The Poor Man’s Trust

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 julie@juliemillslaw.com to discuss this and other methods of estate planning.

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Benefits of a Trust

A trust is a contract, or a relationship, between the person who makes the trust (Grantor) and the person who manages the trust (Trustee).  These are often the same person, initially.  I make a trust (Grantor), and I manage the trust while I’m alive and competent (Trustee).  The Trustee manages the assets that are in the trust for the benefit of the beneficiaries, who are people the Grantor chooses to receive assets that are in the trust.  (I, as Trustee, manage assets in the trust such as investments, insurance, real property, etc., for the benefit of my children who are my chosen beneficiaries.)

Why have a trust?

The premier reason for a trust, in my opinion, is to maintain control from the grave.  For example, if you have assets such as a house and retirement plan, and if you have a minor-age child when you die, your child will inherit everything–value of your house, retirement, assets—when he or she turns 18.  It is likely that an 18 year-old person will mismanage (likely deplete) that amount of money.  If you had died with a trust, however, the trust could have reserved money for college, would distribute money at certain staggered intervals (my clients typically choose a portion distributed to the child at 25, then 30 and then 35).

Benefits of a trust

Beyond “control from the grave” for the benefit of children, however, are other important benefits to a trust.

  1. Trusts do not have airtight privacy control but, as private contracts, are typically private.  This is the opposite of probate and guardianship proceedings, which are both public matters.  With a trust, you can avoid both probate and guardianship.
  2. Avoid probate if you own property in other states (ancillary probate). For snowbirds and others who own homes and other property in another state, if the property is held by (deeded or titled to) a trust, then you do not have to have ancillary probate.  If you died owning a condo in Florida, you would have to hire a Florida attorney to probate your Florida property, unless the condo was held by the trust.
  3. A trust can serve as ‘contingent beneficiary.’ If you have a life insurance policy and name the trust as the beneficiary, then at your death the payout is to the trust which then manages that money according to the terms you set.  If the payout goes directly to a child, the money could be depleted, or attached by creditors (your child’s divorcing spouse, or a victim of car accident your child/beneficiary caused, etc.).
  4. Protect assets from surviving spouse. Assets in a trust are not part of a probate estate, which means that they are not subject to a surviving spouse’s right under law to elect against the will.  A trust reduces the chances that a surviving spouse can change the deceased’s estate plan after death, which can be important in blended families.
  5. Protect assets from creditors of Grantor’s estate. Assets in a trust are not part of a probate estate, and creditors generally cannot get to those assets.  If I died with creditors wanting to get to my estate’s assets, the creditors would not be able to get to assets in my trust.  Of course, there are some exceptions to this.
  6. Control the disposition of your assets. This benefit is similar to what I describe in the “Why Have a Trust?” paragraph above, but goes deeper.  You can determine the terms of the trust.  You can decide on whatever terms you want, except those terms that are against public policy (“nothing to my daughter if she marries someone outside of her race,” or “at my death dump the waste from my chemical company into the nearest river”).  Some terms my clients have chosen include distributions to a beneficiary with addiction issues conditioned on passing drug tests, certain incentive distributions for a beneficiary pursuing higher education or receiving certain grades, etc.  You can leave assets to a disabled beneficiary without jeopardizing that beneficiary’s government benefits (typically Medicaid and SSI).  You can provide funds for the down payment of beneficiary’s first house or a car upon graduating from college.  A trust can do most everything for a beneficiary that you would want to do if you were alive.

Trusts do cost substantially more than wills.  The cost of will plans is in the hundreds of dollars, where the cost of trust plans often starts at about $1,200.  However, probating an estate (with only a will) will likely cost more than having a trust plan prepared.

A trust is not for everyone.  I highly recommend trusts for people with minor age children, blended families, and for those who wish to maintain control over the disposition of their assets after they die.

To find out if a trust is for you, email me at julie@juliemillslaw.com.

Estate Planning—Crucial for Business Owners

Do you own your own business?  Are you about to join the world of business owners?  If yes, then this information is crucial for you.

Most people who contact me for estate planning know the basics of what is needed–a last will and testament (“will”), possibly a trust.  Business owners need to engage in similar planning for what happens to their business if they die, yet many clients sit down to discuss post-death planning for everything but their business.  Providing for the future of your business without you is important to your business, and equally important to your family.

Real-Life Scenario.  Jim (not his real name) started a remodeling business.  He fell through the roof of a dilapidated house and died (not really—he is alive but his possible death is a situation we discussed).  Jim did not have a will, or any documents spelling out what happens to his personal or business assets if he died.  As with your personal assets, your business assets are distributed to your heirs at death if you do not have a will.  It is entirely possible that the remodeling business’ assets would be distributed to an heir who is not knowledgeable about, or remotely interested in, remodeling houses or running a business.  If Jim’s business has employees or investors, serious issues with business matters might develop if he died because of the business’ operations being put on hold or left “up in the air” while the probate process proceeds.  It could take months to a year until probate is complete and the business either finds a new owner, is sold, or dissolved.

“What should I do?”

  1. Advice is basic: specify who you want to take control of running the business, and what you want to happen to your interest in the business. The best method to accomplish this planning is, in my opinion, a buy-sell agreement.  This agreement controls everything from who would receive shares of the business, what would happen to the business’ assets, and how ownership would transfer to another person or people.  It is your business’ “last will and testament.”
  2. What if you want your heirs to inherit the value of your interest in the business but not any control in it? Jim, the remodeler, might want to provide his grieving spouse with money from his business but knows she would not want to quit practicing law to remodel houses, or run a business.  In this case, consider purchasing buy-sell insurance. Business partners or investors could purchase Jim’s share of the business’ value which would provide Jim’s wife (or heirs) with money.
  3. Prepare a business succession plan. Designate who will run the business and a couple of alternates.  Detail the business’ assets, liabilities, future ventures, and everything people taking control and ownership of the business should know if you are not there to tell them.

Preparing for the future of your business is as important as preparing for the future of your loved ones should something happen to you.  Business and family assets are often intertwined, requiring plans to determine what will happen to both.

Contact me at julie@juliemillslaw.com to discuss estate and business succession planning.

Surviving family, and the aftermath when a hoarder dies

Grieving is difficult after a family member passes away.  Wrapping up the deceased’s affairs can add stress to grief, particularly if the person who died was a hoarder.  A home that should take a month or two to clear out might take a year or more to empty.  Hoarding is a mental condition related to anxiety, and to obsessive-compulsive disorder, and unfortunately is often left untreated.  This article provides a good description of the situation faced by surviving family when a loved one who was a hoarder dies.

Probate: What is it?

“Probate” is a court-supervised legal process that happens after someone dies.  The purpose of probate is to make sure that the debts and taxes of the person who died are paid, if possible, and that the deceased’s assets are distributed according to how he or she intended.

  1. Assets: generally, only the assets belonging solely to the person who died are probated. Other assets can often be transferred outside of probate, such as real property held in survivorship (your deed will say “survivorship”), many assets with beneficiary designations such as retirement accounts and life insurance and assets held in a trust.   These are just a few items on a long list.
  2. What starts the probate process? You file the deceased person’s will with your local county probate court.  Then, a timeline begins ticking where you file certain documents within certain timeframes, creditors have a certain deadline by which they need to respond if the deceased had debts, etc.
  3. Do I need an attorney? It depends. If real property (house, land) is involved then hiring an attorney is highly recommended.  If there are few assets, no real property, then perhaps an attorney might not be necessary.  The attorney’s fees are paid by the estate.
  4. How long will the probate process take? It typically takes about nine months but can take longer if certain taxes are owed or if there is a will contest.
  5. What will I have to do as the Executor? File the will with the probate court, gather and safeguard the deceased’s assets, have assets appraised, pay final bills, and distribute assets.

Contact me if you need guidance or representation through the probate process at julie@juliemillslaw.com.

The Classics: Fab Four of Estate Planning Mistakes

  1. “I’m not wealthy so I don’t have an estate: Everyone has an estate.  Estate planning is about what you own, not just what everything is worth.  If you have a car, a house, a bank account, or anything, you have an estate.  Estate planning encompasses how you plan for the distribution of your assets.  Estate planning can be a simple will, or it can be complicated trusts.
  2. Pets. Legally, pets are your personal property.  As with all property, you should plan for what will happen to them if you die.  Obviously this takes on critical importance with pets, since so many pets end up in cages in shelters when their owners become incapacitated or when they die.  Include instructions for the care of your pet in your will, or set up a pet trust.
  3. Designation of agents, naming of executors and trustees. Most clients do not want to “play favorites” with naming their children as agents to powers of attorney, executors in a will, trustees to a trust, so they want to name all three (or however many) children as “co-“ agents.  Under some states’ laws, co-agents can act independently of each other without requiring signatures on everything of, say, all three children.  This can still be a nightmare.  Financial institutions prefer one person for their own liability reasons.  Unless there’s an odd number to break a tie, disagreements can hamper efforts to care for an incapacitated parent or deal with estate matters.  If all three signatures are required, this can be burdensome if all three children live in separate states.  Choose one child—typically the closest geographically and most responsible financially—then list other children as successors.  (Choosing a guardian for your children is crucial also.  See this important post.)
  4. Buried or cremated? Where? Besides arguments over the distribution of belongings, the other main creator of arguments is decisions surrounding burial, cremation, and cemetery location.  Be absolutely clear in your estate plan about what you want.  Do you want buried?  If yes, in what cemetery?  Do you want cremated instead?  If yes, do you want your ashes scattered (and where), or stored in an urn (and with whom)?  Fights occur because of cemetery location first, since extended family want you in your hometown even if you’ve lived away for decades.  Disposition of your body is the second cause of fights, in my experience.  Some people are abhorrent to thinking of a loved one decomposing in a grave, or being reduced to ashes in an oven.  Finally, if you choose cremation and want your ashes scattered, be sure your wishes are legal.  The wish to “throw my ashes up in the air as you’re going down Space Mountain at Disney World” is not legal.

Contact me at julie@juliemillslaw.com to discuss your will or trust, or planning for your pet.

August is #NationalMakeAWillMonth!

August is #NationalMakeAWillMonth.  What are you doing to celebrate—having a will prepared this month?  Instead of discussing what happens with a will, here’s what happens without one.

When you die and you have not prepared a will, you die intestate.  The laws of “descent and distribution” in your state kick in, and the court uses these laws to decide who gets what.  The court appoints a person to administer your estate.  The court decides who will care for your children.

Without a will:

  • You don’t decide who gets what assets you own
  • You don’t dictate who winds up your affairs
  • You don’t choose who will parent your children
  • You don’t decide where your pets will go
  • You don’t decide whether you’ll be buried or cremated, or where you’ll be buried

Celebrate #NationalMakeAWillMonth by having a will prepared this month.  Take control of what happens to your assets at death!