We talk a lot about legacy planning on the radio show, which is called the Life and Legacy Show. So what exactly is a legacy?
From my standpoint, the word legacy means leaving money to our kids, or our family. Some people believe that a legacy is all about making an impact on the world professionally, or with nonprofit ventures. Some think that having a building named after them or having a family farm getting passed down to the children is the same as leaving a legacy. There is no right answer to what a legacy is, but rather what you believe is important.
Why We Do What We Do
One of the reasons my law firm exists, is to protect your legacy from being lost to long term care expenses, causing you to go broke. Some people may lose money due to taxes when they end up in a costly probate situation. Regardless of the situation, I hate seeing what happens when people lose their legacy to a broken estate plan.
So does the perfect estate plan exist?
I don’t believe there is a perfect estate plan, because we don’t know what the future holds. While today we may be healthy, we don’t know when we will pass away or what illnesses might affect us. We also don’t know what disabilities we may face, if any. An estate planning tool we choose to use today, may not be the right tool in the future, which means having to create another plan for a later stage.
Estate Planning Tools
When I talk about estate planning, I ask people what is the first estate planning document that comes to mind. Most people think a Last Will and Testament is the document to have.
What Is A Will?
The Will states who is in charge, after death. That person is called the Executor. The primary job of a Will is to deal with the leftovers once you’ve passed away, but Wills can also be used to plan for minor children. You can use a Will if you are leaving an asset to a child with a disability. The biggest reason why people avoid using a Will, is to avoid probate and the court system. The Will is an important tool and I refer to all estate planning documents as ‘tools’. A screwdriver is not better than a hammer, just like a Will is not better than a trust, and a trust is not better than a Will. You choose the tool based on what you want to accomplish.
Beneficiary Designations
There are several ways to avoid the probate process. The first is to put beneficiary designations on your accounts. I personally don’t recommend doing that because the bank just sends the money to whomever you have stated. Doing this does not answer the other important questions. Let’s consider what would happen if the person inheriting the money is young, or the person dies before you? What happens if they’re going through a divorce, or they are disabled? An effective estate plan will answer all those questions. You give up the ability to adequately plan, if you rely too heavily on beneficiary designations. They are certainly not the perfect estate planing tool.
So if Wills and beneficiary designations aren’t a perfect estate plan tool, what else can we use?
You should definitely consider using trusts. There are several types of trusts, but essentially a trust is like a company. Once you set it up, it is its own legal entity. The person who creates the trust is the Grantor, who also puts their money into it. The person in control is the Trustee. The people who use resources in the trust are the Beneficiaries. In some cases, a person may want to set up the trust, put their money in, and be the trustee. They want to maintain control and be the beneficiary, having access to the money. This is known as a Revocable Trust.
A Revocable Living Trust is a Nice Tool
Once you put your house and some money in the trust, you don’t technically own the house and money – the trust owns it. You can sleep in the house every night and have access to the money however you want to spend it. When you pass away, the trust document says that upon your death, your stuff must be given to the kids in equal shares. The distribution of assets to the kids happens without the need for court intervention. Using a revocable living trust avoids probate and the court, while also saving some time.
Long Term Care Expenses Are a Financial Threat
The Revocable living trust is also not a perfect estate plan. In fact, none of these aforementioned documents address the single biggest financial threat. Have you considered what would happen if you need long term care in a nursing home? Did you know that nursing homes in this state cost $150,000 a year? How long can you afford to pay that amount?
What Other Tools Can I Use?
While Revocable Living Trusts don’t address this issue, the Irrevocable asset protection trust does. Within your irrevocable asset protection trust, you can still maintain some control, but you give up access to your money. Remember that if you can access your money, the nursing home can also access it. I recommend using irrevocable asset protection trusts for my middle class and upper middle class retirees. Most of my clients are never going to access their home equity or do a reverse mortgage. Putting the house into a trust will protect the value of the house from their potential future nursing home expenses. Paying taxes is not your biggest financial threat. What makes you go broke in your retirement years, is paying for care in a nursing home.
What Plan Will Work Today and Tomorrow?
Even the irrevocable asset protection trust is not the perfect estate plan tool, because you can’t put your retirement accounts and other specific assets into the trust. Having said that, it is not advisable to put all your money into a trust. The appropriate tool you would use today, may not be the appropriate tool you would use at a later stage. The laws could change, and your situation is most likely going to change.
The Best Plan For You
Most elder law attorneys give you an initial consultation and then some options including a revocable trust, or an asset protection trust. It’s almost like being offered a good, better or best deal. However, I don’t believe you contact my law firm for a good plan, or even a better plan. You reach out to us for the best plan. While there is no ‘perfect’ plan, we believe that the best plan is a fully loaded toolbox. Why not just get all the documents and use the one you need at the time you need it. It’s almost like doing DIY at home and having a fully loaded toolbox of tools without having to go to the store every time you need a tool.
You need the Right Tools
I don’t believe in making a family decide on what the best estate plan is for them, when it’s impossible for them to know what the future holds. That is why we equip you with everything to do the best estate planning. You might wonder why every law firm doesn’t just give you every estate planning document. The answer is because it becomes prohibitively expensive. Because of the big price tag, many families choose to take a good plan, and not the better or the best plan. It often happens that a family has reached out to a law firm looking for help, having identified that their biggest concern was protecting assets from long term care costs. Unfortunately, because they chose the good plan, instead of the best plan, they likely have a document or tool that doesn’t solve their issue. It’s like going to buy a hammer and coming home with a wrench, because hammers are too expensive. Essentially, that estate plan would fail because it does not address the concerns the family actually had.
We Offer a Fully Loaded Toolbox
At Sechler Law Firm, we have devised a system where families can benefit, by getting a comprehensive estate plan. They get every document they need at a lower price, instead of getting a plan based on affordability. Our system starts with the estate planning workshop which you can register for on our website. You will meet my team, and you’ll learn about some of these tools. We explain our proprietary process that gets you the documents you need, or the fully loaded toolbox, in a way that is not cost prohibitive. Most families can afford it, and it really works. Register for the workshops on our website, or give us a call on 724 546 4227.
Links to Other Podcasts and Blogs
I’ve spoken about my criteria for a successful estate plan in previous blogs, so please reference the links below, if you interested in reading the blogs.
The 4 Criteria for a Successful Estate Plan
Setting Your Kids Up for Success
