My mind usually wants to go to the newest and most up to date information in the world of Elder Law. However, sometimes, I forget that many people still need to start from the beginning and it’s been a while since I have discussed the very beginning topics. Estate planning for Seniors is very important.
Over the next few weeks, I will go over some of the basics so that my readers can get a good basic understanding of what they should be thinking about and asking themselves.
Estate planning for seniors is essentially making sure your “estate” is going where you want it to go at the time of your death.
Now, what is an “estate”? You may think “I don’t have much so therefore I don’t have an “estate”. I get that. When I usually think of an “estate” I think of large expensive houses, yachts and millions of dollars in investments. However, an “estate” is essentially anything that you own. Poor people have an estate if they have things that they want to give to their heirs.
Now, how does your estate pass to your heirs? If anything that you own is “stuck” in your name at the time of your death (there are no co-owners nor any beneficiaries) then your estate is going through Probate.
Probate is a legal process to get things “unstuck” from a deceased person’s name. Probate is court. Probate is expensive, time consuming and a public record in most states. Probate should be avoided. In my office, clients only go through Probate when something was not done right.
I have never had an attorney be able to convince me how making a client’s estate go through probate is in the client’s best interest.(short of any very rare situation such as an accident with a resulting lawsuit or a death malpractice claim).
Probate is very easy to avoid. Probate should be only when the client doesn’t plan or something very unique happens that was unexpected. In some lawyer’s offices, probate is their retirement plan. They know the families will be back to them to get the client’s estate to the heirs and they do that through probate. I don’t like this approach because it really is not in the client’s best interest.
Probate is avoided one of two ways. 1) Make sure nothing is “stuck” in your name at your death or 2) Nothing is in your name at your death.
Please understand that a Last Will and Testament does not avoid Probate. In fact, a Will is what tells the judge to do with your stuff as it goes through probate. So many senior’s estate plans are simply a will. Many people think that they have this legal document that says “my stuff goes here when I die” and therefore that just happens and there’s no need for Probate. That is NOT how it works. A Will is only effective once it is submitted to the Court in a Probate action. It has no effect on it’s own. If your sole estate planning tool is a Will, your estate is most likely headed to Probate. Please do something else as I explain below.
Making sure nothing is “stuck” in your name is the easiest way and the cheapest way to avoid probate. However, it is riddled with consequences in some situations. The way to make sure nothing is stuck in your name is to make sure everything you have has a beneficiary designation to it. Your bank account should be in your name only (if it is not, I am doing a blog post on that topic soon, stay tuned) and Payable on Death (POD) to whoever you want it to go to at the time of your death. You simply do this at the bank or the investment company with a few forms. You do it, not the attorney, which is why I think most attorneys don’t bring this up. It’s essentially free.
You can make sure that your house and other real estate is not stuck in your name upon your death by doing a deed that makes sure you are the sole user of that house while you are alive but that house then goes to who you want it to go to at the time of your death. That deed usually cost about $250. Very cheap to avoid probate on possibly your biggest asset.
Vehicles (boats, trailers, campers, etc) transfer with a form from the DMV where the kids agree upon your death where those things go. They do not HAVE TO go through probate if the kids all agree. If there is a fight, a probate may have to be opened to deal with that but let’s hope not. Here is a link to that form: https://toddwhatleypa.com/vehicletoheirs
The DMV also has a form you can fill out now that allows you to say where a vehicle goes at the time of your death. There is a small fee and that is wasted if change vehicles. Here is a link to that form: https://toddwhatleypa.com/vehiclebeneficiary
Then to deal with your “stuff”, that’s pretty easy. Essentially, whoever picks it up and puts it in their car or truck owns it. It’s really that easy. Now, again, if there is a fight over who should get it, probate may have to be opened to deal with the stuff. Most judges though will not put up with that process in their courts. They will simply order it to be sold and the money then divided. Problem solved!!! This is a huge incentive for the kids to not fight over stuff.
There are downsides to the beneficiary designation. The “Big 3” in estate planning is bankruptcy, divorce and lawsuits. The beneficiary designation plan leaves the money to the heirs outright and subject to any claims of the child. This can be a big thing to some families.
Also, the beneficiary plan usually can only do equal distributions to the heirs. For various and legitimate reasons, that is not what some families want to do. If you want to ensure the estate is distributed in varying proportions, then the beneficiary designation plan does not work well. It “can” be done but it’s a whole lot of work.
Therefore, if these situations are in your estate plan, then we need to use a different approach. That approach is a Revocable Living Trust (RLT). A trust is a legal entity that can own property. It’s like a business that owns the property in it, not a human person.
The trust avoids probate in the second way by making sure nothing is in your name at the time of your death. (just for clarification, your IRA and 401K has to stay in your name to remain a tax deferred entity but it transfers with the beneficiary designation mentioned above either to the person or to the trust). The trust owns your property and the trust doesn’t die when you die. It continues to function and distributes your estate after your death.
I could go on for pages about how this works but that is not the purpose of this post. I wanted you to understand 1) that you should avoid probate and 2) how you avoid probate. I encourage you to meet with an attorney that will discuss the simple process first and if that doesn’t work for you THEN discuss the more complicated but very thorough and protective method.
Our focus is Estate Planning for Seniors and I hope this helps. If you have questions, you can always comment on this post or email me at Todd@ToddWhatleyPA.com