Don’t Let Your Wishes Get Derailed by 3 Common Planning Traps

When done effectively, estate planning assures that you can keep control of yourself and your assets at every life stage. Like it or not, every one of us fits into one of the following life stages: 

  • Alive and well 
  • Alive and not well; or 
  • Not alive. 

The method of planning you choose determines your ability keep control of your own affairs at each of these life stages. None of us can predict the timing of a chronic illness or the time of our death. But, we can control how our assets are managed or protected when sickness or death occurs. 

Don’t let your expectations get derailed by these common planning traps:

1. Perils of Joint Tenancy. 

It’s very tempting to try to manage or protect your assets by placing someone else’s name of your bank accounts or property. It’s easy too. Someone at the bank might even have suggested “it’s a good idea” to add a name or two onto your accounts in case “something happens.”  

We don’t recommend planning based on joint tenancy because you lose immediate control over the jointly held asset and you expose your assets to the creditors of your joint tenant.

Because a Will or Living Trust do not control jointly held assets, joint tenancy risks sabotaging your distribution goals after death.

And, if you need help paying for nursing home care adding your child’s name to the deed of your home might prevent you from qualifying for Medicaid.

2. Over Reliance on Beneficiary Designations.

Naming a beneficiary on investment or retirement accounts can avoid probate upon death but provides no authority for any one else to act for you if you are sick or disabled. A beneficiary designation applies only after your death.

Without a General Durable Power of Attorney in place to manage assets during illness, your family will be stuck with an expensive trip to the probate court to obtain guardian or conservator powers.

If your beneficiary is a minor or is a person with disabilities, you will likely be putting your former spouse or the court in charge of how those assets are managed. 

3. Failure to Understand the Limitations of a Last Will and Testament.

Although it’s better to have a Last Will and Testament than to die without one, most people don’t understand how a Will really works. Here are five things you should know about a Will: 

  • A Will offers no help to your family if you are disabled. 
  • A Will only applies to individually owned assets. 
  • A Will does not control jointly titled assets. 
  • A Will does not control beneficiary designation assets. 
  • A Will does not avoid probate when you die. 

In Michigan, all Wills are subject to probate proceedings known as “informal” or “formal” administration. If you’ve read a clause in a Will that’s something like this, “I direct that my Will not be supervised by the Court,” it simply means that you are selecting the most limited form of probate possible under court rules.  

If you’d like to learn more about your estate planning options click on the link below or call (231) 799-4993 to schedule a complimentary Get Acquainted Call.

Four Reasons Why a Last Will and Testament Is Not an Estate Plan

Most people acknowledge that “someday” they should get a Last Will and Testament in place. However, that’s an old model of planning that’s fixated only on what happens at death.  Estate planning is not just a morbid exercise that’s limited to telling your family what you want done after you are gone. Here are four reasons why having only a Last Will and Testament is not an estate plan.

1. A Last Will and Testament Offers No Help If You Become Disabled.

The sole purpose of a Last Will and Testament is to provide instructions about what you own in your own name at the time of your death. If you are unable to manage your own property because of illness, the personal representative of your Will can’t do a thing about it. Why? Because you are not dead. A personal representative only has authority to act after death by obtaining letters of authority from the probate court.

If your plan does not include a well thought out general durable power of attorney or living trust, your family will have no choice but to go to court if you become disabled.

2. A Last Will and Testament Does Not Protect Your Assets from Nursing Home Expenses.

If you are over age 65, the odds of having a nursing home event are 1 out of 2. And, 1 out of 10 seniors who enter a nursing home are never able return to their own home. At more than $8,500 per month for skilled nursing care, most families rely on Medicaid to pay for it.

If you rely on Medicaid to pay for nursing home care, a Last Will and Testament does nothing to protect your assets. When you die, the State of Michigan has a right to recover the cost of your lifetime care from the value of all assets that are controlled by your Will.

It is a rude awakening for the beneficiaries of your Will to discover that your assets must first be used to pay back the state for your lifetime care expenses.

When that happens, your family is left with virtually nothing. However, if your home or assets are conveyed at death by a method that avoids probate, those assets are not subject to estate recovery.

3. A Last Will and Testament Does Not Control Beneficiary Designation Assets.

It’s important to understand what a Will does or does not control. A Will contains instructions about what you own in your own name at the time of your death. Your Will does not control assets for which you have made pay on death (POD), transfer on death (TOD), or other forms of beneficiary designations.

Many clients hold significant wealth in annuities, qualified retirement accounts, life insurance or other assets. All too often, beneficiary designations for these types of resources are completed in a manner that is much different than the instructions contained in your Will. When this happens, your beneficiaries may be in for some unpleasant surprises because of inconsistent planning instructions.

4. A Last Will and Testament Does Not Avoid Probate.

Many of our clients share a common goal of preserving privacy at death. If that’s an important goal of yours, a Will is not enough. A Last Will and Testament is nothing more than a letter of instruction to the probate court about how you wish to divide what you own in your own name at the time of your death.

At a minimum, the process of administering your Will requires an application for informal probate to obtain letters of authority to carry out your written instructions. As a result, your instructions about who is in charge and what you want them to do becomes publicly accessible information. If you wish to maintain privacy about those things, a Last Will and Testament is not enough.