Making sure your estate is arranged properly by Joshua Winger

Nothing worthwhile ever happens quickly and easily. You achieve only as you are determined to achieve…and as you keep at it until you have achieved.—Robert H. Lauer, American author and Sociologist

Our guest columnist today is Joshua Winger, associate attorney at Byrd and Byrd, LLC in Bowie. Josh actively concentrates on issues of elder law and is recognized around the office as something of a connoisseur of the Maryland probate process. You will enjoy reading his educated thoughts regarding the transfer of assets at death.

“We have all heard it countless times: “There are two kinds of people in this world. The first kind of people do ‘X’ and the second kind of people do ‘Y’”. Well, one area of life that is actually true is the difference between people who properly arrange their estates and those who do not.

For the sakes of your loved ones, it is important you be part of the first group. Perhaps you have a wonderful plan in place already, but now is the time to take a moment and make sure you truly have your estate set up the way you wish.

Regarding transferring your assets after your life, it is important to remember there are four ways to do so and each way has pros and cons for different people:

1. Last Will and Testament: Do you know which assets to which a Last Will and Testament (also just called a “Will”) applies and to which assets a Will does not apply?

Generally, the only assets to which a Will applies are the assets for which you are the last living owner and for which there are no payable-on-death/transfer-on-death beneficiaries.

Do not get me wrong. A Will is a critical tool, and, unfortunately, according to Gallup, only about 50% of Americans pass away with a Will. Still, you should understand a Will’s limitations in an estate plan.

2. Joint Ownership: A very common, but potentially dangerous, way of transferring assets at death is having a co-owner called a “joint tenant with right of survivorship” or “tenant by the entirety”. This is most common when spouses co-own a home or a bank account.

A co-owner other than a spouse usually is a bad idea, for numerous reasons. A typical example of adding a co-owner is when a parent goes to a bank to add a child to an account as an authorized user, and the bank misunderstands and instead adds the child as a co-owner. The result due to the misunderstanding is when the parent dies, the co-owner child becomes sole owner of the account, regardless of what the parent’s Will says. This clearly is not what the parent intended and it may frustrate estate planning intentions.

3. Payable-on-Death/Transfer-on-Death Beneficiaries: Many assets can have directly-designated beneficiaries. Common examples are retirement accounts, such as IRAs, 401ks and TSPs, and life insurance policies. The company administering your retirement account or life insurance policy gives you the opportunity to designate direct beneficiaries. Other assets, such as checking, savings, brokerage accounts and stocks and bonds also can have such beneficiaries.

4. Trusts: There is a lot to be said about trusts. Overall, there are revocable and irrevocable trusts, each serving various purposes.

Revocable trusts are much more common, are always created while the asset owner, typically called the Grantor or Settlor, is alive and generally are used for avoiding probate (meaning the administration of a Will through the Register of Wills), and/or consolidating assets for effective administration in the event of your disability or death and tax planning.

Irrevocable trusts require you give up some right to the assets you transfer. Typically, that right is to principal, while retaining the right to income. Irrevocable trusts often are used in situations such as Medicaid planning, asset protection for business owners and special needs trusts. In most cases, you can also be the Trustee.

It is important to remember that a Trustee cannot act regarding an asset until the asset is transferred to the Trustee.

A hybrid approach is a testamentary trust inside a Will. A testamentary trust does not come into effect until the Grantor dies and the Will goes to probate. A testamentary trust can be used for both probate and non-probate assets. For a testamentary trust to be used for a non-probate asset, you must designate the Trustee of the testamentary trust to be the payable-on-death beneficiary with the financial advisor managing the non-probate asset. You may need to designate a Trustee to be payable-on-death beneficiary if there is concern an individual would not be able to handle inheritance, such as a minor, a special needs person or adult who simply does not handle money well. Often, such an individual should not inherit outright from you.

Remember, you may have assets to which the Will does not apply. So, if your estate plan has the underage or special needs person directly inheriting such assets instead of them being transferred to a properly-designed trust, it can cause a lot of problems, such as loss of government benefits or a Court creation and monitoring of its own trust. Speak with a knowledgeable attorney to help you solve your plan’s issues.”

Thank you for reading. Stay well. See you next week.