private. Notices are not published, so you avoid predators coming after your estate.

You’ll have named a trustee to manage your estate with specific instructions on how your assets should be dispersed and when.

  • One word of caution – trusts must be funded in order to bypass probate.
  • Funding means that your assets have been retitled in the name of your trust.
  • Think of your trust as a bushel basket. You must put the apples into the basket as you must put your assets into the trust for either to have value.

You do still need a will to pour any assets inadvertently or intentionally left out of your trust and to name guardians for minor children.

The bottom line? Trusts allow you to maintain control of your assets through your chosen trustee, avoid probate, and leave specific instructions so that your children are taken care of – without receiving a lump sum of money at an age where they are more likely to squander it or have it seized from them.

Don’t let the will versus trust controversy slow you down. Call the office today; we’ll put together an estate plan that works for you and your family whether it be a will, trust, or both.

What if Treating Your Children Fairly Means Unequal Inheritances?

When planning their estate, most parents express the desire to treat their children equally out of a sense of fairness.  However, sometimes being fair or doing what’s right by your children may not mean equal or the same inheritances.

The Key Takeaways

  • Treating children fairly does not always mean equal inheritances.
  • How and when each child receives an inheritance may need to be customized to your children as individuals.
  • Not providing an outright inheritance is usually a good choice, as assets that stay in a trust are protected from irresponsible spending, divorce, predators, and creditors.

When Unequal Inheritances May Be Fair

There are often special circumstances to consider before you divide the family pie into equal parts. For example:

  • You may want to leave more assets to your son who struggles to support his family on a modest teacher’s salary than to your daughter who makes six figures, married a Wall Street tycoon, and has chosen not to have children.
  • You may want to give a larger inheritance to a child who has dedicated himself to volunteer work, the arts, religion, or public service.
  • You may want to compensate a child who has given up part of his own life to care for you.
  • You may want to provide for grandchildren even if one child has more children than another.
  • You may have a much younger child who needs care into adulthood whereas your adult children are financially independent.
  • You may have a special needs child who will need care for his entire lifetime.
  • You may have a child who has contributed to the family business and other children who have not. Instead of making them all equal owners in the business, you may want to leave the business to the one who has contributed and shown an interest, and then provide for the others with other assets and/or life insurance.

Distribution of Inheritances May Also Vary

 Not only do you need to decide how much your children should receive, but also when they will receive it—and that can be different for each child. You can distribute inheritances in one lump sum or in installments; or, you can keep an inheritance in a trust. Consider factors such as the size of the potential inheritance, your children’s ages and family situation, how they have handled their own money, and how much they need your financial gift.

What You Should Know

 Many parents do not provide outright inheritances, preferring to keep the assets in a trust for their children. The trustee can make distributions for your children’s benefit based on guidelines you provide, but assets that stay in the trust are protected from irresponsible spending, creditors (bankruptcy, lawsuits, and divorce), and predators (those with undue influence on your child).

Frank and Jen have two sons who are stable and responsible with their own money; they will receive their inheritances in a lump sum after their parents both have died. But their daughter is in and out of rehab and has been irresponsible with her own money. Fearing she will misuse her inheritance, they decided to keep her share in a trust so it can provide for her without being completely available to her.

Actions to Consider

  • If you can afford it, consider giving your children some of their inheritance now. Not only will you have the opportunity to witness them enjoying your gift, but it will provide insight as to how your children will handle an inheritance.
  • Consider whether your children should inherit everything you own. Perhaps you have additional goals such as providing for your grandchildren’s education, gifting other loved ones, providing for beloved pets, making charitable contributions, or setting up a family foundation or donor-advised fund.

It’s essential that you take action to ensure your children receive their inheritances as is best for them as individuals.  Our office can ensure your estate plan and your children’s best interests match… and continue to match as life unfolds.

Is a Payable on Death Account Right for You and Your Family?

Payable on death accounts, or “POD accounts” for short, have become popular for avoiding probate in the last decade or so.

What is a POD Account?

A POD account is a type of bank account authorized by state law which allows the account owner to designate one or more beneficiaries to receive the funds left in the account when the owner dies.

A POD account allows the owner to do what he or she pleases with the funds held in the account during the owner’s lifetime, including spending it all and changing the beneficiaries of the account.  After the owner dies, if anything is left in the POD account, the beneficiaries chosen by the owner will be able to withdraw the remaining funds without the need for probating the account by presenting an original death certificate of the owner.

What Can Go Wrong With a POD Account?

POD accounts sound great, don’t they?  In general, POD accounts are easy to set up and make sense for many people.  A handful of states now even recognize POD deeds for real estate and POD designations for automobiles.

Nonetheless, POD accounts may lead those who create them to believe that they have an “estate plan” and no additional steps will need to be taken.  This may or may not be true.  Below are a few examples of what can, and often does, go wrong with POD accounts:

  1. POD accounts can be set up as joint accounts that become payable on death after all of the owners die.  This means that if a husband and wife in a second marriage set up a POD account that will go to their six children from their first marriages after both die and the husband dies first, then the wife can simply change the POD beneficiaries to her own three children and disinherit the husband’s three children.
  2. Same facts as above, except that the wife remarries for a third time.  She could change the beneficiary of the POD account to her new husband, thereby disinheriting her children and her deceased husband’s children.
  3. If there is only one POD account owner and he or she becomes mentally incapacitated, then a valid power of attorney or court-supervised guardianship or conservatorship might be needed to access the POD account to help pay for care for a sick loved one.
  4. If a POD beneficiary is a minor under the age of 18 or 21 (this depends on state law), then a court-supervised guardianship or conservatorship may need to be established to manage the minor’s inheritance.
  5. If all of the named POD beneficiaries predecease the account owner, then the account may have to be probated.

These are just a few examples of why POD accounts should not be a primary asset transfer mechanism in your estate plan. You need to have a will, a revocable living trust, a power of attorney, and a health care directive in place to insure that you and your property are protected in case you become mentally incapacitated and to make sure that your property goes where you want it to go after you die.

Estate Planning: 3 Reasons We Run the Other Way

We understand that it feels hard to get around to estate planning; it sounds about as fun as getting a root canal. However, we also understand that we all want to make sure that our loved ones are protected and receive our hard-earned assets – regardless of whether we have $10 million or $10,000.

Don’t let these common roadblocks stop you from protecting yourself and your family:

  1. Who Wants to Talk About Death? Discussions of death, dying, and illness – money and family – will and trusts – make many folks uncomfortable. Of course, that’s normal.  But, don’t let a few minutes of feeling uncomfortable stop you from taking care of yourself and your loved ones.

 

  1. This Isn’t a Good Time. Everyone is busy. We understand that, but there’s never going to be a better time. Call our office, get on the calendar, and get it done.

 

  1. I Don’t Get It. Estate planning is documented in legal papers; finances are discussed; the law is analyzed. It’s common feel uncomfortable in a world you’re not familiar with.  If that’s what you are thinking, you are not We will translate complex legal concepts into everyday layman’s terms for you, just like we do for everyone else.

The truth is that estate planning isn’t really that bad. In fact, with our help, estate planning is easy. We’ll chat with you about your goals and concerns, analyze your family and financial situation, and work with you to come up with a solid plan. You provide the information, which we always keep confidential, and we’ll take care of everything else.