Speaker: Maritess Bott
Maritess:
Hi there, my name is Maritess Bott. Thank you for watching or listening to our podcast today. Today’s topic will be going through a diagram of an estate plan, and I like to show pictures. If you are watching the video, I’m going to be sharing my screen. Otherwise, I’ll talk through it, and if you’re listening in, you’ll probably still get some information as well.
We’re going to talk about a typical estate plan for a husband and wife, what the documents entail, why we do certain documents, and then two different scenarios—when the first spouse dies and then when the second spouse dies. Always good to know what will happen.
Here’s a typical estate plan. A lot of the time that we’re creating an estate plan, it’s going to center around having a trust. A lot of people wonder, why do I need a living trust? There are many reasons to have a living trust, but I’m going to start with avoiding probate. The number one reason to create a trust is to get rid of this, because probate, as I’ve talked about many times on other podcasts, can cost quite a bit of money—anywhere from $10,000 to $15,000—because it is a court process. It’s attorney fees, court fees, all sorts of things. A lot of money. It’s also going to take some time because, as you know, courts can take a long time. A year and a half to two years is not unusual.
It can be very public. What does that mean? We’re going to file a publication in the newspaper. We’re going to have these documents in the public forum, so anybody can take a look at what your kids or whoever your beneficiaries are, what they’re about to inherit, and then where they actually live. They also have to have their address exposed, which is not something you’d want to happen.
Then we go into multiple probates. If there’s any part of your estate where you have more than one real estate property outside of Illinois, then we’re going to open a probate estate in Florida or Michigan—wherever you have that second property. The trust is going to be the thing that avoids probate. We’re going to create a trust and then we’re going to put assets into the trust. Step one is to create it. Step two is actually, connect your stuff into the trust.
On top of that, you’re still going to need a will. It’s called a pour-over will. It just means anything you didn’t put into the trust, like your cars perhaps or your checking account, will get automatically poured over to the trust. You still need the will. If you have minor children, we are going to add your guardians in your will.
Then we have powers of attorney. We also want to avoid having to go through a court process called guardianship. If you recall a few years back, there was a Britney Spears situation where the court was in charge of her money. That’s exactly what would happen. We can avoid that. We can appoint somebody to pay your bills, get access to your money in the event of a stroke or a car accident where you’re no longer capable of doing it yourself. This also allows you to choose a person to take care of medical decisions—not only medical decisions but even where you live. Maybe you need to go live in a facility. Those are things that are going to be determined by the health care power of attorney.
The other two health care documents are access to medical records through the HIPAA form, and then we also have a living will declaration which gives you the choice to say, “I don’t want to be kept on life support unnecessarily.”
Those are the six main documents that are part of an estate plan. Upon the first death, we are considering two different things. I’m talking about a married couple right now. The surviving spouse does receive the assets typically, but we do want to think about two things. One is estate tax. It depends on whether your estate is large enough to be taxed. Right now, you have to have at least $13 million of assets in order to be taxed. Most people are like, “I’m so glad I don’t have to deal with that.” On the exemption side for Illinois, we also have a $4 million exemption amount, so most people are below those amounts as well.
But one thing I always say here is tax is one thing—we want to avoid that—but what if the surviving spouse is living, meets a new person, they spend a lot of time together, they fall in love, and they want to get remarried? I know it’s not something you really think about, but if you want to get remarried, that’s perfectly fine. But let’s make sure this money is only for you and then your kids or your beneficiaries—not to somebody else new in your life that’s going to end up getting the funds. In the trust, we have some remarriage provisions as well as prenup requirements to avoid that.
A lot of times, blended families are the result or the impetus for many lawsuits and many fights over the money. That’s where I’m trying to eliminate that.
Now we go downward to the second death. Upon the second death, we’re going to pretend that husband and wife have three kids—John, Susan, and Mary. You can certainly give your kids the money outright. That’s one option that’s listed here. But if you give it to them outright and they put it in their joint account with their spouse, then if they do get a divorce, that money can potentially go to the ex-son-in-law or ex-daughter-in-law. You might not want that to happen.
You can also give it to your kids based on ages. Perhaps they’re a little bit young, so we want to give it to them—a third at 25, a third at 30, a third at 35. These are guidelines. Absolutely nothing firm. It’s just guidelines. You can always make it longer or shorter. What I always tell clients is that it gives your kids a little bit of time to make immature decisions in their 20s and know they still have money in their 30s or 40s.
Number three is time-based. It means that maybe the kids are already a little bit older, but now you just want them to get their money at the same time, not based on age. You can say, “Right away they get a third, but five years later they get another third, and then ten years later they get the rest.” That’s another option.
Number four is if you have children that you’re confident in and you trust them. They can have money any time. That’s called an access trust. They’ll have some protection from divorce, possibly from other things like lawsuits and creditors, depending on how it’s structured.
Last but not least is more restrictive. If you have any children that you’re worried about, that spend money recklessly, or you’re worried that they’re under drug and alcohol abuse situations where they just can’t handle money, maybe you give them a little bit at a time rather than saying, “Here’s your money. Take care of it and spend it wisely.”
We can be very creative here. I’ve had people say they only get money based on the W2 income they earned the year before. If they worked at Starbucks and maybe earned $30,000 to $40,000 that year, that’s how much they get from their trust. That’s another option. You can be very creative.
The longer it stays in trust—for example, for John—if it stays in trust and he has issues, whether it’s getting divorced, being sued, having money problems, or if he’s been diagnosed with some type of special needs where he’s getting Social Security Disability, then at least it’s always protected. His inheritance will be protected from all of these situations.
Now, when the three kids get their money and they still have money left in the trust, and then John dies unexpectedly, basically it’ll go downwards. It’s automatic estate planning for your kids. You can give everything to the grandkids. It doesn’t necessarily go to your in-law, the partner that your child has chosen. It protects your bloodline as much as possible. If they don’t have children, you can always say, “Well, I want it to stay within the bloodline and go back to Susan and Mary.”
It’s very important to lay it all out because we don’t have that crystal ball. We have no idea who’s going to die first or how much you’re going to have. It’s very important to schedule that and structure that properly.
Last but not least is, lack of designated beneficiaries. This is something you don’t think about too often. Let’s just say the five of these family members—husband, wife, and all three kids—are gone. Maybe they went on a joint vacation of some sort. Then we want to put in some people or charities and make sure that they get the money. It’s very important to put down some specific people so that it doesn’t go accidentally to the wrong people.
That’s it. That’s how this whole estate plan works. I always like to show this to people because it’s a nice, easy way to see the estate plan all in one place. Again, I’m Maritess Bott. If you are interested in learning more, please feel free to call us or check out our website and attend one of our seminars. Thanks and have a great day.
