« ELDER POETRY INTERLUDE: Since Nine - | Main | Mom's 20th Yahrzeit »

Thursday, 26 April 2012

THE TGB ELDERLAW ATTORNEY: Estate Plans

Orrin Onken Orrin Onken writes the twice-monthly TGB Elderlaw Attorney column in which he discusses legal issues of concern and interest to elders. He is an elderlaw attorney licensed to practice in the state of Oregon. He also keeps his own blog, Oregon Elder Law, and you can read more about his background here. All his Time Goes By columns are collected in this list.


In my last column, I attempted to demystify probate. If I succeeded at all, you no longer think of probate as something to fear.

In the comments to my probate post, people continued to wonder whether they should have a will or trust. I think people should be more concerned about having a plan.

Lawyers call it an estate plan for a reason. The plan comes first. The documents put the plan into action. In order to plan, we need to know about the three ways that property passes at death.

JOINT OWNERSHIP
I own a house with my wife. Because of the way the deed is written, when I die, she owns it. She doesn’t have to do anything. We have a couple of joint checking accounts. The same applies. When I kick the bucket, she gets the house and all the money in the account.

If I wrote a will saying I really never loved her all that much and then willed everything I own to the Church of Elvis, my wife would still get the house and the money in the checking account.

You can pass property outside of probate using joint ownership. Just because you can do it does not mean you should. Joint ownership works well between husband and wife, but not so well between parent and child. Survivorship rights are tricky and present many hidden dangers.

Children have a tendency to approach elderly parents and say, for example, “Hey mom, why don’t you make things easy when you die by putting my name on the house.”

The child presents mom with a deed that he or she got at the stationery store and filled out at the kitchen table. So mom signs.

The next day the kid who wrote the deed gets run over by a bus. If the deed isn’t done exactly right, the dead child’s half of the property now belongs to the grandchildren and mom owns her home jointly with a pot smoking teenager and a ten year old. The deed ends up at my office in my museum of ugly deeds.

Joint ownership is part of my estate plan and part of most estate plans. But remember, the plan comes first. The deeds and joint accounts should follow. Don’t get it backwards. And always let your lawyer write the important documents.

CONTRACT
Much of our accumulated wealth passes by contract. I have a contract with Fly-by-Nite Mutual that says that if I die the company will pay my wife a stack of money.

The contract is called life insurance and the document that really matters is called the beneficiary designation. The life insurance company is going to pay the person whose name is on the beneficiary designation form, not the person named in my will or trust.

If I divorce my wife and get a new trophy wife, I better change the beneficiary designation to the new wife or somebody is going to be sorely disappointed.

Beneficiary designations control the distribution of life insurance, most annuities, 401k plans, IRAs, and most retirement plans. In many cases, beneficiary designations will control the biggest chunk of an elder’s accumulated wealth.

In my case, I want one small retirement account to go to my son. I want the larger of my retirement accounts and the life insurance to go to my wife. This is my plan. The documents put it into effect.

WILL OR TRUST
What property doesn’t go by joint ownership and isn’t controlled by beneficiary designation, goes according to the directions in your will or trust. If you have no will, the state you live in has written one for you and your property will probably go to your children in equal shares.

If you have a trust and it has been properly funded, your property goes as directed in the trust. The administration of wills is done through probate. Trusts are administered similarly to wills, but without the court oversight.

I tell this story about the three ways that property passes when you die hundreds of time a year. When I tell it to middle-class married couples, I explain that I am going to write two wills - one for the husband and one for the wife - but one of them will probably end up as scrap paper.

The reason is that when the husband dies (husbands usually die before wives), all of the couple’s property will pass to the wife through joint ownership and beneficiary designations. The family home will go to the wife because it is owned jointly. The annuity and the retirement account will pass to the wife because of beneficiary designations.

Once that has happened, there is nothing left. With nothing to pass through probate, that expensive will becomes scrap paper.

When the wife then dies, however, that will is damn important. The jointly owned property is gone. The retirement accounts may well have paid out. Everything is controlled by the will.

I tell couples they could save money on their estate plan if they would promise to die in a predetermined order, but no one has ever taken me up on it.

The moral of today’s story is to de-emphasize the documents and emphasize a plan that takes into account all the ways in which your property passes at death. When the plan is made, use documents to put it into effect. If the plan changes, see your lawyer and change the documents.

[EDITORIAL NOTE: Is there an elderlaw topic you would like Orrin Onken to discuss? Leave your suggestion in the comments below and it may turn up in a future column. Remember, Orrin cannot advise on specific personal legal issues.]


At The Elder Storytelling Place today, Barb: Trauma as the Fat Lady Sings


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

Is there a legal way to reduce taxes on estates when assets are divided into personal, IRA's and privately owned corporation?

This is just as concise, informative, and funny as the probate column. Mr. Onken, you are a terrific writer. I'm sending this to my siblings. Thank you!

"If you have a trust and it has been properly funded, your property goes as directed in the trust."

This is an important point you have brought up,Mr. Onken.

I know two couples who have spend considerable money and time to have a trust set up for themselves, then never FUNDED the trust.

They thought they were all set and did not realize that all accounts,deeds,etc. had to be in the name of the trust.

I think you have done a wonderful service by mentioning this aspect of a trust. It could be very important to some of your readers.

In the early 1990s when I was working as a real estate paralegal, I ran across a house sale involving a house owned by a husband and wife. Reviewing the file, it was obvious that only the wife was represented in the paperwork. There was no death certificate for the husband...or any reference to him at all.

As the wife was an immigrant in her eighties with medical problems who didn't entirely understand English, her son had been explaining everything to her...So I called him.

He sighed and explained that although his father was alive, his parents had separated decades earlier - refusing to divorce due to their religion - and her mother considered him dead and wanted nothing to do with him.

After several go-rounds the file was kicked up the corporate ladder to the partner who handled the real estate division...I don't know how they finally resolved the house sale.

Aside from keeping your beneficiaries up to date, maybe keeping track of your spouses and ex-spouses should be a separate column

Ronni, you have proved yet again that you really know how to pick 'em! I really enjoy Mr. Onken's columns - a lawyer who clarifies and cuts to the chase, what a refreshing idea!*!

I have both of my children on the deed to my house with right of survivorship, share and share alike. The annuity is set up in a similar fashion, but three will share on it. As I have nothing else to bequeath this avoids probate. I did have a lawyer prepare the documents.

Fascinating. Thank you.

This is excellent information! My in-laws could have greatly benefited from it many years ago. In 1995, they placed their home, of modest value, and even more modest today, in an irrevocable trust solely for the purpose of avoiding losing it to the state if they went into a nursing home. They did change the deed to reflect the trust, but this turned out to not be such a good thing for them. They went into assisted living two years ago, and my father-in-law died ten months later. My mother-in-law, who has dementia, had to go to a higher level of care upstairs on a restricted floor of the facility. Of course the cost of her care skyrocketed, and she could not afford it after a few more months. I left my job and moved her back to her house, which is one floor and very manageable for her, and I stay with her as fulltime caregiver (24/7). With her very reduced income, it has been increasingly difficult financially. Her husband had a very small life insurance policy, which was mostly used up paying her assisted living costs while she was still there, and is now gone after a year back at her house. When we tried to take a loan against the house, which has no mortgage, but has a value of about $80-90k currently, she was denied due to the irrevocable nature of the trust and insufficient income to repay the loan. The loan request had only been for $30k, which she could have made payments on now, and which ultimately could have been repaid by the sale of the house when the time comes. She is 92 years old. We don't know how to proceed at this point. Should we pursue a reverse mortgage? My husband is the sole trustee, and she has only one other child, a son who lives in China and has left everything up to us to manage. With the loss of my income, we are not very able to help financially, although I will be 62 in July and could start drawing SS benefits and use those to supplement household costs here. We currently pay for food and incidentals, but the bigger concerns are property taxes and homeowners insurance, which are coming due soon and will be difficulty this time around.

This is way too complicated -- I'm just not gonna die.

My concerns about probate are that my children have busy careers and one of them lives across the country. Probate and the red tape that goes with it takes time that they probably can't spare very easily.

Cathy, above, mentions that when her mother-in-law, who has dementia, needed more money for her upkeep, they discovered they couldn't borrow against the house because it was in an irrevocable trust. Mr. Onken, would you elaborate on that peril and any others that may exist with an irrevocable trust.

Also, is there such a thing as revocable trust and what's the difference between them besides the obvious.

You're doing a great job here. So glad you join Ronni's elderblog.

My mother's revocable living trust became an irrevocable living trust in the eyes of the law when she died recently and I became Trustee under its terms. It was revocable by her while she was alive and competent. Administering is will be a piece of cake, it appears. A lawyer prepared the will and trust about 20 years ago. The financial institutions holding the accounts which were transfered into the trust (layer is not needed for that part) are not interested in even looking at the will. The trust governs. I will have to fill out an IRS 1041, income tax on estates, and that will be about the hardest part of the duties. Income tax only, not estate tax, because the estate is well under the minimum. I will not see a judge or a lawyer about the estate, I don't think. The way to go, when indicated by criteria in the earlier post.

"irrevocable trust" not "irrovacable living trust" is correct, I think, because the grantor, my mother, is not living. IANAL (I am not a lawyer), as you may well guess.

I am so grateful to my parents who were careful to create two trusts. The trust of the first to die passed over to the survivor. Everything my parents owned was titled in the name of the trust. After both parents died, my sister and I administered the trusts. Thankfully we are cooperative and are sharing the estate equally. We have had absolutely no extra paperwork, and no government oversight or interference. I have seen so many estates that are plagued with problems because of poor planning. We were the lucky ones because of our thoughtful parents.

These articles are very helpful to this already informative blog. Am particularly interested in creating my plan to make certain my children can process everything independently without government involvement.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Related Posts