What Do I need? February 2019.
By Timothy S. Barkley, Sr.
The handshakes concluded, the Johnsons sit across from the lawyer. “We need to get wills. We’re both in our seventies, and we’ve never had a will. And we think we might need a trust.” Mrs. Johnson interjects, “My cousin told me we should have a trust. She has one.”
“Thank you,” responds their lawyer. “Tell me a little bit about yourselves. I see the two of you … kids?”
“We have three, all adults,” responds Mrs. Johnson.
The lawyer continues, “This is an awkward question, but are all the children of either of you the children of both of you? Any ‘his’ or ‘hers’ who aren’t ‘ours’?”
They shake their heads. “We’re pretty old-fashioned, I guess.”
The lawyer responds, “Certainly makes the planning easier. Any grandchildren? My dad says grandchildren almost make the raising of children worthwhile.”
The clients smile indulgently. “Two, and one on the way. Our son just got married and his wife is pregnant.”
“Congratulations! Is everybody healthy and mentally ‘with it’? Any special needs?”
“We’re basically healthy, and our kids and grandkids are fine, as far as we know.”
“No ‘problem children’ or sticky relationships?”
“Nope, thank God. Everyone gets along. Our son is divorced, but he and his wife were separated for years before the divorce. She’s remarried. They didn’t have any kids.”
“How about your assets. If we sold everything, paid all the debts, collected on all your life insurance, IRAs and 401(k)s, that kind of stuff, but didn’t pay any taxes, would we have more than $5 million?”
“Oh, no,” they respond. He ponders: “Probably close to $2 million, but not nearly 5.”
“Well, then I can tell you you don’t have an estate tax ‘problem.’” The lawyer grins. “That’s a good problem to have – it means you have so much money the government wants a second dip into your wallet as you are on the way to your grave – but I’m sorry, you don’t have that problem.”
They chuckle. “We’re trying to have that problem,” he replies, “but I haven’t been able to manage it yet.”
All smile. “And I can tell you you don’t need a trust,” the lawyer continues. “Basically, there are three reasons to use a trust in your estate plan. First, to avoid estate tax, but that’s becoming less and less of an issue. The federal estate tax exclusion is over $11 million, and the Maryland exclusion is $5 million, so fewer and fewer people worry about that. And with new provisions in the estate tax law, that’s becoming even less of an issue for married couples.
“Second, to handle special needs or difficult family situations, such as a special needs, spendthrift or alcoholic child or a spouse with dementia. You’ve said you’re not facing that.
“Third, for minor children or grandchildren you’re raising. None of that seems to apply. So I think you really don’t need a trust.
“Oh, there is a fourth reason: bragging rights. Some clients want to pay me to draft a trust so they can talk about it at cocktail parties … “
He interrupted, smiling: “That’s OK. I’d rather have my money than bragging rights.”
She interjected, “But what about avoiding probate? My cousin says probate is really a headache.”
“But there are other, simpler and cheaper ways to do that. You can put a beneficiary on your life insurance and retirement accounts – you probably already have – and a ‘contingent’ or ‘secondary’ beneficiary in case the primary beneficiary – usually your spouse – isn’t around when you die.
“You can put ‘paid on death’ beneficiaries on your bank accounts, and use a ‘transfer on death’ registration for mutual funds and stock. That way when the second of you dies, the account or the mutual funds will just pass to the beneficiary without probate.
“You can even put a beneficiary on your car title. It’s a new thing. You can do it online at the MVA website. It costs about $20. But you can’t put a beneficiary on the title if the vehicle is jointly owned. You’d need to wait until the first of you died, and add a beneficiary then.
“The only thing we haven’t handled is your house. You can add the kids as ‘remainder’ beneficiaries on your deed, so that the two of you can live in the house, sell it, lease it, whatever, without their consent and without giving them any of the money, but they own it when the second of you dies. It’s called a ‘life estate deed with retained power of sale, with remainder to the kids.’”
Mr. Johnson ponders, “That’s great, and it seems to cover everything. Do we even need a will?”
“I’d advise it,” responds the lawyer, “as a ‘safety net,’ in case something comes up later or we missed or forgot something. Also, your executor is the person who handles disposition of your remains after your death, and would control who gets what of your ‘personal property’ – your ‘stuff.’
“I’d also advise powers of attorney and medical directives, so there’s somebody named to make decisions for you and pay your bills if you can’t and your spouse isn’t around anymore.
“Combining that with the probate avoidance I’ve just outlined can give you the best of both worlds, and keep the cost down.
“Do you want to go forward, or go home and think about it?”
They nod at each other: “We want to do it,” he replies. “Yeah,” she says, “we’ve waited too long already.”
“Thank you!” responds the lawyer, and poises a pen over his legal pad. “I need some information … “
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Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
Mount Airy
Maryland 21771
(301) 829-3778
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