One of the greatest gifts you can give to your family is to have an appropriate estate plan in place when needs arise. Many readers will likely take that statement with a grain of salt, considering the person who wrote it is an estate planning attorney. It is true – I may be biased. But allow me to tell you the story of three brothers to illustrate my point. The first brother had a very bad estate plan in place, and as a result his children suffered in multiple ways when he died. The second brother had a good estate plan in place by some standards, but that plan proved to be inappropriate for his situation when long-term care needs arose. The third brother had the right plan in place at the right time, and you will see how his children benefited from this amazing gift in more ways than one.
The Bad Plan
Nick was the youngest of the three brothers. He neglected estate planning for most of his life, and when he finally put a plan in place, the plan he choose was a bad one. First, his only estate planning document was a last will and testament. For some reason, he believed that having a last will and testament would keep his estate out of probate and facilitate an easy transfer of his assets to his four children. He was wrong. A will does not keep an estate out of probate court; it is just a set of instructions for the probate judge.
Nick named his daughter Joan as executor in his will. When Nick died, Joan was forced to hire a lawyer to put Nick’s will through probate. The process ended up taking two years and costing over $12,000 in attorney fees, accountant fees, executor fees, and court costs. But the financial cost was not the highest price this family paid for Nick’s mistake. Because the probate process was very difficult, the siblings split into two factions. To this day, the two sides no longer speak to each other because of problems faced during this process.
Nick also made a second mistake in his planning. He added Joan as a co-owner on his bank accounts. When Nick died, those accounts automatically became Joan’s accounts, despite what Nick’s will said. Perhaps he assumed she would divide those accounts among all four kids when he died, but she didn’t. Joan kept for herself all of the money in those accounts, and there was nothing the other siblings could do about it. There was no legal requirement that those accounts be divided. Nick’s children paid dearly for his poor planning.
The Inappropriate Plan
Joe was the middle child. He planned far better than his younger brother Nick, but his plan proved to be inappropriate in his later years when long-term care needs arose. Joe and his wife, Alice, knew that having a will would not protect their assets from probate court, so they set up a revocable living trust. They were correct in thinking that the revocable living trust would protect their assets from probate court when they died, but that wasn’t the problem.
As Joe got older, he developed dementia, and he eventually moved to a nursing home, which cost Joe more than $5,000 per month. Alice thought that having a revocable living trust would protect their assets from these costs. She was wrong. Assets titled in the name of the revocable living trust were deemed available to Joe and Alice when Joe moved to the nursing home, so Joe did not qualify for any financial assistance to pay for his long-term care. The couple had to slowly liquidate assets, month after month, to pay the nursing home charges. Joe’s estate plan was pretty good by most standards, but it proved to be inappropriate when long-term care needs arose. Even though Joe avoided probate, he had very little to pass on to his children when he died because the bulk of his estate was spent on long-term care.
The Good Plan
Kevin was the oldest of the three brothers. Like Joe, he knew that a trust would work better than a will in meeting his goal of staying out of probate court. But he chose to use an irrevocable asset protection trust instead of a revocable living trust. In his later years, he and Joe lived in the same nursing home, but Kevin’s children did not have to slowly liquidate Kevin’s assets to pay the nursing home fees. Kevin qualified for financial assistance with his nursing home costs because the assets in his irrevocable trust, unlike the assets in Joe’s revocable trust, did not count against Kevin when he sought financial assistance. The financial help Kevin received was a huge blessing to him and his family.
When Kevin died, his estate was still intact because he used the right kind of trust for his situation and did not have to liquidate assets to pay for long-term care. Kevin’s family inherited his estate without the cost and trouble of probate court. The dual benefits of Kevin’s smart estate planning were amazing gifts to Kevin’s family, gifts they didn’t ask for but were thankful to receive.