Speaker: Maritess Bott
[Music]Maritess:
That is a great question — a very common question too — because people are confused as to whether a will or even a trust would supersede any beneficiaries that you might have on your life insurance, retirement accounts, or even a bank account. The easy answer is that the beneficiaries prevail, as opposed to the will and trust.
What you have to remember is that a beneficiary designation on any life insurance or IRA is a contract between you and your financial institution or insurance company. They have to honor that contract, and that’s exactly how it would be distributed. A will or a trust is separate from that. It’s not a contract; it’s something you created separately, but they don’t necessarily communicate unless you force the communication.
What I mean by that is when we create a trust for someone, I generally say add the trust as a beneficiary, not your children — especially with your situation where you have young children. Once you put your children on as beneficiaries, and let’s just say they’re 15 and 10 and you pass away, that money is going to be held by the insurance company until they’re 18. Then, at 18, they turn over that money, and a lot of times parents don’t want to give that money to their kids that quickly. Eighteen is a very tenuous age to be giving someone a lot of money. It might ruin their chances for college or having ambition to pursue a career.
What I suggest is this: if you create a trust, we would put the trust as the beneficiary, not them individually. That way, you can put as many instructions as you want in the trust to say, “You’re getting this money; you can use it for education, rent, or living expenses, but then you’ll have to wait until 25 or maybe 30.” You could say a third at 25, a third at 30, and the balance at 35 — some kind of instructions that lay out your wishes so that the money doesn’t get to them too soon.
At the end of the day, we have to be really careful about who is on your beneficiary forms — the ones you fill out through work or at home. It’s important to make sure that we put exactly what you want so that both of those things work together, as opposed to being separate and not having your full wishes carried out. I highly recommend going through an attorney and doing a will, a trust, or both.
We’re getting this scenario quite often as well. A lot of times when a person has passed — it sounds like your brother died — it’s not unusual to worry about the house, because that’s usually in the decedent’s name, and then their checking or savings account. What I usually ask when we’re having a conversation is: what other accounts are there, and how much? How much is the house worth?
In Illinois, if you have $100,000 or less in your estate, then theoretically you don’t have to go to probate. But that’s theoretical, because most people who have real estate — the title company won’t allow you to sell the property without going through probate. So, whether it’s a condo that’s $100,000 or a house that’s worth half a million dollars, it doesn’t matter — the likelihood is that you’ll open probate.
However, there’s a possibility that the title company — once you put your house on the market and you have a contract — will order title to make sure that the chain of title is correct and that the decedent owned the property. One of the things we can do to avoid probate is what is called a “Deed in Lieu of Probate.” Basically, it means we’re going to put on the deed “The Estate of John Doe,” and the people who are going to sign it are the beneficiaries of the estate. It really depends on who those beneficiaries are.
If there’s no will — maybe it’s you as a sibling and another sibling — and the two of you are the only surviving heirs because your brother didn’t have children or a spouse, then we go through the title company. The title company will be the one that ensures over not opening up a probate estate, and they will only do that if they have what is called an “Affidavit of Heirship.”
You, as a sibling of your brother, can say, “Yes, my brother died. Yes, my sister and I are the only other heirs at law.” You sign that, file it with the title company, and then they will be able to accept a deed that you sign without having to go through probate court just to be authorized to sign.
That’s easier and faster, but there is a price tag to it. The title company will require an additional insurance cost — basically another title insurance fee — based on the value of the property. It’s usually about 2% of the property’s value. So, if it’s a $200,000 property, you’re going to pay $4,000 to the title company when you sell the house in order for them to take on that risk.
The original question was whether you have to go to court to sell the condo. Not necessarily — if we can do this Deed in Lieu of Probate and work with the title company. Not all title companies do it, so we have to check.
With the bank account, if it’s under $100,000, most banks will accept what is called a “Small Estate Affidavit,” and we can help you with that. Hopefully, they’ll accept it so you can get access to that account.
I hate that it happens all the time — when someone was about to sign and didn’t. Can you use the new will as the one that will manage or distribute the estate? The answer is no. Unfortunately, legal signatures matter. Even if the intent was there — you worked with a lawyer and drafted it — the sad thing is that no matter how much effort you went through, it’s not binding without that signature.
Can the family have a conversation and say, “You know what, Dad really wanted the house to go to me — can we honor it despite the will not being signed?” Yes, families can take it upon themselves and say, “We really believe Dad wanted to give you the house. We believe he would have signed this anyway.”
What I would always suggest is to put it in writing that all of you agreed on it. That’s called a Family Settlement Agreement—so we put the terms of what you’re agreeing on and say, even though the will wasn’t signed, we’re going to agree that you’re going to get the house based on this will. Then everybody signs it, and you can distribute it that way. But if there are other family members who say, “I want a share of that house, I’m entitled to it,” they have the right to do so. People would have to be agreeable to that solution.
When people hear the word “trust,” they assume liability protection. They assume, “Oh, no one can take my money because it’s in a trust.” And I have to be the bearer of bad news to say living trusts, or revocable trusts, are not protected from liabilities. Why? Because you have full access to that money—you have full control over that money. So the way the court system looks at it, the laws look at it—as long as you have full control over it, it’s your money, just as if you owned it outright, as opposed to via a trust.
Okay, so how do you protect your assets? There are a lot of other ways—there are a lot of layers of asset protection. One is by law. There are certain assets that are protected from lawsuits in Illinois: retirement accounts—your 401(k), IRA, 403(b), 457, SIMPLE Plan—all those things are protected by law. Number two is life insurance. You might have some permanent policies that have cash value attached to them; that’s fully protected. No one can take that away from you, which is a good thing.
Everything else, unfortunately, is available—or exposed. So what do we do with everything else? Some people choose to create irrevocable trusts. There are other types of trusts that are irrevocable, where you can put money in, but somebody else has to manage it. You relinquish control over those assets. There’s a whole host of irrevocable trusts—it depends on the client to decide which one might be a good fit.
Other options are certainly putting them in an LLC—a limited liability company. That’s another way that higher net worth individuals can put their vacation home, other assets, or cash in there, and it would be protected from lawsuits. In that scenario, it’s certainly a matter of cost versus benefit—whether the benefit of asset protection is worth the cost to you.
So, liability protection does not happen when it comes to living trusts. I highly, highly recommend that you come and talk to us so we can see what other options are available to you if that’s a concern.
Okay, so she’s hospitalized, and she has early stages of dementia—that’s when you have a very small window of time to see if we can get her to sign documents. Obviously, if she is fully aware and she can say, “Okay, my niece can help me,” then she’s authorizing you at the hospital. However, that only works for that period of time. If she’s in another hospital or speaking with her regular doctor, that won’t be allowed unless you have some authority through a power of attorney for health care.
I would highly recommend that we check to see if she’s able to sign documents. The test is: does she have the capacity to understand what she’s signing and who she’s giving authority to? Does she have to know everything about her life and remember everything? No. As long as I talk to her and say, “Okay, we’re going to have your niece act on your behalf—are you okay with that?” and she says yes, then I can tell she has capacity.
That’s one way—to sign health care powers of attorney or property powers of attorney. That’s the easier way. If she were in a coma or in the later stages of dementia, that situation is a lot more difficult. We’d have to open what’s called a guardianship or conservatorship, and that requires courts, judges, and money. So there’s a lot of complexity when that happens. But it does happen often in cases like this, where your aunt is single and has no kids. Then the family has to go through this process to get authorization to take care of her.
I’d rather not go the second route. But if it comes to that, you go to court, get authorized to be the person—it’s about a two-month process, and it costs some time and money. You have to physically go to court. Once you’re authorized, you can take care of your aunt, talk to her doctors, pay her bills—you can do everything for her.
The goal is to pre-plan. Once you notice some of your family members showing early stages of dementia or memory issues, I highly recommend saying, “Hey, Aunt, I think you should see a lawyer. Let’s go take care of your finances and medical decisions now.”
So those are all really great questions. You can see the general theme of all of them is really—plan ahead. Plan so we can do all the estate planning, write down your wishes, avoid guardianship, and avoid probate if you die. That way, we don’t have to go to court, and we also make sure your assets go to the people you actually want them to go to. Why should they go to some random relative you never even liked, or people you don’t even talk to anymore?
It’s so important to plan, write down your wishes, have that peace of mind, and then you don’t have to worry about that part. You can just live a fuller life. That’s it.
Well, thank you so much for watching or listening to this podcast. We appreciate it, and we’ll see you next time.
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