Heir-or in Judgment #6: Adding Your Adult Children to Your Assets

A large number of individuals feel that adding their adult children to their banking accounts and property is a great way to keep those assets from passing through probate.  This usually causes more problems than it does by solving them.  Some jurisdictions will not allow an automatic transfer of those assets just like there is not always an automatic transfer of assets from a deceased spouse to the surviving one.

Additionally, the adult child has assumed some ownership of the account or property by having their name added.  This opens up those assets to any potential problems the adult child may run into.  A bankruptcy would open subject those assets to a possible seizure or dissolution.  The assets could also be subject to liens and/or garnishments if the adult child was involved in a serious automobile accident lawsuit.

Placing adult children’s names onto assets may also be looked upon as a gift by the IRS which could open up the gift of those assets to a hefty gift tax and could also reduce the total estate tax exemption.  There are estate planning tools which can accomplish the transfer of assets to children without subjecting those assets to the numerous problems discussed above.

Attorney Blooma Stark says advisors should urge clients to review and, if necessary, update their estate plans

http://www.advisorone.com/2012/04/02/5-important-steps-to-update-estate-plans

Heir-or in Judgment #5:  Using DIY Estate Planning Forms

Drafting wills, trusts and other estate planning documents is the practice of law.  Even if the documents being offered are “written by lawyers,” laws on the administration of estates differ from state to state and can change year to year; generic forms cannot include any state specific references that could run afoul of another state’s laws.  Also, when you choose and complete your own forms, you have no attorney to ask (and answer) the right questions, decide the right estate planning approach, order and properly complete insurance and retirement plan forms, and confirm that all documents have been properly drafted, signed, witnessed and recorded.

As Timothy E. Kalamaros, a lawyer with his own practice in South Bend, Ind., says, using a DIY will is like “pulling your own tooth with a pair of pliers instead of going to the dentist.”  George Fox, a lawyer with Fox+Mattson in Atlanta, recently sent shared two of his favorite examples, gleaned from a tax group he frequents.  One involved someone who left the form blank where instructions for the DIY will said “[Insert name here]” and wound up leaving $200,000 to “[Insert name here]” instead of to a loved one.  And then there was the poor soul who left “$200.000 to my sister.”  The typo, putting a decimal point where there should have been a comma, became a source of contention.

Finally, having an estate planning attorney provides you with a source of ongoing representation, informing you of changes in the law that may impact your estate and require changes to your plan.

Heir-or in Judgment #4: A Will Disposes All of Your Assets

A Will only controls property that you own in your name alone.  Property that is jointly owned with rights of survivorship will pass to the joint owner.  Additionally, in most states spouses have marital rights in property owned and can elect certain shares of that property even if the spouse is left out of the Will.

Beneficiary designations in retirement accounts, insurance policies and banking accounts will also trump a will.  I recommend to my clients to have a beneficiary audit performed to ensure they are up to date.

Heir-or #3:  A Will Prevents Probate

This is a very common misconception.  I meet with a lot of folks who think if they create a will that states their house is left to their children then their house will avoid probate.  However, that house would still have to pass through probate even if the will stated specifically where it was to be distributed.

Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property.  It is the only way to obtain a court order to change the name on legal documents such as titles and deeds.  There are court costs, fees and probate attorneys’ fees associated with probate, not to mention the amount of time the property remains held up in court.

A will guarantees that whatever property distributed under the terms of that will pass through probate.  There has to be something else along with that will that allows the property to avoid probate.  Placing property with titles and deeds inside a trust will allow that property to be distribtued per the terms of that trust outside of probate.

Other ways to avoid probate:

• Joint tenancy with rights of survivorship
• Designated benficiaries
• Payable on death
• Transfer on death
• Beneficiary deeds

Heir-or #2:  Everything Goes To Your Spouse

Unfortunately, that is not always the case.  State laws do very, but if you die without a will (intestate), the inheritance from your estate will be divided among your spouse and children.

In Arkansas, if you have a spouse but no children, all of your assets pass to your spouse if you have been married for more than three years.  If you have a spouse but no children, only one-half of your assets pass to your spouse if you have been married less than three years.  If you have a spouse and children, your spouse will receive one-third of your assets and the remaining two-thirds will pass to your children.  If you do not have a spouse or children, then your assets will pass to your parents, then brothers and sisters then other relatives such as nieces, nephews, aunts and uncles.

Regarding land, if you have a spouse and children, your spouse will only receive a life estate in one-third of your land.  A life estate means that your husband or wife owns their share of the land only for their lifetime.  They do not have the right to say who gets the property at their death.

This is not what most people want to happen with their assets.  However, in reality, is it exactly what will happen with no planning or poor planning.

This is the first in a new series of estate planning “heir-ors” that I am going to bring to you.  As of this writing, almost 2/3 of Americans do not have a basic will.  One of the big reasons that most families do not yet have this kind of plan in place is because of some incorrect thinking about whether it is right for them or if it is even necessary.

I wanted to speak to some of the more common “heir-ors” out there.  I’ll start with one of the big ones and address more in 2012.

Heir-or #1:  Only Rich People Prepare Estate Plans

Do you own anything?  If so, you need a will.  You see, a will allows you to designate who will receive your property should anything happen to you.  Continuing without one ensures that all of your assets will be distributed under the terms of your state’s “intestate succession” laws.  That means your money and property could end up with family members you haven’t spoken to in years instead of who you’d really like to see control your assets.  Failing to have a will in place is simply a decision to trust your assets to government bureaucrats who do not know you from Adam.

Do you have children?  If so, you need a will.  You will be able to name a guardian to take care of your children should you not be able to.  Without having this guardian clause in a will you will not be able to take part in the decision making process and a judge will decide where your children will live and who with.

Even if you think your situation if pretty straightforward, you may feel more comfortable hiring an estate planning attorney to help guide you the process.

Allen J. Margulis collaborated with Forbes.com to present an article about the proper way to transfer title of guns after one’s death.  Leaving guns can present a number of problems.  Is a minor responsible enough to handle and take care of a certain firearm?  How do you transfer title for firearms that are restricted by the National Firearms Act?  Do you have to get approval from your Chief Law Enforcement Officer?

A Gun Trust is a special purpose revocable living trust. A Gun Trust is written
to hold only firearms.

http://www.forbes.com/sites/peterjreilly/2011/09/22/gun-collections-pose-special-estate-problems/

Many clients elect to have their Revocable Trusts continue following their deaths for the benefit of their adult children.  Most everyone realizes that a trust is necessary to hold and distribute assets for minor children and grandchildren, but what about for adult children and grandchildren?

Inheritances that are held in trust can be protected from claims by a spouse if your child or grandchild were to divorce.  The assets held in trust would most likely be viewed as not being joint marital property.  Additionally, if your child or grandchild has creditor problems the assets held in trust could possibly protect those assets from being levied upon or subject to a lien or claim.

Leaving those assets in a your revocable trust for children or grandchildren with health problems or who may be too immature to handle a large sum of money are also excellent reasons to have the trust distribute the assets.

To recap, here are the advantages of having inheritances remain in the trust and be distributed pursuant to the terms of your revocable trust:

• Protect inheritance against claims by child’s creditors or spouse
• You can choose to spread receipt of an inheritance over as many years as you direct
• You can choose to provide your child with an income for his or her lifetime, with the remainder passing on to your grandchildren

As always, this is not legal advice and should not be construed as such.  I am always available to discuss estate planning, and trusts specifically, with you and your family to see what would be a good fit.

I am going to provide a free Estate Planning review and a free Will to Police Officers and Firefighters in the central Arkansas area.  The days I will be scheduling appointments for the free review and Will are December 6, 7 and 8.  There are only a limited number of spots.  I will schedule appointments until the spots fill up.  To schedule an appointment go to my website and select the “Schedule a Free Consultation” tab.