Coordination is the key when getting your estate affairs in order. Different assets are governed by different rules.
Annuities, life insurance and retirement accounts are governed by the beneficiary designation on file with the annuity company, custodian or plan administrator. Assets in your own name, not owned jointly with right of survivorship, not stipulated by “payable on death” or “transfer on death” designation, will go through probate with the delay, fees and costs related to that.
Assets titled in a revocable trust are governed by that trust and do not go through probate. Your successor trustee (usually, spouse, then child) will become the trusted owner/trustee and will be responsible to follow your instructions.
So, let’s say Jack and Jill have one son, Bill ,who is married to Jane. Bill and Jane have two sons, Jake and Sam. Jake is autistic and will definitely need government benefits.
Jack and Jill want to ensure that Jane will not inherit what they leave to Bill. They also want to ensure that Jake and Sam will get their assets (what has not been used by Bill during his life). They want to make sure Jake’s share can be used for his benefit, but that it will not jeopardize government benefits to which he might be entitled.
Jack and Jill each have IRAs and they own their home jointly. They have joint accounts and have a net worth including life insurance of about $1.5 million. What should Jack and Jill do?
Simple. They should:
1. Avoid problems during life (formal court procedures like guardianship and conservatorship) with each of them having a HIPAA release, health care power of attorney, and general power of attorney. Guardianship and conservatorship can easily be avoided with those documents.
2. Avoid unnecessary probate by using revocable trusts to avoid unnecessary court involvement, delay, fees, and legal expenses upon passing. Properly structured plans with revocable trusts can ensure probate is avoided;
3. Avoid loss to Jane and avoid loss of government benefits for Jake. So, they should make sure that Bill inherits “in trust” so it will not be subject to loss in divorce, the assets will not become commingled, and what is left will go to Sam and Jake.
Jake’s share will go into a special needs trust so he can get government benefits.
Proper coordination of the legal documents (HIPAA Release, health care POA, general POA, pour over will, revocable trust), custom tailored to accomplish your goals with the proper titling of assets and beneficiary designations that are coordinated with the plan, is essential for success.
When getting your affairs in order, make sure you coordinate these things so everything goes smoothly for your family.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com