A “Poor Man’s Trust” (I’ve seen it called “Poor Man’s Will” also) is the estate plan you create by naming beneficiaries on accounts, and titling property as transfer-on-death to have it pass to the person you name, all to avoid probate. Your bank accounts are payable-on-death (POD), your life insurance and retirement policies all have named beneficiaries, and the deed to your house has a transfer-on-death affidavit recorded leaving your home to a named person on your death, resulting in these assets passing to the people you have designated outside of probate. Why, then, would you need a will, or revocable trust?
This planning method might work for some. I am in the group of attorneys who believe that access to legal help should be more affordable, and that living trusts are often over-hyped. So in some limited circumstances, this method of planning might be acceptable.
If you are leaving everything outright to certain people, then designating beneficiaries like this might accomplish your goals. For example, Joan is an older single woman whose husband died decades ago, she has an adult child or two. John never married and has no children. Perhaps beneficiary-planning might work for them. However, few people have such an uncomplicated situation to make this method of planning workable. It might not work for “uncomplicated” Joan or John, either.
The Poor Man’s Trust is certainly less expensive short-cut to having a will or trust. As with most short-cuts, however, there will be a cost:
- Stories of fraud are common with people convincing elderly people to change beneficiaries on their beneficiary forms
- If you leave everything to a beneficiary, the administrator of your estate might have to go after the beneficiary to pay back money for your funeral and last expenses
- If your beneficiary predeceases you, the state laws of descent and distribution decide who gets your assets, not you
- Your beneficiary’s creditors can go after everything you leave him or her the minute it comes into their possession
- If you have a surviving spouse, he or she could change the beneficiaries you have named
- If Joan above left life insurance to her son with wishes that he distribute some to charity, or another relative, there is nothing to ensure that he does so
Having a will ensures that your assets reach their intended destination—your executor and the court will see to that—as well as pay your final expenses so beneficiaries aren’t forced to repay your estate. A living trust will provide for you during periods of incapacity, unlike beneficiary planning. If your desire is to avoid probate, a trust does that. Additionally, a trust would ensure that people are not unintentionally disinherited through fraud, or changing beneficiaries on a form, as well as distribute to beneficiaries at certain times to avoid creditors attaching.
Most importantly, a Poor Man’s Trust is absolutely inadequate if you have minor children. You need a will to name a guardian, and you need a living trust to provide for their education and future without you (a will distributes everything to a child once they reach 18).
If you still believe beneficiary-planning is for you, I would recommend at least a Last Will and Testament that names an executor to ensure final bills are paid, particularly funeral expenses.
See this article on Poor Man’s Trust method of planning.
Contact me at email@example.com to discuss this and other methods of estate planning.