Scenarios

Maintaining Privacy by Avoiding Probate

Dear Credit Guy

‘My brother , sister and I recently were left half of an estate. My Aunt received the other half. Out of nowhere old credit card debts from six years ago are claiming to have a right to take my inheritance.’

Reply:

“…Collection companies often attempt to locate persons whose debt they own by researching public records. The awarding of the estate to you, your siblings and your aunt would have been probated in a court and, therefore, the proceedings are public record. That could be the reason why ‘out of nowhere’ you were contacted about the unpaid accounts.”

Not Keeping a Plan Up to Date and Not Titling Assets Correctly

Here is the story of a father who had an estate plan but it had not been kept up to date nor were the assets properly funded. This father of adult children had spent about $3000 with a law firm many years ago to prepare an estate plan for him with the intent that his family would not have to deal with the unpleasant, expensive and emotionally draining probate process.

However, after his death, that’s exactly what happened. The family was in court fighting with his ex-wife.

His plan had not been kept up to date AND his assets were not owned in the correct way. His plan had been prepared years before, never reviewed and never updated. In addition his assets were not titled in a way that would keep the family out of court. Establishing an Estate Plan is only one step, but the assets must be correctly titled and it must be reviewed and updated as the law, your wishes and circumstances change. The review is also an excellent opportunity to determine if the assets are titled correctly.

Some of this father’s assets had never been transferred into the name of his trust from the beginning. There was no way for the family to confirm everything he even had. The family had to wait for statements to come in and hope they didn’t miss any due to lost mail or other issues all while they were grieving his death. In 2017 there is was over $8 billion in California’s department of unclaimed property, often due to assets overlooked when someone dies.

We have a process to ensure that your assets are transferred and titled correctly and that your plan is regularly reviewed.

Ineffective Financial Planning with Minor Children

This is a longer story but illustrates that you not only need a plan but you need an effective plan. Merely having documents in place is often not enough.

Madelin had a 7 month old baby. She was married to a man who worked in her father’s successful family business. They had a corporate aircraft. One day her husband and little brother went up in the aircraft and crashed.

She lost both her husband and her brother in one day in one event. While she said that was the worst day of her life in many ways, it got even worse. Because of the way the beneficiary designation was on her husband’s life insurance policy she had to show up in court for 16 years and pay a financial guardian and account to the financial guardian who was overseeing her son’s inheritance from that life insurance policy.

So for that next 16 years Madelin, to get access to that money for the benefit of her son, every year had to go to court, account to that financial guardian who was charging $100 an hour to watch over how she, mom, used the insurance money for her son. BUT IT GETS WORSE

When her son reached 16 1/2 they got in a fight as teenagers and their mothers do. He said to his mom, ‘I am leaving and you can’t stop me. I am getting my inheritance and I know it. I know what I am getting so see ya’. He moved out and petitioned the court to release his inheritance to pay his rent.

There is so much that could have been done at the planning level to avoid this. We see example after example of kids getting their inheritance outright at 18 and blowing the entire thing or having it susceptible to predators and creditors where it could have been protected in an asset protection trust and distributed at more appropriate ages.

Incapacity

A janitor of modest means was hurt and became incapacitated. He had $10,000 in the bank and that made up pretty much all that he had. Because of this he felt he didn’t need an estate plan. With nothing in place his daughter could not access the only money that he had left behind to pay the family’s bills and his medical expenses. She really needed access to these assets. In order to access the account without an estate plan she would have to go to court, have a formal conservatorship appointed over him, have someone named as the conservator and guardian of his estate. This takes time and money and the decisions that are made are not necessarily ones the incapacitated man or his family would have made. Again all avoidable with a properly drafted estate plan, going to show that planning is not just for the wealthy.

Business Owner

Many business owners think that transferring their assets into their spouses name will protect their assets. That simply is not true.

Here is a story of a successful dentist, who put all of his assets into his wife’s name to protect their assets from potential lawsuits. It was all great, until he built and sold a related dental business for a few million dollars and all of the proceeds ended up in the wife’s name, which could have been fine if they had stayed married. But, they didn’t.

For a year, she tied up all the assets, and he couldn’t even pay his rent. Ultimately, he was awarded 60% of the assets, but the emotional and financial cost could have been avoided with proper planning up front.

Transferring assets into a spouse’s name doesn’t actually protect those assets. They may be protected from a malpractice or a client lawsuit, but the assets aren’t protected from other kinds of risks that the spouse may be engaged in as part of his or her life.

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