By Tim Barkley. August 2021.
We shook hands and sat down. “Now, if I understood you correctly when you called to set the appointment, you are here to talk about wills.”
“Well,” ventured the husband, “wills or trusts – I’m not sure what we need. We hear a lot about trusts.”
The wife nodded. “My brother has a trust and says everybody should have one.”
The lawyer pondered. “Trusts are a good tool, but not everyone needs one. May I ask a few questions, so I understand your situation?”
The clients indicated assent.
“Do you have children?”
“Yes,” answered the wife, “two daughters, both grown.”
The lawyer nodded, “Is everyone mentally and physically healthy?”
The husband gave a “thumbs-up” and ventured, “As far as we know.”
“Good,” the lawyer responded. “Now if you sold everything, paid your debts, took all your money out of your IRAs and 401(k)s but DIDN’T pay the taxes, collected on your life insurance … would you have more than five million dollars?”
The wife shook her head. The husband said, “Probably more like a million and a half.”
“So we’re not worried about avoiding estate tax. The Maryland estate tax exclusion in 2021 is five million dollars – each – and there are two of you, so we don’t have a ‘tax problem.’ The other big question is – if you both died tomorrow, would it be okay if your daughters each just received half of your $1.5 million in a check? Would they be responsible with it?”
“Absolutely,” said the wife. “They’re both very prudent with money.” The husband nodded concurrence.
“So … the usual ‘happy family everybody healthy’ estate plan is something like ‘all to my spouse and if my spouse hasn’t survived me, all to the kids in equal shares.’ Is that what you have in mind?”
“Then I see no need for a trust,” concluded the lawyer. “You don’t need a trust to avoid estate tax, to provide for a ‘special needs’ beneficiary or protect a spendthrift. So unless you just want a trust, let’s not spend money creating one.”
“What about avoiding probate?” queried the wife. “I always hear that probate is a nightmare.”
“It’s a tedious process,” agreed the lawyer, “but there are other ways to avoid probate. They don’t work in every situation, but they might work well for you. You have responsible, adult, healthy children, and you aren’t worried about estate tax.
“What if I showed you a way to avoid probate without paying the fee for a trust. Would that be helpful?”
They both nodded and leaned forward.
“Nothing that has a joint owner or beneficiary goes through probate. So when the first one of you dies, there’s usually nothing to probate because everything just passes to the spouse. But when the second one of you dies, sometimes there’s a lot that has to pass through probate to get to your kids.
“I don’t like to add children as joint owners on their parents’ assets, because then if the kids have a financial problem, so do you. Your money is their money if they’re a joint owner, and even if they would never take your money, their creditors will.
“But I can help you make your children beneficiary of your assets. Then there’s no probate, and nobody except you has a right to your stuff until the second one of you passes away. Is that interesting?”
They nod again.
“You can make your children the ‘paid on death’ or ‘POD’ beneficiary of your bank accounts, so that when the second one of you dies, the money just belongs to them equally. You can make the kids the ‘transfer on death’ or ‘TOD’ beneficiary of your stocks and mutual funds. When you are both gone, the account would just be divided between them.
“You would make your children the contingent or secondary beneficiaries of your life insurance and retirement plans. When the first spouse dies, the survivor would make the children the primary beneficiary.
“That takes care of everything but the house and the cars. The MVA allows two names on car titles. If your cars are titled jointly …” the clients nod “then you have both ‘slots’ filled right now. When the first of you passes away, and the survivor decides which car or cars to keep, he or she can put a beneficiary on the car title so the car transfers on the surviving spouse’s death to one of your children.
“Finally, for the house, we can create a new deed called a ‘life estate deed.’ That means you could live in the house for the rest of your life, and the survivor could live in the house until he or she died or couldn’t live in the house anymore. You could keep the ‘power of sale’ – you or the survivor could sell the house, mortgage it, lease it, give it away, or change the deed, without anybody’s authorization. And if you sold it, you could keep all the sale proceeds.
“Your daughters would have the ‘remainder’ interest – the right to receive the house when the second of you died. Until that point, you or the survivor of you could do whatever you wanted with the house, without their permission. When you were both deceased, your daughters would just own the house, simple as that.
“So we’ve just taken everything out of probate without a trust. You would still need a will just in case something changed or we missed something. But the main assets would pass outside probate.
“This is what you need to do … “
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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