Whether we’re talking about a will or a trust, estate planning documents are just tools. A Will is no better than a Trust, and a Trust is not better than a Will. They do different things, and it is important to understand what these documents do. My concern is that attorneys and people in the financial space, will tell you that since you are not rich, all you need is a simple will. In my opinion, most of the time that is nonsense.
I appreciate that sometimes, people don’t have much if they are just starting out. Maybe you don’t have family or you have decided that everything is going to a nonprofit. In this case, it is likely that all you need is a simple Will.
What Is The Purpose of a Will
A Will determines who gets your stuff when you pass away. For the average American, most of your money and investments will be in your retirement accounts, IRAs and 401k’s, and those assets have beneficiary designations. The money does not involve your Will, but will be tied to whatever contract you signed with the financial institution. For both beneficiary designations, and a Will, we’re only answering the question of who gets your stuff when you pass away. You need to understand how the estate planning tools match up with your goals. Doing estate planning is not just checking the box to get the task ‘done’.
Most people want their estate plan to address more than just who gets their stuff. They want to answer questions like “What happens if I die and my kids are still living?” or “What happens if the money goes to my grandchildren if my child dies before me?”. You may be concerned about what will happen if you have a disabled child or a grandchild with autism. Maybe you are worried that if your kid goes through a divorce, they will lose their inheritance. I could write you a Will to answer a lot of these questions. However, once we get into that kind of planning with Wills, we are not writing what attorneys refer to as a “simple Will”.
Why You Should Avoid Probate
We’re now doing some complex planning. Despite having a good Will, you’re still going to send 80% of your stuff through beneficiary designations, because your financial advisor advised you to do so. However, having only beneficiary designations is not enough, to avoid probate. You still need a Will even if you don’t send your money through the Will. Where possible, we advise that you avoid going through probate, which is the administration of your Will once you pass away. It can be costly and it takes a long time. Also, certain information that could have been kept private, is now public information.
In a probate case, I believe that the proper role of the judge is to play referee. When people fight over money, it would normally be settled by the judge. The judge would also ensure that the executor is doing a good job and working in the interests of the beneficiaries. However, I keep seeing judges assuming the role of players in the system. A recent case I worked on, was for an elderly lady who passed away. Her Will stated that the money was to go to her grandkids in what’s known as the Uniform Transfer to Minors Act account (UTMA). The parents would be guardians of the money until the grandchildren are 21 years old, by which time they would have access to it.
The Judge Had His Reasons
The inheritance was around $5000 for each grandchild, but the judge wouldn’t allow us to do a UTMA. Instead, we had to do court sequestered accounts. This means that the court system is in charge of the money until the kids turn 21 years old. This can be costly and not the preferred way of doing it. The judge wanted to do it this way, because he had an experience where the parents stole from a child out of the Uniform Transfer to Minors Act Account. He didn’t want to see it happening again, and I appreciate his concern. However, it goes against the wishes of the grandmother who chose this method of transfer. As a result, her grandchildren did not receive their money as intended.
If you end up in a nursing home at some stage, and you are on Medicaid benefits, you have likely spent all your money to be eligible for Medicaid. This means the state is paying the nursing home for your care. The rules state that you can be on Medicaid and still own a house, since they don’t ‘attach’ your primary residence. However, when you pass away, the state of Pennsylvania can claim your house in your estate, known as the estate recovery programme. When you go to the Medicaid office, they will tell you that your house is ‘safe’, but you can still lose your home. The estate recovery claim is limited to someone’s probate estate, so if you don’t put your house in the Will, you can avoid estate recovery.
Why We Prefer Using Trusts
This is one of the main reasons we recommend putting your house in a trust. I believe that most retirees, upper middle-class folks and middle-class folks should put their primary residence in a trust. By doing so they can protect it from nursing home expenses, and avoid probate.
To learn more about this, come to one of our Three Secrets Workshops. By doing Workshops in a group session instead of one-on-one, we can answer frequently asked questions, while saving you money. I want to teach you things you need to know to make good decisions for your family and your finances. I would also like to be able to assist you with your estate planning. Find out more and register for a workshop on our website or call us at 724-546-4227. We are here to serve you whenever you’re ready.