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00:45 John: Welcome to Aging Insight everyone. I'm John Ross, Elder Law Attorney, and here with my co-host Lisa Shoalmire. And we're here to talk about issues that relate to getting older, staying independent, not becoming a burden on your family, and hopefully protecting those precious life savings that you've managed to save. We want you to be able to do that, manage those things and we know that you can do it with knowledge. And so the whole purpose of this program is to provide you that kind of knowledge. Now, on a previous episode we talked a little bit about wills and what it takes to execute a will and the different types of wills. And one thing about that, Lisa, when we start talking about wills, is probate and what a will controls and what a will doesn't control. And a lot of times, that little bit of knowledge can make a huge difference when it comes to passing assets down at death.


01:50 Lisa: Well, that's right John. When we're talking about the type of property that is controlled by a will, we are ultimately talking about that that property will have to pass through a probate process, which is where it's a process that happens at the courthouse, where the judge has to look at the documentation, creditors that you may have, would have an opportunity to collect their debts. And all of that has to happen in a probate process prior to your heirs receiving the property that you intend for them to have. And there is a difference between property that passes through the probate process and property that passes outside of the probate process. So we thought today, since we had a really good discussion about wills last time, that we would talk about the difference between a probate asset that is governed by a will, and a non-probate asset that is not governed by that will.


03:00 John: Right. And I think this is probably one of the most commonly misunderstood things that people get into, because they don't necessarily understand the ramifications of their day to day business. And the primary example of this and the one that we see the most often... And I'll just use this as an example to kinda lead us into the discussion. But if you have a bank account and it is a joint bank account... So for example, you have an account maybe it's in your name and your spouse's name. Or you have a bank account and maybe it's in your name and one of the children's names. And a lot of times with all of this, people get caught up in the "and" or "or". I'm just telling you none of that matters, "and," "or." What matters is what's buried in that stack of paperwork that the bank gave you when you signed up for that account. Because oftentimes, buried in all of that paperwork is a statement that will talk about what happens if one of those account-holders die. So for example, if me and one of my children are both on an account and that account is owned, for example, as joint tenants with right of survivorship, then whichever one of us outlives the other is going to get whatever is in that account.


04:30 Lisa: Well and so I wanna follow that through about the example that we see the most frequently. Often we will see where an aging parent has added a child to their account. And oftentimes this is a child that lives locally, who assists Mom with her bill paying, as well as many other things. And maybe Mom has a couple of other kids, but they live out of town. So they get back to town ever so often to visit. But Mom figured, "Well, my daughter's here, she can help me write my bills." So Mom and Daughter go to the bank and Mom tells the bank representative that she wants to add daughter to her account. Or a lot of times Mom will just say, "I want my daughter to be able to write checks on my account." So the banks are helpful folks and they prepare paperwork so that you can do that. And like John just mentioned, oftentimes they'll bury in within that document... The bank representative will check a box that says, "This account is now joint ownership or joint tenants with right of survivorship." So Mom and Daughter rock along, it works beautifully exactly the way Mom intended for it to work and then at some point down the road mom passes away. So, as the other kids come into town to deal with this loss in their family... John, what do these children discover about this bank account? 


06:14 John: Right. And here's where the problems start kicking in. Because, in many cases when we see estate planning, say it's a single parent, maybe they're a widow or widower, and their will, for example, might say, "I leave everything to my three kids in equal shares." Knowing that what they want is that they want their three kids to share equally in all of their assets. So, the question becomes... So, here's this bank account, and let's say that this bank account is in Mom and one daughters' name, and let's say that that account has $100 in it, and then Mom dies. Her will says everything she has should go to her three kids. So, do the other kids get part of that $100? Absolutely not. See, when you set up that account, according to the contract at the bank, that's what controls. And so the very second that Mom passed away, that account and everything in that account belonged to the surviving joint owner.


07:25 Lisa: Yeah. So, essentially that account is what we call a non-probate asset or a non-probate transfer. And that joint account holder with Mom has absolutely zero legal obligation to share the funds that are left remaining in that account with her siblings.


07:48 John: Right. And so, this is the type of thing where we would see the difference between a probate transfer, something that's governed under a will, and a non-probate transfer, something that maybe already or automatically passes. So, we'll take a break, and we'll keep talking about these type of transfers.




10:04 Lisa: Welcome back to Aging Insight. I'm Lisa Shoalmire and I'm here today with John Ross, and we are elder law attorneys here in the Ark-La-Tex. And we are here on Aging Insight to pass along information to you so that you can make the decisions that affect you and your family as you age and as you deal with your own property. And today we are talking about the difference between a probate asset, which is passed through a last will and through a courthouse-type process, and a non-probate asset, which is an asset that passes outside of the probate process. And before the break, we talked about the very common circumstance where we have a joint account with right of survivorship, which that is in direct contradiction to a will that says the children are supposed to split the assets equally. And I guess we see a lot of folks come in, they're very focused on a last will, but yet these non-probate assets are such a huge part of most people's property and most people's estate, and it gets overlooked.


11:26 John: Right. Where a lot of people make mistakes, is again, they don't realize that when you signed up for that retirement account at your employment, most likely they asked you to name a beneficiary. If you were married, you probably named your spouse, you may or may not have named any other beneficiaries. When you have a CD at the bank, oftentimes, they will ask you to do what's called a TOD or POD, and that stands for either Transfer on Death or Payable On death. And as we already talked about, accounts that are in multiple people's names, oftentimes those accounts are joint tenants with right of survivorship. All of these type of accounts are non-probate transfers. So, if it's payable automatically because somebody is a named beneficiary, if it's payable automatically because they're a joint owner or if it's payable automatically because they are the TOD or POD beneficiary that's the person who gets those things. Now, this can be a very simple and useful easy way to transition your assets, because no probate is necessary to make these things happen.


12:45 Lisa: Yeah, that's right. So, that's one of the things that we tell our clients as they come in to talk about last wills is, "We wanna dial it back and let's talk about those assets that wouldn't even pass due to your will, that retirement account, those bank accounts, life insurance policies." Anything that perhaps has a contract or a beneficiary designation, I wanna encourage people to go look at those and go check them at the bank with your financial advisor, with your retirement plan custodian, so that you can be sure that those beneficiary designations say what you want them to say, because those assets are going to pass relatively quickly from your estate to the beneficiary you've listed. And it's a very quick way to pass assets, and it's a great way to have your estate avoid the necessity of probate.


13:50 John: Now, one thing about it, you do have to keep track of these things. And I will tell you, the classic example was a big Supreme Court case just this last year. A man who had worked at a job, he names his spouse as the beneficiary on his retirement account. And, like, unfortunately, so many marriages, that marriage ended in divorce. And later on then he remarried and then later on he died. And the question was, did that first spouse, the ex-spouse who was still the named beneficiary, was she the one who should get those assets? And the Court said, "Yes."


14:42 Lisa: Well, and that's a very tricky position. Because a lot of folks have heard in the state-court level in the state of Texas or the state of Arkansas, if you and a spouse get divorced, well then any beneficiary designations that you may have made prior to that divorce become void. However, in this case that went all the way to the US Supreme Court, we had a situation where we had a retirement plan that was governed by Federal law, and the US Supreme Court who is the final decider of Federal law said that the beneficiary designation to the first spouse, now the ex-spouse, was still valid and the retirement assets were directed to be paid to the first spouse.


15:38 John: Right. So, my point with this, and I think both... What we're trying to say here is that, while naming a beneficiary it's easy, it's simple, you can go to your bank or your financial institution and name a beneficiary, you do need to stay on top of those things. Oftentimes we make assumptions in life based on what we think is most likely to happen. For example, most people assume that they're gonna die before their children. And yet, I've had a number of cases where, when Mom died, their child had already predeceased them. And if you've got a CD and you've named your child and that child dies, that CD now doesn't have a beneficiary. One of the others that I've seen is, what if that child is for example in a nursing home? We always think about, it's the older person that's gonna be the one that's gonna face long-term care expenses. But if your child is in a car wreck or has a stroke they themselves could be in a nursing home and then you die and they're still the named beneficiary on that CD, guess where that CD is going? Yeah, it's gonna go right to pay for their long-term care expenses. So, while those are easy, you do have to stay on top of them.


17:13 Lisa: And so, we wanna continue to talk about some alternatives to the last will and to the probate process when we come back from this break.




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18:51 John: Welcome back to Aging Insight, everybody. We're talking about probate transfers versus non-probate transfers. Essentially, what does your will control versus what does it not control? And we've talked about, so far, that while you can name beneficiaries on bank accounts and things like that, and if you have named beneficiaries, or if property transfers automatically that those things are not part of your estate, and since they're not part of your estate, they're not governed by the terms of your will. And so, if you have, for example, a CD that's payable to one child, but a will that's says you want to divide everything between your three kids when you die, that one child would get that CD because he or she is the named beneficiary.


19:44 John: Now, one other issue about this is that because assets pass outside of probate. Essentially the probate process is that when you die, all of your stuff should be gathered up, all of your debts should be gathered up, your assets should then be used to pay off your debts, and if there's anything left, then the property would go to your kids. Now, I know there's some of you at home who are saying, "John, I am debt free. I pay all of my bills. I don't even roll the credit card over month to month. I am debt free." Well, you might be now. But what if, for example, you needed nursing home care? What if you had a traumatic medical expense? What if you were killed in a car wreck that was your fault and your estate was sued? So even your death can create debts.


20:46 Lisa: That's right, and that's one thing that the probate process, I'm always letting people know. The probate process is not about necessarily getting your assets down to your heirs. The probate process is in many ways about satisfying your creditors. So one of the biggest creditors that seniors have a concern about, has to do with that long term care cost that as we all get older, there's about a 50% chance that you will need skilled nursing care in your old age and that care is not free. And so a lot of times, like John mentioned a moment ago, you may be debt free now, but you can accumulate debts even as you get older, largely due to the type of care that you need. One thing I hear frequently is, "I'm worried that my assets will end up going to the nursing home and I won't have anything to pass down to my children." And this is valid concern. And John, I know we're gonna talk a great deal about that probably on another episode. But since we're talking about probate assets, which pass through your will and are available to satisfy creditors, and the non-probate assets, which do not pass through a will, I wanted to talk about the impact or the effect of a non-probate asset in long term care expenses.


22:25 John: Right. Well, so far we've talked about the fact that most people's assets, their bank accounts, their life insurance, their checking, their CDs, their brokerage accounts, many times these things already have beneficiaries listed on them. What doesn't typically have beneficiaries listed is a house. That home and the land that it sits on typically does not have beneficiaries. And so that is often the type of asset that would pass according to your will. Now, if you were receiving, let's say, long term care Medicaid benefits, well, you can actually own a home and the land that it sits on worth up to $535,000 and still qualify for Medicaid to pay for that nursing home care. But when you die, the state would like to get paid back.


23:23 Lisa: That's right. If Medicaid is assisting you with your long term care expenses, the state considers that a loan and not a gift. So as the state is assisting you with that bill, they're keeping a tab and at your death, the State of Arkansas or the State of Texas may present your probate estate with a bill for services for your care.


23:53 John: I had somebody in the office one time and they said, "John, mom's passed away and we've gotten this big bill for Medicaid and if only she would've had a will that would've left everything to us, we wouldn't have to worry about this." Well, wrong. Even though you have a will, again, those creditors have to get paid first. So often times, the key in this is to look at your estate and figure out, are there ways to keep your assets out of your probate estate so that they can possibly avoid the creditors that might be there at your death, even though you don't have any creditors now. We don't always wanna plan for the way things are now, we wanna plan for the way things could be. In fact, we wanna plan for the worst case scenario and then, hope that none of that ever happens. But that's really the key in all of this.


24:55 Lisa: Well, and I know a lot of our viewers often see, as they scan the newspaper on any day of the week, that they'll see a notice in the newspaper that says "Notice to creditors." A certain person has passed away and any creditors that have any claims against this person's estate need to present those claims within a certain window of time. And so a nursing home creditor or the state, who has paid for that nursing home care, has the same opportunity as an unpaid credit card or any other unpaid bill to actually attach the assets that are being governed in that probate process by your last will. Those creditors have a chance to have those assets liquidated and the cash paid towards those debts.


25:50 John: That's right. So, one thing I want you to understand is that we're not saying that everything you have should pass out of your estate or that everything you have should pass through your estate. Hopefully, what you're understanding is that there's probably more to it than what you thought there was. What you need to determine for you and you alone is, based on your assets and the type of assets you have, are you better off having things passed automatically by pay on death, or transfer on death, or join? Does that match up with your other provisions like your will? Are there other things that you need to do, for example, to protect your home and real estate so that it's not subject to any creditors at your death? These are the kind of things that you wanna know and you can only know those by understanding what is part of probate and what is not part of probate, and what is governed by that will and what is not governed by that will.


26:53 Lisa: And John, this is where having good relationships with professionals, whether it's your CPA, your financial advisor, an attorney, can help you figure out what is right for your situation. So John, we have an opportunity on this program to share this information with our viewers. You also have an opportunity to get additional information and listen to us, and call in and ask your questions every Saturday on the radio program of Aging Insight that is on Saturdays from 12:00 to 1:00, but we'll see you next week.


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