In this episode, Lisa Shoalmire and John Ross discuss the anatomy of a good estate plan. The three phases of a good estate plan: planning for your own incapacity, the non-probate transition of assets at death, and planning for the unexpected.

 

Episode Transcript
John
Welcome to another edition of Aging Insight, I'm your host, John Ross, here with my co-host and business partner, Lisa Shoalmire. And she and I are elder law attorneys in your area, and simply, what we do as elder law attorneys, is we help people navigate through their retirement years, help people who are caring for those who are ailing. We just know that there's this pile of law, and taxes, and government benefits, and housing issues, and medical issues, and health insurance, and all of these sort of things, and you've got to know about all of this stuff, if you want to age on your own terms, without being a burden on anybody else, and in a way that doesn't cost you to go broke before you die. We know you can accomplish those goals, but you've got to have the information and we believe in it so much, that we come here every week to bring you this program, to provide you new and, hopefully, somewhat entertaining information at the same time.
Lisa
Yeah, somewhat entertaining.
John
Yeah, we try to educate you, but we also try to keep you a little bit entertained through the process.
Lisa
Well, and John, as an elder law attorney, who is often visiting with folks who are retired, who are coming up on retirement, who may be dealing with their own parents' aging issues, the number one question I get from those folks, week in, week out is, "Do I need a will? I think I need a will. Do I need a will?"
John
Or, "Will you look at this one that I have and tell me if it's any good?" But yeah, there's always this focus on the will. And I guess, it's probably, part of that comes from the fact that, as a tool to transition assets at death, the will has been around for a long time.
Lisa
Yes, and so most folks, whether they've watched a movie, or read a book, or just been around for a while, they've encountered a situation where a will was done by someone who's now deceased, and it's passing on property to the living beneficiaries, but...
John
Even back in the biblical times of the ancient Jewish traditions, they had a version of an oral will. It's got a Hebrew name that I cannot pronounce.
Lisa
[laughter] Okay.
John
It's got a Z...
Lisa
I'll give you a pass.
John
It's got a Z and some other things...
Lisa
Better not to say it than butcher it, how's that? [chuckle]
John
Than butcher it, but it just goes to show you, that we're talking about traditions that are thousands of years old. And so, yeah, a will, it's a very commonly thought of concept.
Lisa
Well, and really, what that person is asking, John, they think they're asking about a will. That's what they think they're asking about. [chuckle]
John
That's what they think they're asking about.
Lisa
But I know that they're not really asking about a will. They're asking about how to take care of their business, at some point in the future, if they're not around or able to take care of it. That's what they're really asking, and from that standpoint, a will is... That's not really even the right tool, but what I like to tell folks, is, "We need to think about three different aspects of your planning," and so that's how we approach it, typically.
John
Yeah, essentially, when people are asking about a will or whatever, they're asking about estate planning, and when you're talking about what makes an estate plan good, versus not so good, is basically a good estate plan is gonna cover three things. It's going to plan, before you even get to the dying part, it's gonna plan for life. It's gonna plan, particularly life, if life turns into incapacity.
Lisa
Right. It's gonna plan for your life, if you become incapacitated, so that's the first part of an estate plan.
John
That's right.
Lisa
That has nothing to do with who gets your stuff when you're dead and gone, but it has everything to do with your quality of life and putting your stuff to work for you during a time of incapacity.
John
Right. A second phase is the transition at death, which should be as smooth, and easy, and cost-effective as possible. That's a stressful time, regardless...
Lisa
Oh, yes.
John
And the last thing you need to be burdening your people with, are a bunch of expenses and time consuming activities. And then, the third phase of all of this, is planning for the unexpected in the lives of the people you leave behind, whoever that may be, spouse, kids, or whatever. But people have a tendency to plan for what they hope for, not for what could happen.
John
That's right. Yeah, because this is the thing that's gonna allow somebody to pay the bills, talk to the insurance company, deal with Medicare, sign your tax return, handle all of your personal affairs in dealing with the world out there. All of those decisions you make right now, if you can't make them, somebody else has to.
Lisa
Somebody's got to. And if you don't do that general durable power of attorney, somebody'll make those decisions for you. And John, usually, that person will be wearing a black robe and have a gavel. [chuckle]
John
Yeah, that's right.
Lisa
And so you don't want a judge making those decisions, or telling your family how to do things for you, because the judge may not know you as well, or may be listening to the wrong family members. [chuckle]
John
That's exactly right. So yeah, that's the general durable power of attorney. And in addition to that, you have a medical power of attorney for making medical decisions. You have something called a HIPAA release, which gives the people you want, access to your protected medical information, getting copies of your MRI or X-ray from the doctor, and carrying them from one place to the other. And the final thing is that, a living will, something that says, whether or not you wanna be kept on life support, if you're braindead and you have no hope of recovery. It's essentially your last decision.
Lisa
That's true. Yeah.
John
The first part of this, of planning for incapacity, in everybody's situation, everyone is gonna include those four things, at least.
Lisa
At least. I have so many clients tell me, "Well, I don't ever plan to go through that. I plan to be out brush hogging some day and I hope that I just fall off the tractor, dead in the pasture." And I'm sure that would be a great way to go, if that's your passion, but you can't count on that, so you should...
John
No, because you might fall off the tractor and hit your head, and not die.
Lisa
That's right. [chuckle]
John
Yeah. You can have those now. That's the big part of it, but the other part of incapacity, is you should also be planning to protect assets. The cost of incapacity can be huge. If your estate planning doesn't include things like special needs trusts, or asset protection trusts, or long-term care insurance, or things that are gonna help protect and preserve your assets in the event of a incapacity, then you haven't filled this full first step.
Lisa
Right. That's really important, because a lot of retirees, they talk about how difficult it can be to get by with... And they're relatively healthy. They're not incapacitated. They have the challenges, maybe of aging, but imagine if incapacity brings more expense and more need. So we always wanna make sure that your planning is positioning you to access, maybe government benefit programs, or you've thought about and provided for long-term care plans.
John
That's right. Alright. That's the first stage. We're gonna talk about the second stage right after this break. Stick around.
Lisa
Welcome back, everyone, to Aging Insight. I'm Lisa Shoalmire and I'm here with John Ross, and today, we're talking about the three pillars, if you will. The three phases of a good estate plan. In our first segment today, we've talked about planning for your own incapacity, and making sure you have all the proper documents, and legally, that you will need, that your team might would need, should you become incapacitated. You need people to make business decisions for you, you need people to be able to make medical decisions for you, and you also need people to have access to medical information. And you need to let people know what your wishes are, if you're still with us, but yet, you're in a terminal situation, or a coma, or a vegetative state. What kind of medical treatment do you want? And John, all of those aspects of the estate plan, have to do while you're still here with us living and breathing. [chuckle]
John
Yeah, you started this by saying that everybody asks us about wills. If you've got a will, pull it out. Pull that thing out and look at it, read it over front to back, and then, ask yourself, "If I had a stroke, and I was incompetent, and the cost of my care was $5,000 a month, what about that will would have helped?" Because the answer would be nothing. Absolutely nothing.
Lisa
Yeah, absolutely nothing. That's right.
John
Absolutely nothing. And that brings us up to phase two, which is we want that transition at death to be as smooth and easy as possible. And the key here is to understand the difference between how assets pass at death, because there's something called a probate transfer, and something called a non-probate transfer. And understanding the difference between these two can make all of the time saving and cost saving difference in the world.
Lisa
Yeah, that's right. When we talk about a probate transfer of assets, we are talking about assets that are governed by a last will and testament. So we finally got our will [chuckle] in place here, but a probate transfer is where the person who wrote the will, the testator, has died, and the will has been brought to the courthouse by an applicant, by a family member, the named executor, and is put into the probate process. And a will is not valid, and can legally do nothing for you, until those two things have happened, that you're deceased, and the will has been brought forward to the courthouse, and entered into the probate process. At that point, the process... There's a required process where you have to give notice to creditors, you have to give people an opportunity to contest the will, and then, after a certain time limitation, usually several months, then finally, after your creditors are paid off, and those processes have been satisfied, then your beneficiaries would receive your assets. That's really a long drawn out way to pass assets.
John
Well, and you missed a whole part in the whole thing. You can't do any of what you just described without a lawyer.
Lisa
That's true.
John
Yeah, that whole thing of carrying the will up to the courthouse, if you personally carry the will up to the courthouse and say, "My Mama died," they're gonna send you back home. It is actually... And we didn't make these rules, I promise.
Lisa
[chuckle] Yeah. No, we didn't have anything do with it.
John
But it is actually illegal for a non-attorney to attempt to probate a will. That's considered the unauthorized practice of law. This is something that's gonna cost legal fees, it's gonna cost court fees, it's gonna cost publication fees, not to mention, it puts all of your assets at risk to creditors or unhappy beneficiaries.
Lisa
Right. So that's probate transfer. That doesn't sound too appealing. [chuckle]
Lisa
Yeah. All of those could be non-probate transfers that, because you've already signed the beneficiary designations, and it's very simple for your beneficiaries to just fill out the form, present your death certificate, and then, the asset is dispersed to them, without having to share that with your Visa or Mastercard that you still left [chuckle] when you died, or going through the courthouse, or getting a judge's blessing. So a non-probate transfer, very simple for beneficiaries.
John
And you can use some other ways, things like trusts, transfer assets outside of probate. And there are certain types of deeds that you can do. In Arkansas, there's something called a beneficiary deed. In Texas, there's something called the Lady Bird deed and a transfer on death deed. All of these trusts, and these things, these are all examples of non-probate transfers. And so you can try to set up your estate in a way that, at the point of your death, your estate essentially automatically transfers, and that other than having to go around and show a death certificate, essentially, the process is over. I was explaining this to a lady yesterday. I was doing a beneficiary deed for her and during the 45 minutes that she sat with me, she asked me, "Well, what are my kids gonna have to do after I die?" About 700 times. She could not grasp that all she had to do was die, but that was it. It was over. By having this deed in place, if she died, her house belonged to her kids.
Lisa
And they had to do nothing further to make that happen.
John
It was done. She said, "Well, how do they get a new deed?" I said, "This is the deed. It's over." And she just had... It was so easy, that it became hard to grasp.
Lisa
Right. Sometimes when things are so easy, you think maybe they're not right, but... [chuckle]
John
The whole idea here is that you can make it much easier. Now, one point on that, you personally, will never care how easy it is to transfer your assets after you're gone.
Lisa
Right, 'cause you're gone. [chuckle]
John
But we mentioned those creditors, and often, when we say 'creditors,' people, especially our retirees, will say, "Don't have any debt, John. Don't owe anybody anything." Maybe that's true, but if, for example, you were on Medicaid benefits before you died, like maybe you had to go to a nursing home and the state was paying for your care, well, the state wants to get paid back. And so even though you didn't owe anybody before you went to the nursing home, by the time you died, you could owe the state tens of thousands of dollars.
Lisa
Right. And so you're not even considering that.
John
Yeah. Likewise, if you died in a car wreck that was your fault, well, you may not have owed anybody the moment before that car wreck, but the people that you hurt in that car wreck, even though you're dead, they're gonna sue your estate. And so, if your assets go through the probate process, Medicaid can get 'em, plaintiff in that lawsuit can get 'em. But if your assets go outside of probate, they're generally gonna avoid those creditors. So the real reason to keep your stuff out of the probate, yes, it's easier, but to be perfectly honest, the more important reason is, that's how you protect those assets from any unknown creditors.
Lisa
Right, so that they do, in fact, go on down to benefit your beneficiaries, which is usually the goal. Now, a lot of folks tell me that they plan to spend every dime on themselves before they leave this Earth, but if they don't, they want to leave that for their selected beneficiaries.
John
That's right. Alright, we got one more phase of this, but you gotta stick around until after the break.
John
Welcome back to Aging Insight, everybody. I'm your host, John Ross, here with Lisa Shoalmire, and today, we're talking about the anatomy of a good estate plan, and we started out by talking about the fact that you're gonna need some powers of attorney, financial, medical, HIPAA release, living will. You're gonna need to put into place a way to pay for your care while you're incapacitated, without burning through all your assets. That's all phase one, planning for incapacity.
Lisa
Planning for incapacity, yeah.
John
And then, phase two is planning for non-probate transfers, so transferring your assets without having to go through that court process, and how that's going to make it easier on the people you leave behind, and how that could protect your assets in the event that you leave behind creditors.
Lisa
Yeah, so that your assets actually get to the people [chuckle] you leave behind.
John
Right. Now, we started all this by saying, "Hey, if people come and ask us about a will, did the will help plan for the incapacity?"
Lisa
Nope.
John
Nope, not in the least. Did the will help the assets pass at death in a cost-efficient and protected way?
Lisa
Ooh, you lawyered that one. [chuckle]
John
No.
Lisa
No. [chuckle] It wasn't cost effective and it's not a protective way to move your assets.
John
It does pass the assets, but only after you've hired a lawyer, gone to court, and exposed all of your assets to potential creditors at death. Again, the one thing that people keep asking about, still not important in all of this. And that brings us up to the third phase of all of this, which is looking after the people that you leave behind, and essentially, this is planning for the unexpected.
Lisa
Right. This is planning for the unexpected and planning for your beneficiaries, maybe because things happen to your beneficiaries, that you can be wise enough to plan for through your estate plan. And so, again, you're accomplishing the goal you mean to accomplish, which is to get those assets to those beneficiaries. Things can happen to beneficiaries long after you're gone and those things include... We like to refer to them as the four Ds... Your beneficiaries could potentially be in debt and have creditor problems of their own. Your beneficiaries may end up going through a divorce, and have a breakup of a marriage, and a division of marital assets. Your beneficiaries may become disabled themselves, and be in a position where they need assistance, and finally, your beneficiary may die and not have made any plans of their own in the estate planning area. Those are things that we don't expect to happen. We all expect to leave behind healthy, capable children, but that doesn't always happen, John.
John
Well, it's so funny, 'cause, again, I will talk to people and they'll say, "Yeah, I've got this will, and it says I'll leave everything to my wife, and then, it leaves everything to my four kids." And I say, "Okay, great." I said, "And so basically, what you're saying is, is that you're absolutely certain that, at the time of your death, you're gonna leave behind four healthy, living, well married, financially stable, debt-free children."
Lisa
Right. And the odds are, "No." [chuckle]
John
And they look at me like, "Of course not, there's no way that's gonna happen." And I say, "Okay, but did you plan for those sort of things?" Because the thing is, is that you can actually structure your estate plan, so that you've anticipated all of these contingencies. You can say that, "Here, if my child has pre-deceased me, here's where I want their share to go, or even if they die after me, here's who I want their share to go to." Anticipating that if it does land in the hands of a minor, you need to have also made arrangements for who's gonna be in charge of that minor share. You can structure it in a way that the assets wouldn't be divisible on divorce, where they couldn't be attacked by a bankruptcy corridor or any other creditor. And you can structure it so that the assets would not count towards their eligibility for any need-based government benefit should they become disabled. And so you actually can, in relatively simple ways, and without really impacting their life.
Lisa
But they still have complete access and they can use what you've left behind for them. They could even use it up. But you've set it up in such a way that, if they have any of those issues, if they're in debt up to their eyeballs, or if they're in the middle of divorce, or if they become disabled, or if they die prematurely, you've actually planned in advance for those things and protected your beneficiary.
John
That's right. So once again, pull that will back out. It's that simple little will, that says, "I leave everything to you, you leave everything to me, and when we both die, we leave everything to the kids in equal shares. The "I love you" will, it's what I call it.
Lisa
Yes, the "sweetheart" will.
John
And I've looked at a million of 'em. And then, ask yourself, "Did it, first base, cover your incapacity?" No, it didn't. "Did it help transition the assets at death in the most efficient, protected way?" Nope, it didn't do that either. And look in there and ask yourself, "Okay, well, if one of my kids was in a nursing home at the time of my death, if they were in the middle of a divorce, if they were being sued or filed bankruptcy, what would happen to the inheritance they receive under this will?" And if it just says everything goes to your kids in equal shares, then that will didn't help with that either.
John
Yep. And ultimately, the will probably ain't the way to do it, to be perfectly honest. Anyway, all of that to say there's lots of information out there, and of course, if you want more information, you can always check out our website, it's www.aginginsight.com, where you can watch past episodes of the show, and search 'em, and all kinds of stuff. You can pick up a copy of our magazine. You can even listen to our live radio program, which is on 98.7 FM, every Saturday at noon, and it's also broadcast live on Facebook, on the Ross & Shoalmire Facebook page. So feel free to check any of those out.
Lisa
That's right.
Lisa
Yeah, so get your iPad out, and go to head over to Facebook, at Ross & Shoalmire Facebook page on Saturdays, and you can check it out. You can even ask questions right there on the Facebook page and we'll answer.
John
That's right. So, until next week. We'll see you then.
John
Bye-bye.

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