About a month ago, Mike and Carol lost their long-time housekeeper, Alice, to retirement. In her absence, the house quickly fell apart. After a couple of weeks, to get things back in order, the couple set aside a weekend to get organized. As Carol dug her way through the home office, she ran across the couple’s family trust. Seeing the old binder brought back memories of why they had the trust prepared in the first place.
Mike was Carol’s second husband, and Carol was Mike’s second wife. They each brought three kids into the marriage. Years ago they learned that without proper planning, their entire marital estate could pass to the children of the second spouse to die. The children of the first spouse to die could be unintentionally bypassed.
Probate is rarely required when one spouse dies. As long as there is a surviving spouse, and as long as the assets are owned jointly, everything typically passes to the survivor. But if the surviving spouse does not have an estate plan that includes all of the children, Arkansas law directs everything to the biological heirs of the surviving spouse.
Learning this is what prompted Mike and Carol to create a trust. They wanted to make sure that all of their children were included in their estate no matter which spouse died first. Because so many years had now passed, Carol insisted on seeing an attorney to review the documents. Mike thought the meeting would be a waste of time, but he reluctantly agreed to go.
During the meeting, the attorney reassured Mike and Carol that their trust did what they wanted it to do in the way they wanted to do it. He also confirmed that the trust was properly funded—that all the assets had been titled correctly to use the trust. Carol felt much better, but Mike felt even more like the meeting was a waste of time since the attorney concluded everything was fine. As they got up to leave, Carol made one last comment that caught the attorney’s ear. “I’m so relieved that everything will be protected if one of us needs a nursing home,” she said.
“Sit back down,” the attorney said. “Your trust protects you when one spouse dies, and it protects the children when both spouses are gone, but it does nothing to protect you or your assets against the costs of long-term care,” he explained. There are things you can do for that, like purchasing long-term care insurance or creating an asset protection plan through an elder law attorney. But putting assets into a revocable living trust, like Mike and Carol did, is not sufficient for families with concerns about the need for long-term care.
In the car on their way home, Mike had to admit that the meeting had been anything but a waste of time. Carol was right, as always.