Wills and Trusts, Oh My!

While you won’t be planning a trip to the land of Oz like Dorothy, someday you will be thinking about how to pass on your life’s savings to your children and  grandchildren. The automatic though is “I need a Will.” That is always true but trusts and beneficiary designations can also play a vital role. A will is a legal document that passes assets to the people you name, if those assets don’t pass to them because of joint ownership or beneficiary designations, or by trust. So, a will is always needed just in case the house, or bank account or stocks and bonds do not automatically transfer to the persons you want.

A simple revocable trust can pass on assets to your loved ones without going through probate. That means nosey relatives will not know what you have, and the assets will go to the people you want. The fact that the trust is revocable means that you can change it at any time. So, if a child is in a bad marriage, or the child’s spouse needs long term care, you can amend the trust and skip over that child to
the grandchildren and hereby protect that asset from a child’s divorce or sickness. Another positive of a revocable trust is that the person you name to control those assets after you are gone will have the ability to decide when and how much to give each grandchild. It’s rarely wise to give a twenty-year-old a couple hundred thousand dollars, even if that young adult is frugal. At that age, they just don’t have the experience in life to always make good decisions about money. Friends and relatives may call them and offer advise (good or bad) or ask for a little “help.” It’s hard for that young one to say no.

Many bank customers are told “just name a beneficiary and avoid probate.” That may make sense between spouses and may make sense for fully adult children. But if family circumstances change due to health or divorce, each and every beneficiary account may have to be changed. If there are only a couple of accounts, that may be easy. But if there are multiple accounts, it can be a chore. That is where a “Pour over will” can be helpful. The will sends assets into the revocable trust, and then the trust either pays assets out to the beneficiaries or can be help and use those assets for the benefit of a young person until that person is capable of handling assets on their own. That way only one document needs to be changed, and not beneficiary forms for each and every investment account.

There is also a reason why a revocable trust should not be used to pass on assets. That is when one spouse is receiving Medicaid or will likely need Medicaid. If the healthy spouse dies and passes property to the children from a revocable trust, the Medicaid law will consider that as a gift transfer and will cause a penalty period for the Medicaid recipient depending on how much was passes to others from the revocable trust. In that scenario, a solution is to have the healthy spouse own the assets in his or her own name and have the assets pass through probate into a trust inside the will. If that is done properly, the assets will be substantially protected, and the sick spouse can go on Medicaid or stay on Medicaid if already receiving it.

What this discussion shows is that is it vital to have an experienced advisor, such as an elder law attorney, evaluate each person’s family situation for both health and family circumstances, size and kind of assets (regular or qualified money such as IRA’s) and what the goal is. Is it just to pass on assets, or protect assets if government programs are needed for care, or handle assets for family members who
might not be capable of using them wisely.