Living Trusts vs. Wills, Part 2
November 20, 2007 | Leave a Comment
I’m continuing the series on Living Trusts versus Wills that I started last week. These are more questions that our Memphis area law firm estate planning lawyers answere frequently for our estate planning clients.
I’d love to hear your specific questions or comments that about Mississippi Law or Tennessee Law. If there is a particular topic that you would like to see covered please contact us and we’d be happy to address it.
4. Is it true that joint ownership with rights of survivorship avoids probate?
Not always. Joint ownership can just postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Be on the lookout for other problems though. For example, when you add a co-owner, you lose some control. Your chances of being named in a lawsuit and of losing the asset to a creditor are dramatically increased, even if you have done nothing yourself. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could end up accidentally disinheriting your family.
With some assets, particularly real estate, all owners must sign legal documents to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court–even if the incapacitated owner is your spouse.
5. Why would the court get involved if someone is incapacitated?
If you can’t conduct normal business due to some type of mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), only someone appointed by the court can sign for you - even if you have a will. (Remember, a will only becomes effective after you die.)
The court can be like a dreaded disease. Once it gets involved, it usually stays involved until you either recover or die. The court and it’s appointee, not your family, controls how your assets are used to care for you. This public process can be expensive, embarrassing, time consuming and difficult to end if you recover. Worse yet this process does not replace probate at death - by just having a will (or worse nothing at all) your family could have to go through the court system twice!
6. Does a durable power of attorney prevent the court’s involvement if you become incapacitated?
A durable power of attorney is a document that appoints someone and gives them the authority to manage your financial affairs if you are unable to do so. A major probelm here in Memphis and in Mississippi however that we lawyers come across is that many financial institutions will not honor one unless it is on their form. And, if accepted, it may work too well — giving someone a “blank check” to do whatever he/she wants with your assets. A durable power of attorney can be very effective when used with a living trust, but risky when used alone.
A Look at Living Trusts vs. a Power of Attorney
November 8, 2007 | Leave a Comment
Germantown, Tennessee
I recently read an article on the Aspen Daily News’ website which was really a cut above most “you need to have an estate plan” articles — good use of detail and examples.
Unfortunately I can’t hyperlink to the original article but here is an excerpt that I copied that I want to focus on:
In event of your disability, give someone you trust the power to manage your property. It’s called a power of attorney (although the person doesn’t have to be an attorney).
But there’s a problem: Some financial institutions won’t accept powers of attorney created more than six months before. You’re unlikely to renew a power of attorney this frequently. For a better solution, ask an estate planning attorney to draft a living trust for you. (The cost is probably $1,500 to $3,000.) The ownership of all your property is changed from your name to the trust’s name. As the sole trustee, you can do anything you like with the property.But if you become disabled, a person named in your trust steps in as successor trustee to manage the property on your behalf and for your benefit. All financial institutions accept this, no matter when the trust was written.
I haven’t had a problem getting “old” powers of attorney (any POA created by someone in the last 5 years) accepted by financial institutions, but a living trust really works better than a property power of attorney in the case of disability. Or, rather, I should say that a fully funded living trust works better. If you transfer ownership and change beneficiary designations to your living trust and then become disabled, your successor trustee really can step right in and handle your property for your benefit. If you set up a living trust but don’t fund it, and then become disabled, your property power of attorney can (hopefully) be used to fund your living trust at that time. I always include specific language allowing an agent, under a property power of attorney, to take care of this funding.
And, of course, a health care power of attorney is very important as well.
Let me put it simply: If you become disabled, having a fully funded living trust and powers of attorney will save you and your family a lot of time and money.
