On this episode of Boomer Time, I am going to tackle some simple shortcuts that folks often take thinking that they are doing just what I talked about – planning for their aging years but doing it by taking some shortcuts. I see a lot of folks taking these shortcuts – and I’m here to tell you today that these shortcuts can often lead to some major boo boos – or painful consequences. Often times – the ones involved don’t know or realize that until its too late. That’s why I think its worth sharing. There should be some very important takeaways for you today and I bet some of these will sound VERY familiar – maybe you have even done one of them.
Make sure to stick with me because at the end I’m going to offer you some important and free resources that can help with your long-term care planning. So, spend the next 30 minutes with me. These are issues I want to tackle together as a community. I have already heard from some of you and I’m so glad to know that the podcast helps in your circumstances. I want to say hello to Stephanie in Utah. I hope all is going well with the transition that we talked about. And big hello to one of my favorite people in the world – Josh Robbins in Murfreesboro. Thanks for tuning in counselor and I would love to have him on the show. He is just great. If you are in Murfreesboro and looking for legal help – look up Josh Robbins. Maybe Josh will come on the show and can share some of his expertise. If you’re new to the show – reach out to me and tell me what you think. Ask me a question – maybe it will make a great next episode.
But here, we are talking about unintentional BIG BOO BOOs or mistakes that can cost you when it comes to simple shortcuts in your estate plan.
QUITCLAIM DEEDS: This is a big one that I see all the time. Quitclaiming your house to your child or children. You probably think this will get it out of your hands and takes care of the inheritance you planned to make to your children after your death. All the while, avoiding any of the other pesky details of probate, etc. This is a BIG BOO BOO. I see this all the time – and you will probably want to think twice about this one.
Most of the time – people will quitclaim their house thinking it gets the house out of their hands – and as a result avoids Medicaid or TennCare from swooping in and getting the house, if there are medical debts owed following nursing home care. The other big reason people quitclaim their house is to avoid probate. I’m here to tell you neither of those are worth quitclaiming your house to your kids. Here are just a few of the pitfalls:
One – You will lose your step up in basis, i.e. the equity you have earned in your house over the years since you first purchased it. You will lose this right by conveying a house by quitclaim. If you paid $50K for your house in 1950 and today it’s worth $500K – there is $450K in gain. A step up in basis would allow you to take the house at its present value of $500K. By quit claiming the house, you are giving that all away. That could be one BIG PAINFUL AND COSTLY MISTAKE.
Two – Quitclaiming your house is treated as if you are giving it away for nothing. In other words – no price paid – or no consideration – in fact the deed will state just that. Maybe you don’t want your children to pay anything. That doesn’t help in this circumstance and here are the two major reasons why: First, TennCare or Medicaid is going to treat that as you giving away what may be your biggest asset that may have otherwise been available to help fund your end of life care. That will likely get in the way of your eligibility for assistance, if you find yourself needing nursing home care and probably foul up the reason you did it in the first place. Secondly, if you’re children file bankruptcy or get in a car accident divorce or other lawsuit where a judgment is issued against them – the house is going to be the most likely target for collection AND a bankruptcy trustee is going to look to liquidate that house or set aside the conveyance you made. The IRS could also levy against your house.
Here are some other pitfalls – who says you’re going to live in the house after you quitclaim it – that’s up to your kids because you no longer own it. What if your child files for bankruptcy? Did you know that your house may become property of the bankruptcy estate? And if they were sued, the creditor could put a lien on your house. What if you need money in the future – you could have once borrowed it against your home – but now you don’t own it. So that is not an option.
QUITCLAIM DEEDS – MAJOR BOO BOO – DON’T DO IT. CHANCES ARE YOU WILL REGRET IT.
JOINT ACCOUNTS – Do NOT put one child on your checking/savings account or any bank account. Here’s another bad idea disguised as a short cut and here’s why. You are once again giving away your absolute interest in your bank account when you put a child or children on the account. I see lots of people doing this for convenience’s sake, i.e. the child can then pay bills and withdraw money from the account without any hassle from the bank. Some of the same issues involving the quitclaim will come up. Also,
Under Tennessee law jointly held assets vest automatically in the survivor upon the death of the other owner. That means that bank account becomes the property of the one child on the account. That’s to the detriment of the other heirs. Talk about the ingredients of a family feud. I’ve seen it. Not only that, you’ve now placed that child in a position where they need to figure out how to come up with a gifting strategy over time to distribute those monies to the rest of the family as you intended. This can lead to creditor issues involving that child transferring away what is then their property. Jointly held assets won’t be subject to probate so your Will won’t control what happens to those, even if you intend for it to do that.
THIS HAPPENS ALL THE TIME AND LEADS TO BIG BOO BOOS and CAN ALSO LEAD TO EXPENSIVE TAX CONSEQUENCES AND LEGAL BILLS
I cannot over emphasize the problem with this. I see this all the time. I have a case right now where a gentleman that I instructed very specifically NOT to do this – put his caregiver on all his accounts as a joint owner so that she could pay bills for him. Guess what, he died and she now is the legal owner of $500K in liquid assets. You think that got the family’s attention? BE CAREFUL WHEN CONSIDERING JOINT ACCOUNTS.
FORGETTING CONTINGENT BENEFICIARIES ON POD (payable-on-death) ACCOUNTS: While there is NO requirements to designate contingent beneficiaries on your accounts, picking at least one may be a good idea because it helps ensure your assets go where you want once you’re gone. I see this all the time too. If the named beneficiary is dead before you – update your beneficiary or list a contingent (second) beneficiary. Here’s why if you don’t designate contingent beneficiaries, and your primary beneficiaries pass away before or when you do, then all assets, including any retirement accounts and life insurance policy death benefits, could go to your estate. In that case, a state’s law of intestacy could become responsible for divvying up your assets unless you have a will in which case the court will divide your assets up according to your wishes. It could also lead to a big bite taken out by the IRS as the estate could absorb all the gain and tax liability from those assets. What kind of accounts am I talking about:
You can name contingent beneficiaries on many different types of accounts. This includes the following:
employer-sponsored retirement accounts, such as a 401(k), 403(b), 457(b), SIMPLE IRA, or SIMPLE 401(k)
individual retirement accounts, such as an IRA, SEP IRA, or Solo 401(k) life insurance policies, including term and whole life policies, annuities, transfer on death (TOD) designated brokerage accounts. For an individual account, a TOD registration generally allows you ownership of the account to be transferred to the designated beneficiary upon your death.
Here’s another issue related to those beneficiary designations – Strange little term called per stirpes.
What’s a per stirpes contingent beneficiary?
Per stirpes indicates that if the named beneficiary dies, the children of that named beneficiary are to receive the benefits, or even the grandchildren of that named beneficiary if no children are alive. Keep in mind that a contingent beneficiary would only inherit assets if there is no Per Stirpes.
Note: Per stirpes does not include stepchildren (unless specifically referenced in the instrument) but does include legally adopted children.
Please know I’m not lessening the importance of these issues by calling them boo boos. There are often difficult to understand concepts so I’m using those more familiar terms so that it helps with understanding and retaining some of this stuff.
What to do with a blended family
Here’s a BIGGIE. Today the nuclear family is almost non-existent. Most of our families are complex. They are blended in some way. Perhaps we have a second marriage and there are stepchildren and step grandchildren that you consider your own. Maybe there are people that have come into your life that you consider family – but they aren’t officially your descendants. This is critical to spend some time looking at these issues.
If you have a second spouse – perhaps your first spouse passed, and you are blessed to have someone new that you want to spend the remainder of your life together. That is terrific. However, you are now in a different position in life and it requires some thought and preparation.
Is there a house involved -maybe two his and hers? How are you going to handle that? Are you both on the deeds? Do you want to have both of you on the deeds? How is that property going to pass? I have had circumstances were a spouse died and the second spouse was not on their home’s deed – the deceased spouse had NO will or estate planning, so the estate was liquidated based on TN law. That meant the surviving spouse was eligible for a child’s share. Guess what – the deceased spouse’s children came in and liquidated the house and everything in it. There was nothing the surviving spouse could do. Ouch. This was extremely painful for the woman involved and I’m sure it was unintended.
On the opposite side of the spectrum – maybe there are children and stepchildren you want included in your estate. Unless you take specific action for that, your stepchildren and any step grandchildren will have NO right to a share of your estate. Once again – unintended consequences.
Third – maybe you both come to the new marriage with separate assets that have been accumulated for years. You may want different things done with those at your passing. Be careful because unless you take the right actions – those assets could vest in your new spouse at your death and then go to your new spouses’ legal descendants – your children would be shut out.
Blended families need special attention.
Have I got your attention yet? I hope so. There are more of these short cut boo boos that I run across, but these are the major ones. In the time we have left I’ll just touch on a few others briefly. If you want more information, check out my website nancycogar.com. There you will find free resources and information to help you work through some of this and prevent these painful consequences.
Miscellaneous Boo-Boos to Consider
Here are just a few more that I see come up and can be costly:
Forgetting to fund a trust: In order for your trust to work – your assets need to be titled in the trust. Otherwise, those assets will be probated either with a Will or without.
MIA Estate Planning Documents: These documents need to be put somewhere safe. Unfortunately, sometimes its SO safe that they can’t be found. An estate plan is of no use whatsoever unless you have the documents available to enforce the provisions that you have put in place.
Safe Deposit Boxes: Sometimes my clients choose to put those documents in their safe deposit box. That’s fine. Here’s the problem – someone needs to have access to that safe deposit box so that they can get those documents when they are needed. I have seen show cause orders issued by Courts in order for folks to get access to a safe deposit box. If you’re not on the account or there is not a specific provision providing access to a safe deposit box in a power of attorney, then you may have a big problem.
Passwords: Have those important passwords available when they’re needed.
Inventory of Assets: Make sure to have a complete list of your assets with your important documents. I see missing assets all the time too – this is a multi-billion dollar problem.
DD214s: if you are a veteran thank you for your service. Please keep a copy of your DD214 discharge papers with your other important documents. This will solve a lot of heartache down the road when it comes to benefits that may be available to you after your incapacitated or burial benefits once you pass.
Obviously, there are a lot of minefields in the area of estate planning and long-term care planning. I want you to be able to avoid those and plan with confidence. This is the reason I am here and have created Boomer Time.
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