As you go through life, you probably have found that there is no shortage of people who want to give you estate planning advice. This may include your family and friends. Very often, estate planning matters are the subject of discussion at your morning donut shop coffee clutch. It seems that just about everyone there professes to be an expert on some estate planning matter.
The likelihood is that these “experts” are not estate planning professionals. The advice they give may be well meaning, but oftentimes it is only partly true. You should usually take everything that they say with a grain of salt.
There are also many professionals out there who also give well-meaning but erroneous estate planning advice because they are not estate planning or elder law specialists. You may have relied on this advice from your banker, financial advisor, life insurance agent, accountant, the register of deeds or nursing home. Because of this reliance, you may have followed this advice to your detriment.
When you are dealing with estate planning and elder law matters, make sure that you are dealing with a qualified estate planning professional. The old adage “penny wise and pound foolish” is especially true in these situations. You may have not have wanted to spend the money to get proper advice, but it is generally cheaper to do it right in the first place, than to fix something that was done wrong. It’s like the old Fram oil filter commercial, “Pay me now, or pay me a lot more later.”
Of all the estate planning advice stories I have heard from clients and others over the years, the following are the top eight I hear on a fairly regular basis.
8. My bank or my financial advisor won’t let me put my co-trustees as signers on my accounts. If you have a co-trustee of your trust, your co-trustee can be listed with you as a signer on any accounts that you have titled in your trust. This includes Canadian trustees. If you are not incapacitated, you can name as many co-trustees of your trust that you want and add them as signers to all of your accounts. Even if a person is not a co-trustee of your entire trust, you can still name them as a special trustee of certain accounts if your trust has provisions to allow for it.
7. The bank won’t let me put my power of attorney agent as a signer on my bank accounts unless I take my name off as signer. The purpose of an immediate power of attorney is generally to allow someone to sign on your behalf in addition to you, not in replacement of you. If your power of attorney is effective immediately, insist that you and your agents be put on as signers on all of your accounts now. When needed, your agents need to do nothing additional. For example, when you go out of town on vacation, you can just ask your power of attorney agent to pay your bills while you are gone. If your power of attorney becomes effective upon your incapacity, you will have to wait to have your power of attorney agents as signers on your accounts until such incapacity.
6. The Register of Deeds told me that all I needed to do to transfer my property to my trust or my loved ones was to draft a quit claim deed on a form they gave me; and 5. They told me to use the legal description on the county website. This is one misconception I have heard quite frequently over the years. Firstly, you generally shouldn’t be using a quit claim deed to transfer property to your trust or your loved ones; you should be using a warranty deed. Using a warranty deed instead of a quit claim deed can maintain not only the integrity of the chain of title, but also any title insurance coverage you may have. I only occasionally see the need to use a quit claim deed. Most of the time, a warranty deed is more protection for the parties.
The website descriptions are typically only tax descriptions, enough to identify the parcel for county or municipal officials. They oftentimes do not contain all of the elements that should be included in a deed legal description. This is partly due to the limited character spaces that is available in the website computer programs, but also because a full description is not necessary to identify it for government purposes.
In addition, you should not attempt to draft your own deeds. Use an experienced real estate legal professional. Deeds look deceptively simple because they are only a one page form. However, one or two little words on a deed can make huge differences in the owners’ interests in the property. I have seen a number of occasions in which it cost thousands or tens of thousands of dollars in legal fees and associated court costs to fix do-it-yourself deeds.
4. When my special needs child receives a personal injury award, inheritance, gift (pick one), my child is disqualified from governmental benefits until those assets are spent down. If you have a loved one who receives income or asset based governmental benefits such as Supplemental Security Income or Medicaid and you anticipate that he or she will receive a personal injury award, gift, inheritance or even a divorce property settlement, contact your elder law attorney before your loved one receives the money. These assets can be put in a court ordered special needs trust. This trust would provide for your loved one’s special needs, but does not disqualify him or her from governmental benefits. These trust assets can then be used to enhance the life of your special needs loved one for such things as vacations, going out to dinner or other entertainment. One hitch with these trusts is that if there are any assets left in the trust after your loved one’s death, then those assets must be used to reimburse the government for the benefits paid.
3. I or my spouse is in the nursing home and the nursing home says that all the investments have to be spent on nursing home care until they total less than $2,000 before Medicaid will pay for nursing home care. This is a fairly common misconception. While it is true that your “countable” assets have to be less than $2,000 before you can apply for Medicaid to pay for nursing home care, it is not true that excess assets have to be spent down on nursing home care. Usually, through the use of certain trusts and/or gifting to your loved ones, you can protect all or a substantial portion of your assets for your loved ones.
2. My financial advisor, banker or accountant says that I do not need a trust unless I have a taxable estate ($5.34 million in 2014). The amount of assets you have is rarely the driving force in choosing a trust. The reason why most of my clients choose a trust versus a will is that you can have many instructions and protections in a trust that you cannot have in a will. These include probate avoidance, divorce protection, creditor protection, re-marriage protection, governmental benefits protection, addiction protection, disability protection, pet trusts, cottage trusts, education trusts, incentive trusts, etc. Many of my clients with less than $5.34 million choose trusts. A number of my clients with less than $100,000 of asset have chosen trusts since trusts met their estate planning needs.
1. My financial advisor, insurance company, bank, accountant (pick one) says that I can’t name my trust as the primary beneficiary of my IRAs, 401(k)s, 457s, 403(b)s or other retirement accounts and will have to be paid out within 5 years after death. This is probably the most common misconception that I hear on almost a weekly basis. If your trust is properly drafted as a designated beneficiary, you generally should name your trust as the primary beneficiary of your IRAs or other retirement accounts. Although the rules regarding naming of trusts as beneficiaries of retirement assets changed in 2002, the practices under the old rules still persist 12 years later.
There are two key reasons to name your trust as a primary beneficiary of these accounts. Firstly, you get all of the protections that you have in your trust for your beneficiaries, especially creditor protection, that you cannot have with direct beneficiary nominations. Secondly, you can still get the stretch-out of the retirement account over the lifetime of your beneficiaries with the trust.
These are the most common estate planning misconceptions that I have heard over the years. If you come across any of these misconceptions, please consult with a qualified estate planning and elder law specialist who can guide you through the maze of rules regarding these matters. Even things that look as simple as a deed are far more complex than it may seem at first glance. Protect yourself. Protect your loved ones. Or it may end up costing you and them a lot more.
By: Matthew M. Wallace, CPA, JD
Published edited July 13, 2014 in The Times Herald newspaper, Port Huron, Michigan as: These are the top eight estate planning misconceptions