Estate Plans | Catch the issues before they catch you

In this episode, John Ross and Lisa Shoalmire discuss estate planning and how to avoid some common problems before they make things very difficult.

Episode Transcript
John
Well, it does look like we've got a call here on the radio. Let's see if we can get them on the line and see if anything they can help us with. Caller, you're on Aging Insight.
Caller-1
Well, very good. We're talking about planning. Well, we're planning ahead but we're late in doing so. Wondered what advice you might have on a will versus a family trust.
John
Okay. Well, that's a good question. Something that we get all the time and here's the simplest way to describe those two things. If, on the one hand... Essentially, the difference is, one of them you're doing all of the work in advance so that less work has to be done later when you die. The other, you're putting words on paper that then are gonna go into effect when you die. For example, if I do a will, I'm saying here's what I want to happen when I die, which is just a piece of paper and it's just words on paper. And those words don't come into effect until after I have died and somebody goes and hires a lawyer and takes that will to court and gets appointed as the Executor and goes through the process of making the will provisions happen. Now, compare that to a family trust where I'm gonna start today and I'm gonna create a trust and I'm gonna re-title bank accounts and real estate and things into the name of that trust. I'm gonna do all the work today and then when I die, there will be very little that has to be done because the trust is gonna say, here's what happens when I die without the necessity of going to court and going through all of that process. Oftentimes, when I've drafted a will versus drafting a trust, the terms are the same.
Lisa
Right. The beneficiaries and how things result, how things conclude are the same.
John
The difference is, do you wanna do the work in advance and then make it easier on the people that you leave behind? Or frankly, you're not gonna care how hard it is after you're gone. Do you wanna keep it easy now and let somebody else do the work later? From a very simple standpoint, that's how it is. Did that answer your question?
Caller-1
Well, that helps. That helps. What about the cost of setting up a will versus the cost of setting up a family trust?
John
Sure. And again, it kinda goes back to the effort involved in all of this. Wills are typically gonna be a much cheaper option on the frontend. For example, from a very simple standpoint, there's something called a holographic will, which is just something in your handwriting and signed by you. You get a piece of paper out, and you say, when I die I leave everything to my three kids and you sign it. That's actually probably an enforceable will.
Lisa
And that was free.
John
And that was completely free. Now, after your death, in order to make that piece of paper valid, there's gonna be a court process that's gonna take several months and is gonna require the use of an attorney and that process could easily be anywhere from say $2,000 to $5,000 and up depending on if there's any problems through that court process, if anybody contests it or anything like that.
Lisa
Or if the terms of the handwritten will are not clear or if there's real estate involved, that title companies don't like the handwritten will provisions, who knows?
John
On the other hand, setting up the trust is gonna involve a lot more effort on the frontend. There's gonna be deeds that have to be re-titled, there's bank accounts, there's the trust document itself that you've got to pay for and a lot more effort. So often...
Lisa
And then the tax arrangements that are made with the trust.
John
Right. And it's certainly not something that you can do yourself. Typically, you're gonna end up spending anywhere from a couple of thousand bucks to get all of that set up on the frontend with the idea then that there's nothing to do when that first spouse dies, when that second spouse dies. Essentially, you're front loading...
Lisa
All the expense.
John
All of those expenses.
Lisa
And, you said there's no lawyer to pay on the back end when you use a trust and also that trust is often gonna protect your assets from creditors which while are not necessarily a direct expense...
John
It can be.
Lisa
It can be and so you look at it both like that as well.
Caller-1
Very good. Is it possible to recommend a firm in Texarkana that could help us on this?
John
Well, of course, I'll be a little bit self serving on that, of course. Lisa and I, we practice here in town and we do... That's a big part of our practice is doing wills and trusts for folks. But really, what you wanna look at is somebody who does this as the majority part of their practice. There's lots of attorneys in town and you could call probably 90% of them and if you've got a check that'll cash, they're probably willing to draft a will or draft a trust. That doesn't mean they're gonna be well versed in it. Finding somebody who does that as the majority part of their practice, somebody who is a member of the National Academy of Elder Law Attorneys, somebody like that, that's gonna be where you're typically gonna wanna go with someone like that.
Lisa
Yeah. If their ad in the phone books says something about 18 wheeler accidents, that's probably not the law firm to use to take care of your planning. But sure, Ross and Shoalmire is always a firm available if you don't already have an attorney that you know and trust. We're glad to help you out.
John
And just at least from our standpoint, just like we'd get on here on the radio and answer questions, people are often also welcome to make appointments, come into our office, and we can have a more personal discussion. We at least as a firm, our attorneys do not charge to visit with folks. If you wanna have a more personal conversation with an attorney about this stuff, you can certainly call our office.
Caller-1
Oh, very good. This was very helpful. I appreciate it very much.
John
Absolutely. Well, thank you for calling in.
Lisa
Yeah, what a great...
Caller-1
Alright.
John
Alright, have a good one.
Lisa
What a great call. And our caller there, I bet he's got a Christmas list, but he didn't share it with us.
John
Yeah, that's probably right. That's alright.
John
Well, listen, that took up quite a bit of time. I think maybe before we get into the rest of it, why don't we go ahead and take a break?
Lisa
Sounds good to me.
John
Alright. Stick around. We'll be right back.
John
Welcome back to Aging Insight, everybody. This is John Ross here with Lisa Shoalmire, and today we had a call about estate planning, and that's actually part... Our topic today is about estate planning, particularly where some of this goes wrong, and what we have seen here, just in the last little while of some stuff that has gone wrong.
Lisa
Right. John and I, things seem to come in waves, and so it's funny because during the week, something that hasn't come up for three, five, six months will all of a sudden come up two or three times in a week. And we've had that experience this week. But, John, you know I was raised on TV kid. Television, consumed a lot of it as a kid 'cause that's what we did back then. The favorite TV show was a little show, and it had a little theme song, and I'm not gonna sing it [chuckle] but it starts out, "Here's a story of a lovely lady." And then it gets into this blended family of Mike Brady and Carol Brady and her three girls and his three boys. It was a sitcom, so everything was always just perfect.
John
Well, they would have some squabbles.
Lisa
But yes.
John
Marcia, Marcia, Marcia. There would be some squabbles.
Lisa
That's right. Greg in charge, and all that, but by the end of the show, everybody was happy, and it was this loving, happy family, and at some point the show went off the air.
John
That's right.
Lisa
Would the Brady Bunch have still been the happy family if Mike Brady had been run over by a log truck? Would Greg and Marcia and Peter and Cindy, would they all still be such a happy family? Because in our practice, blended families, some of them are wonderful, and they are so supportive of each other, and the parents, the "parent figures" that... It's just a joy to see them, but so many other blended families, once the glue holding the family together, once one of those parents dies or becomes very frail and ill, it just seems to fall apart.
John
It really does. And of course, we're jaded because we see so many of the problems.
Lisa
Right, we've got a problem.
John
And we don't necessarily see the ones that everybody gets along. Many of those never make it to our office.
Lisa
Right. They don't need to see us. [laughter]
John
And so we have a tendency to be a little bit jaded because so many times, we're seeing the folks that are having problems and all of this, and I would say that many of these situations, there's obviously personality problems. There's nothing you can do about personality problems.
Lisa
Right. The sibling that has been mooching off the parent for their entire adult life is gonna mooch. Moochers gonna mooch.
John
Moochers gonna mooch. The person that's confrontational and greedy and abrasive, they're not gonna get any less greedy, confrontational, and abrasive after their parent dies. So there's nothing you can do about the personalities involved in all of this. How many times, Lisa, has somebody asked you, "How do I prevent the family from fighting?"
Lisa
If I knew the answer to that question, John, then we would have a national radio show. I would have a best seller book [chuckle] out there.
John
Yeah. The fact is is that you can't prevent bad people from doing bad things. You can't prevent people from yelling and screaming at each other. You can't prevent hurt feelings, but there are things that you can prevent.
Lisa
Yes, there are.
John
And you can alleviate many of these things. You can disincentivize, for lack of a better word, or you can recognize things that are gonna be a problem and don't do the things that you know are gonna create controversy and hurt feelings.
Lisa
Right. And really the burden of this, a lot of times, John, really falls squarely on the parents or the seniors involved.
John
It does.
Lisa
And so, as a child, you can certainly look down the road, you can listen to our show and you can say, "Lisa and John are bringing up some things that I see in my own family, and my own parents, and my own step siblings and things," and that's great because maybe you can encourage the parents, the married couple if that's the case, to make some plans and to try to alleviate some of the problems we're gonna talk about today, and that probably is one of the most important things you could do. But ultimately, the burden to plan to minimize that conflict is going to be on the seniors.
John
Yeah, and I did wanna bring up one point before we get to the bottom of the hour break here. We started this by talking about blended families.
Lisa
Yes.
John
It doesn't have to be.
Lisa
No, it doesn't have to be.
John
We see that probably more often where these problems arise in blended families. But I've seen plenty. I talked to a financial advisor, I think I mentioned this the other day but I talked to a financial advisor the other day and he was talking to a family and they said, "Oh yeah, we've got five kids." And he was like, "Really? You've got five kids, which one of them is a problem?"
Lisa
Right. And frankly, you're lucky if it's just one.
John
And the family was shocked, they said, "How did you know one of them was a problem?" And he was like, "Look seriously, if you've got that many... " So even in a traditional family, for lack of a better word, although blended families are about as traditional as they get these days. But even in those situations, you can see these problems.
Lisa
But we're gonna focus today on just a couple of little narrow subject issues today. So I know you've heard our program before and we've talked about powers of attorney and blah, blah, blah. But today we're really gonna dig on a couple of issues dealing with some real estate and some homestead and things, really good information.
John
Yeah, it should be pretty good. Like I said, this is stuff that we actually see day-to-day and maybe you can learn something, maybe you can prevent it in your own situation. And of course, you'll be able to keep calling in if you have any questions so stick around after this break, we'll be right back.
Lisa
Well, welcome back everyone to Aging Insight. I'm Lisa Shoalmire here with John Ross. And today if you have a question or a comment, give us a call at 903-793-1071. We always love to hear comments and questions. And today we are talking about some particular issues that just seem to have popped up again. In the last week, we've addressed these issues before but, John, I wanna jump into something that I've seen this week that, gosh, maybe in two or three different circumstances in... We have a situation where we have a couple that's been married for a long time. I think one particular case I've been working with 20 years, another case 35 years. And hey, in this day and age, 20 years and 35 years, that's a pretty good run.
John
That's a good run. No doubt about it.
Lisa
Especially because these particular situations were second marriage situations, so a little bit later in life still...
John
But obviously not that much later in life.
Lisa
Not that much later, that's right. So we have situations where when you're married to somebody for 20 years, you're gonna build a life together. You're gonna go through some vehicles, you're going to remodel the house a time or two. You're gonna go through a few recliners, and couches, and washers, and driers, and you have a life that's long-term. And I always say John, there's nothing like the bond between a husband and wife.
John
That's true.
Lisa
Just like there's nothing like the bond between a parent and a child, but they're just different.
John
Yeah, they're certainly different bonds.
Lisa
Yes. And in these situations, I've had come up this week, I've had situations where we've had a marriage, it's lasted for many years, but maybe the home that was the marital home, one case it was the home of the spouse who is now deceased before the marriage.
John
Yeah. A case I had that lasted many years...
Lisa
The case.
John
One case that lasted many years. But it all started because a husband and wife, second marriage, they got married. Husband had a piece of land, wife had a house. Well, she decided, "Well, you know what, I'mma sell my house." And then she took that money and some of his money and plus a loan, and they used that to build a house on his land, and with a mortgage on top of that, her contribution, his contribution, plus a note that they paid off over the course of another 10 years, were married for 30 or so. And then the husband dies.
Lisa
Right. And he has children from a prior marriage.
John
Yep, as does she.
Lisa
She has children from a prior marriage. And John, before that death of that spouse, I bet none of these children, adult children, had any question or concern about their parent residing in that home that was built on the land and there was no concern about that.
John
Well, it certainly never had come up.
Lisa
But then after the death of that spouse, that husband, whose land this was. But yet, we have this built home. What happened?
John
Yeah, and so basically, all of a sudden, dad dies and kids are saying, "Well, that's our place."
Lisa
These are dad's children.
John
Dad's kids are saying, "That's our place." First, they were wondering, can they just kick her out on the street? "Is it our place, can we... It's our place, right? The property went to dad's kids. So it's our place."
Lisa
Yeah, "Dad had this land, before he got married 30 years ago. We can't help they built the house there but now it's our house. It's his land and we inherit it, so boom, you're gone."
John
Right.
Lisa
Is that how it worked out, John?
John
It's not. And we'll see this in a couple of different places, where one, first of all, if you're married and you all have... There is a piece of property. It doesn't matter who the property belongs to. The surviving spouse is generally gonna have a right to occupy that home for as long as they live. This is what is called a statutory homestead right.
Lisa
Right. And John, it's very easy to understand the public policy. The reason the law gives that surviving spouse that statutory homestead right, to continue to live in that home and occupy that home as their residence. Well, we don't want widows out on the street.
John
Right. Well, and actually, these laws go all the way back to the time when women could not own property and so they had to protect the female members of the family, particularly the widows, because women couldn't own property. So when a man died, his property went to his male children, and yet the wife was then subject to eviction. So they created laws that would protect a widow. Over the years, those have been generously applied to...
Lisa
Both sexes.
John
Both sexes.
Lisa
That's right. So a widow, or a widower. If a married couple, a spouse dies, whoever the survivor is, in generally all circumstances, continue to occupy whatever the residence was that was used as the marital residence, that spouse, that surviving spouse can continue to occupy.
John
Yeah. So to make this clear, let me give you an extreme example. So husband has a piece of property, he's got a home. He gets married, wife moves into the home with him. They live there for some period of time. During this period of time, husband makes up a will. And in his will, he says, "Well, I own this piece of property. It is my separate property, and when I die, I want this piece of property to go to my kids. And I want them to immediately evict my spouse and kick her out 'cause she doesn't own this place." And let's assume for the moment that this will is perfectly valid. It's signed, it's witnessed, it's notarized, it's got all the bells and whistles.
Lisa
And they even...
John
And they go through the probate process and everything.
Lisa
Yeah, and the court admits the will.
John
The court admits the will to probate. What about those provisions, Lisa?
Lisa
Yeah, those provisions are gonna be found to be illegal, and overridden by...
John
By law.
Lisa
By law.
John
Yeah. So the law says that, "You just can't do that." That the surviving spouse is still gonna have this right to occupy the residence, the statutory homestead right. So even if you wanted to kick him out, you're not gonna be able to kick him out.
Lisa
And of course, John, this is where... We talked about... This is when the adult children of these two spouses, the adult children may not have given any of this a thought. But when that first spouse dies, and perhaps that property was owned by that now deceased person, suddenly a lot of times, adult kids start thinking about it. And they start... Maybe they come in and act a fool, and we've seen that a time or two.
John
Right, because in some cases, just because they don't understand, they're saying, "Hey, I'm supposed to follow Dad's wishes here." Not knowing that Dad's wishes are in violation of the law. So we've got another caller here. Caller, you're on Aging Insight, what can we do for you?
Caller-2
Yes, I have a question that you all might be able to help me with. Just a little information on the estate planning with the blended family that you've been mentioning.
John
Sure, go ahead.
Caller-2
Okay. My wife and I, we have a blended family. We each have children. What our desire is, and I'm not sure how easy it is to set up, or if it can be set up, but we would like to protect our estate. If one of us passes away, we want the surviving spouse to have access to basically the majority of our estate for their long-term...
Lisa
Needs.
Caller-2
Needs, as they continue on. But at the end of their life, we would like, whatever the remaining balance of the estate is, to be split up among all four of the children. Which is two and two, on both. Neither one of us have any plans, there's no issues among... All the children are grown. They're all adults now. We both think that that's exactly the way we would do it, if something happens to one of us. But you never know, later in life, if there is a remarriage, I guess it's protecting the property from someone else coming in later. Is my question.
John
Sure, so basically, what this ultimately is gonna boil down to for most people in this situation is there's gonna be a balance here between the amount of personal control the surviving spouse has over the estate versus the amount of being sure that it goes to all four kids. For example, from the very simple standpoint, you can say, "Well, you know what? We're gonna go on a wing and a prayer. And we're just gonna leave everything to the surviving spouse and then... "
Lisa
And they're gonna do the right thing. [chuckle]
John
"And hope that they're gonna do the right thing," and in many cases they do. But what that does is that leaves the surviving spouse, they're in total control of the assets, so they can make decisions relating to those that adjust with their life, and they can buy, and sell, and use, and things like that. It's great for the surviving spouse, but it obviously leaves open the door to make changes. The alternative to that then is you start restricting what the surviving spouse can do in some way shape or form, and this can come in several different ways that are gonna be... The choice there becomes based on the family. For example, I have a family... It's actually not a blended family. It's a husband and wife and their two kids. But they have seen several of their friends who, after the first spouse dies, the second spouse gets remarried, and I'm not saying the new wife's a gold digger, but she's a gold digger and... And so they've seen that, and so one of the things that they did is they set up a trust. They said that the surviving spouse is still the beneficiary of that trust, but the trust is going to be managed by the surviving spouse and the two kids.
Lisa
Right. So the surviving spouse on their own can't just empty the trust.
John
Try to find a comfort level with, for example, if you've got the kids and you say, "Okay, if I die, here's what I'm gonna give my kids, my own kids, just your kids," with the idea that that's all they'll ever gonna get. For example, let's say you got a life insurance policy, and your wife gets a life insurance policy. And your kids are named as the beneficiary on your policy, and her kids are named as the beneficiary on her policy. Now, all the rest of your estate planning says, "Everything to each other, and when you both die, everything to the four kids equally." When you die first, 'cause you're the guy, you're gonna die first. [chuckle]
Lisa
Sorry. [chuckle]
John
Sorry, yeah.
Caller-2
It's okay. [chuckle]
John
But when you die first, your kids get that life insurance money. So they get something from you. Everything else goes to...
Lisa
Pretty immediately.
John
Yeah, right then. Everything else goes to the wife. If, for whatever reason, she exhausts the assets, which she could...
Lisa
Which she could due to her own health issues, or anything.
John
Or if she brings her next husband to your funeral, whatever the case is, your kids can walk away with something from their dad. Maybe that never happens, and maybe at your wife's death later, her kids get her life insurance and everything else gets split four ways. In which case, everybody came out equal. But in the event it gets changed, at least your kids walked away with something at your death. And that way you're not restricting the surviving spouse but you're still protecting your kids. That's a kind of another way to do it. There's several different options, it's gonna be based on your family.
Lisa
Right. The option with life insurance and things, that depends on a lot of issues, age, and ability to do all that, but we've used retirement accounts to do that. We've used CDs or things. If we don't have the access to those financial type assets that could be given to one... That set the kids immediately, there's other things that can be done, but it's good to think about it. That's exactly what we're talking about is thinking about that taking care of that spouse, first and foremost, they're older, they're not working, they're hopefully will be retired, and all that. So it's good to think about.
Caller-2
Alright.
John
Alright, well, I appreciate you calling in.
Caller-2
Thank you so much for the information.
John
Sure thing.
Lisa
Alright, John. I love what everybody's thinking? Well, why don't we take another break and then we'll be right back and finish this off.
John
Sounds good.
John
Welcome back to Aging Insight. Somebody tried to call in while we were on a break. So if you have a question, feel free to give us a shout.
Lisa
If, it's still burning in your mind.
John
It's still burning in your mind. But in the meantime, we've been talking about looking out for some potential problems and... Oh, well, here we go. We got the caller calling in, so let's see if we can get them on the line. Caller, you're on Aging Insight, what can we do for you?
Caller-3
I was calling about a will I had made here about three years ago. When I'm in a vehicle, if I get killed in a car accident, I collect a million dollars and I'm give it to my kids. I was wondering how do I go about getting that set up? My name is Robert Jackson. My nickname is Stonewall.
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