I regularly get questions about estate planning matters from individuals who usually start the question with “I’ve heard that…” or “I’ve been told that…” There never seems to be a shortage of people who want to give estate planning advice. You probably have seen this yourself.
This may include your family and friends. Very often, estate planning matters are the subject of discussion at your early morning 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. Many of these estate planning questions that we receive are from those who have relied upon free advice from their banker, financial advisor, life insurance agent, accountant, or nursing home. The old adages of “you get what you pay for” and “penny wise and pound foolish” is especially true in these situations.
When you are dealing with estate planning and elder law matters, make sure that you are dealing with a qualified estate planning professional. 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.” These are the most common estate planning questions that I regularly hear.
- 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. Are they right? This is probably the most common question I hear on almost a weekly basis. If your trust is properly drafted as a designated beneficiary under the required minimum distribution rules, 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 14 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.
- Dad’s will says that I get everything; I took the will to the bank and they would not give me my money. Why not? A will has no authority or power, unless and until it is filed with and admitted by the probate court and a personal representative is appointed by the court. Your will generally has two key directives, among others: 1) instructions regarding the distribution of your assets after death; and 2) the designation of a person to make it happen.
The person designated to make it happen is called a personal representative. That designated individual has no authority or power over any of your assets after your death unless and until that person has been appointed personal representative by the probate court. Once appointed by the court, your personal representative would take the letters of authority issued by the court to the bank to access your bank accounts. With the letters of authority, your personal representative generally has all the power and authority to access and transfer any of your assets in accordance with your instructions your will.
- I have named my kids as joint owners or beneficiaries on all of my assets. I do not need a will, right? Wrong! Joint ownership and beneficiary designations are not a substitute for a properly drafted will-based or a fully-funded trust-based estate plan. As I have discussed in recent columns, we see instances of joint ownership and beneficiary designations blow up all the time.
We have seen judgment creditors of a joint owner child garnish the parents’ accounts. Similarly, judgment creditors have also taken a child’s inheritance after the parent’s death. because the child was directly named as beneficiary on financial assets. We have also seen the IRS slap a tax lien on a parent’s home because their joint owner child failed to pay Federal taxes.
Probate court supervised conservators have also been appointed for minor or mentally disabled beneficiaries. We have also seen probate court take control of joint assets and assets with beneficiaries after a parent’s death because their child had predeceased the parent. Child joint owners have refused to sign off on a deed unless they received their share. Joint owner children with financial needs have also “borrowed” money from parents’ accounts and not pay it back.
Joint ownership and beneficiary designations do not work as an exclusive estate plan unless you can guarantee that your joint owner or beneficiary is not a minor or and does NOT get sued, get divorced, get mad, get greedy, become mentally disabled or die in the wrong order. All joint ownerships and beneficiaries should be coordinated with a properly drafted will-based estate plan or fully-funded trust-based estate plan.
- 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. Is this true? Not necessarily. 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 asset transfers and/or gifting to your loved ones, you can protect all or a substantial portion of your assets for your loved ones.
- My financial advisor, banker or accountant (pick one)says that I do not need a trust unless I have a taxable estate ($5.45 million in 2016). Is this right? The amount of assets you have is rarely the driving force in choosing a trust. The reason why most of our 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 our clients with less than $5.45 million choose trusts. A number of our clients with less than $100,000 of assets have chosen trusts since trusts met their estate planning needs.
- I took Mom’s financial power of attorney to the bank after Mom died, but they would not give me my money; why not? Financial powers of attorney are lifetime documents. They expire upon the death of the maker. After death, you cannot use financial powers of attorney to transact any business with the deceased’s bank accounts or any other assets. The bank was correct in not releasing any funds in Mom’s account after her death to a power of attorney holder.
Similarly with health care powers of attorney, also called designations of patient advocate. Health care powers of attorney are lifetime documents. With the exception of included anatomical gift/organ donation powers, health care powers of attorney expire upon the death of the patient.
If you come across any of these situations, 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 April 10th, 2016 in The Times Herald newspaper, Port Huron, Michigan as: Top Six Estate Planning Questions