Thursday, 26 April 2012
THE TGB ELDERLAW ATTORNEY: Estate Plans
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.
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.
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