Estate Planning might be summarized as creating, maintaining and carrying out a list of legal instructions for the administration and transfer of your property, directed to that time when you can no longer do it yourself because of your disability or death.
Everything in Estate Planning depends on proper title.
The legal ownership of assets is “title” to those assets. Control of your estate comes from holding legal title to your assets. Personal planning and protections depend on title. Tax savings depend on title. You and your family will only receive the benefits of your planning if your planning controls title to your wealth.
There are basically three types of title:
- Individual name;
- Joint names; and
“Individual name” on title means you control it, and your Last Will and Testament (Will) will control it on death. “Joint names” property includes tenancy in common, joint tenancy with rights of survivorship, and in some states tenancy by the entirety. “Contracts” (title held by contract) include beneficiary designations such as retirement accounts and life insurance, and trusts.
Assets owned in your individual name plus assets that are payable to your “estate” are the only assets controlled by your will. Jointly owned assets and beneficiary designations are controlled by operation of law. Only assets owned by a trust are controlled by the terms of that trust.
PROBLEMS WITH ASSETS IN INDIVIDUAL NAME
Assets in your individual name will be governed by the instructions contained in your will. There are several problems with placing your estate planning instructions in a Will:
- The only way a will is administered (except for an exceptionally small estate of less than $50,000 in Illinois, even less in most states) is through probate. Probate generates executor and attorneys fees and cause much delay in your loved ones receiving their inheritance.
- Wills are fully public. By law, the terms of your will must be placed on public record within 30 days of your death. Probate is a public court proceeding where anyone can find out what you did with your property.
- Wills offer NO planning for your disability. The traditional way of dealing with this is a General, Durable Power of Attorney – which turns virtually total control of your estate over to the person you name in that document.
- Wills normally will not control, and therefore the express instructions you place in your will are ignored as to, life insurance proceeds, jointly owned property and retirement accounts.
- The probate process is literally an invitation to unhappy heirs to contest your choices for distribution of your estate if they are the least bit unhappy about it.
- Wills are often boilerplate, bare-bones documents that give little, if any, consideration to your real hopes, fears, dreams and ambitions.
- Wills are very state-specific, and should be revised any time you move across state lines.
PROBLEMS WITH ASSETS IN JOINT NAMES
There are numerous overlooked pitfalls of assets held in Joint Names, including these:
- Contrary to popular belief, Joint tenancy assets do not avoid probate; probate is only delayed until the death of the last owner.
- Joint tenancy assets often pass to unintended heirs.
- Joint tenancy ownership by a married couple makes no provisions for estate tax planning, and even undermines any attempts at tax avoidance.
- Joint tenancy with children or other non-spouses create often-unintended gift and estate tax results.
- Joint tenancy makes what was your property now available at least in part to your co-owner’s creditors, lawsuits and other predators.
- The first owner to die forfeits all control of the asset, and therefore cannot leave the asset to whom they want, when they want or the way they want.
PROBLEMS WITH PLANNING BY BENEFICIARY DESIGNATION
People often try to take short-cuts with their estate planning by simply designating beneficiaries on many or most of their assets. In essence, they establish a separate “plan” for every single asset! Other problems with this include:
- Designating a beneficiary on standard forms usually means losing control of a major part of your estate. It does not allow you to leave instructions or provide guidance to your loved ones.
- Direct beneficiary designations don’t allow you to protect your spouse or children from creditors or unscrupulous people. There are many ways to provide them that protection, but not by naming them as direct beneficiaries.
- For many families, equal isn’t fair, and direct beneficiary designations result in unfair treatment of your different children, grandchildren or others who needed your help.
- Beneficiary designations make no provision for, and usually undermine, any estate tax planning you might need.
PROBLEMS WITH PLANNING WITH LIVING TRUSTS
In the last 10 – 15 years, living trusts have become popular estate planning tools. It is generally accepted that living trusts can work better than wills. As a matter of fact, there has been a “living trust revolution” in our country, and any attorney who claims to be an estate planning attorney but doesn’t routinely create living trusts for his or her clients is quite behind the times.
Unfortunately, most living trusts don’t work better than wills, and may actually add complications instead of ease the process. Bottom line: while they can and should, living trusts usually don’t actually work as expected. Reasons usually include a combination of one or more of the following:
- Failure to properly title assets. Even if assets are titled correctly when the living trust is originally made, as assets change the titles to new assets must be properly aligned with the trust, too.
- Most people don’t fully understand what they have when they make a living trust, and fail to use it as it is intended.
- Most living trusts are very sterile, boilerplate legal documents written in a one-size-fits-all format with virtually no personalization to address the myriad differences between families.
- Most living trusts are written almost exclusively to be a tax-and-probate-avoidance tool instead of a family-goals planning tool.
THERE ARE BETTER WAYS TO PLAN
Most estate plans fail to meet the objectives of their maker. It shouldn’t be that way.
TLC Planning™ is a better process designed to get the RESULTS you want.