6 Things as a Money Protection Attorney I Would Never Do

As an Estate Planning Attorney, I often take on the role of “Money Protector.” The reason being is that an estate plan is the effective management and distribution of assets on behalf of a person during their incapacity or at their death. Over 70% of Americans don’t have an estate plan in place, which means their family is paying tens of thousands of dollars to the government at their death, all of which can be avoided.

Over the many years of counseling clients, these are the 6 things, that I would never do, as a Money Protection Attorney:

THING 1: I would never leave anything to my kids when I die, instead I would leave everything to a trust where my kids are named as the beneficiary on that trust.

By opting to create a living trust and have your trust own your assets, whereby your kids are named as the beneficiaries on that trust, provides several advantages. The three main advantages that leaving your assets to a trust can provide are: 1) Control; 2) Creditor and Asset Protection; 3) Tax Strategies.

1. Control: Creating a trust and naming your kids as the beneficiaries of the trust, as opposed to just having a Will or not having a plan in place at all, allows you to have more control over your assets, even after your death. You can specify how and when the assets are to be distributed, which can be especially beneficial if you have concerns about the maturity or financial management skills of your children at the time of your passing.
2. Creditor and Asset Protection: A trust can provide protection for the assets from creditors, legal judgments, or divorces that your children might experience. This is because the assets are not in your children’s names directly but in the trust.
3. Tax Strategies: A proactive plan that includes a trust whereby assets are held in the trust and then distributed to your kids allows you to structure your trust in a way that can minimize estate taxes, thereby preserving more of your wealth for your beneficiaries under current tax laws.

THING 2: I would never name my minor children as beneficiaries on my life insurance accounts, instead I would set up a trust and designate my trust as the beneficiary of my life insurance accounts and name my kids as the beneficiary of the trust.

Naming minor children directly as beneficiaries on life insurance policies or other financial accounts often presents several practical and legal challenges. Here’s why it might be more advantageous to set up a trust and name the trust as the beneficiary, with your children as the beneficiaries of that trust:

1. Legal Limitations for Minors: Minors cannot legally control property or finances until they reach the age of majority (18 in most states). If you pass away when your children are still minors and they are direct beneficiaries, the court will typically appoint a guardian to manage the funds until they reach adulthood. This process can be time-consuming, costly, and might not necessarily align with your intentions for the management of the funds.
2. Control Over the Funds: By using a trust, you can specify exactly how and when the money should be distributed to your children. This can include stipulations for education, health, maintenance, and support, or dispersing funds at certain ages or milestones, like graduating from college. This helps ensure the money is used in a way that benefits their long-term well-being.
3. Protection from Creditors and Divorce: Assets held in a trust are generally protected from the beneficiaries’ creditors, legal judgments, or divorce settlements. This protection helps ensure that the assets are preserved for the intended purpose of supporting your children, rather than being vulnerable to external claims.
4. Avoiding Probate and Privacy: Trusts can help bypass the probate process, which is public and can be lengthy and expensive. By having the trust as the beneficiary, the disbursement of life insurance proceeds can be handled privately and swiftly according to the terms you’ve established.
5. Tax Considerations: Depending on the size of your estate and the structure of the trust, there can be significant tax advantages to using a trust to manage and distribute your assets, including life insurance payouts.

THING 3: I would never add my childrens’ name to my home to get around medicaid recovery. Instead I would put my home in a medicaid asset protection trust and my children would be the benefits of that trust.

Adding your children’s names directly to the deed of your home might seem like a straightforward way to manage estate planning and Medicaid planning, but it can lead to several significant issues, particularly regarding Medicaid asset recovery. Here’s why it’s often a better strategy to establish a Medicaid Asset Protection Trust (MAPT) instead:

1. Medicaid Asset Protection Trust (MAPT): A better alternative might be to place the home into a MAPT, naming your children as beneficiaries. This type of trust is designed to own assets like your home while allowing you to retain some benefits, such as living in the home. Here’s why it’s effective:
   • Protection from Estate Recovery: Assets in a MAPT are typically protected from Medicaid’s estate recovery, as the assets technically no longer belong to you.
   • Maintaining Medicaid Eligibility: Since the assets in a MAPT are not considered yours for Medicaid eligibility purposes (assuming the trust is irrevocable and properly set up before the look-back period), it helps in maintaining eligibility for Medicaid.
   • Control and Management: With a MAPT, you can appoint a trustee who manages the trust according to the terms you’ve set, providing a structured way to handle the property and other assets without exposing them to the risks associated with direct ownership by children.

Setting up a MAPT can be complex and requires careful planning and timing to ensure compliance with Medicaid rules and to achieve your estate planning goals effectively. It’s crucial to work with an attorney who is familiar in Medicaid planning and trusts to ensure that the structure of the trust meets legal requirements and aligns with your objectives.

THING 4: I would never add my children’s name to my deed as a way to get around probate court. Instead I would put my home in a living trust and my children would be beneficiary of that trust.

Adding your children’s names to the deed of your home as a way to avoid probate can seem like a simple solution, but it has several potential pitfalls and legal complexities. Here’s why adding your children’s name to the deed can pose several problems:

1. Legal and Financial Risks: When you add your children to the deed, they become part-owners of the property immediately. This exposure means that any financial difficulties, legal problems, or liabilities they face (such as divorces, bankruptcies, or lawsuits) could threaten the home. Creditors could potentially place liens on the property or seek to recover debts through your children’s ownership interest.
2. Loss of Control: By adding your children to the deed, you dilute your control over the property. Major decisions such as selling or refinancing the property would require their consent, which could limit your flexibility and autonomy, particularly if there are disagreements or if logistical issues arise, such as a child living far away or being unresponsive.
3. Potential Gift Tax Consequences: Transferring part ownership of your home to your children is considered a gift for tax purposes and may trigger federal gift tax liabilities if the value of the share exceeds the annual gift tax exclusion amount.
4. Capital Gains Tax Implications for Children: If your children are added to the deed and later sell the property after your death, they might not qualify for the full homeowner’s capital gains exclusion typically available when selling a primary residence. This could result in a significant capital gains tax if the home has appreciated in value.

THING 5: I would never make my kids go through probate court — instead I would create a living trust which would avoid probate court.

Probate Court is the State’s plan for you if you don’t have an estate plan created for yourself. If you die with assets titled in your name, such as the deed to your real estate, the title of your bank accounts and investment accounts, or a single member owned business, you are leaving your family to have to go to probate court. Probate court can be thought of as the court’s supervision of transfer of ownership.

A more structured and safer way to avoid probate and ensure smooth transfer of your property after your death is to set up a trust, such as a revocable living trust. Here’s why:

• Avoids Probate: The property in the trust does not go through probate, which can expedite the distribution process to your beneficiaries and keep it private.
• Full Control During Lifetime: You can maintain control over the property as the trustee of your trust. This arrangement allows you to manage, sell, or refinance the property as you see fit during your lifetime.
• Protection from Creditors and Lawsuits: Since the trust owns the property, your children’s creditors or legal issues typically cannot affect the home.
• Stepped-Up Basis: Upon your death, your children can benefit from a stepped-up basis for tax purposes, potentially reducing capital gains taxes if they sell the property.
• Flexibility and Specific Terms: You can specify in the trust document how and when your children will inherit the property, allowing you to address any concerns about their maturity, financial management skills, or other personal circumstances

THING 6: I would never create a Will and make my kids go through Probate Court. Instead I would create a living trust which would avoid probate court.

Probate Court is also the process in which the court validates your Will and distributes a decedent’s assets. In other words, if all your family has is a Will, they WILL be going through probate court.

A Will alone is not sufficient to keep your family out of probate court. A trust is.

BONUS TIP: I would never leave this earth without a good plan in place to protect my loved ones.

A comprehensive estate plan includes the following:

1. A Revocable Living Trust
2. A Pour-Over Will
3. Financial and Medical Powers of Attorney
4. HIPAA authorizations
5. Funeral Instructions
6. Minor’s Guardian Nominations
7. Fully Funded Trust and Updated Beneficiary Designations

The question you need to ask yourself is: What experience do I want the people who I love to have to go through in order to become owners of the assets I want to transfer to them?

It’s crucial to remember that estate planning is about more than just documents; it’s about informed decisions that shape your future and the future of your family. To take your financial organization to the next level and make the best choices for your loved ones. Click here to schedule a Family Wealth Planning Session™ with us. Mention this article, and you can access this valuable $750 session at no charge.

As always, we’re here to support you on your journey toward financial security and peace of mind. Financial planning is a dynamic process, and with the right strategies in place, you can confidently navigate the ever-changing financial landscape and achieve your long-term goals.