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Estate Planning: Simple is not Always Better

April 16, 2018Estate Planning, legal education

Estate planning contemplates two different general time periods: During life and after your death. Estate planning needs also vary based on the goals you are trying to achieve. For example, after death, do you simply wish to transmit your assets, or do you wish to provide your loved ones with asset protection, tax protection, divorce protection, or other benefits?

In this blog, we’ll look at a plan which is very simple, but which does not include a trust.

A simple, common plan without a trust often includes holding title to property in “joint tenancy with rights of survivorship,” or simply “joint tenancy.” Joint tenancy transfers your property to the other joint tenant at your death. However, while it accomplishes the goal of transmission of the property at your death, it also puts the property at risk during your lifetime.

With property in joint tenancy, the other joint tenant is an equal owner of the property. This form of ownership might be acceptable with a spouse. But, you’d typically not want your children as equal owners. Further, joint tenancy ownership exposes the property to the creditors of the other joint tenant. For example, let’s say you own your home in joint tenancy with your son, Johnny. Let’s say Johnny is out late partying and is involved in an auto accident while drunk driving. The others involved in the accident, including Johnny’s passenger and the family he hit, all file suit. They get a judgment of $1 million against Johnny. They can collect the judgment against the assets Johnny owns, including your house which he owns in joint tenancy with you. This may be an acceptable risk in some situations, but not in most.

About half the states allow real estate to have a beneficiary designation in the deed. If Johnny were the beneficiary rather than a joint tenant, his creditors could not go after the property during your lifetime. However, Johnny’s creditors still could go after the property after your death when Johnny inherits the property from you.

A better solution in this case is to hold the property in a revocable trust. First, if you become incapacitated during your lifetime, the trustee you designate could step in to manage the assets until you recover. Next, the trust could continue for your beneficiaries after your death. Depending upon the provisions you include in your trust, it could provide asset management, divorce protection, or even creditor protection for your beneficiaries.

Similarly, you could leave assets such as IRAs and retirement plans directly to your beneficiaries at your death. That’s certainly simple. However, those assets would have no creditor protection (at least at the federal level) after your death if you leave them outright to your beneficiaries. You could leave those assets to your beneficiaries in trust. Using the trust “wrapper” you could obtain asset management, divorce protection, and even asset protection, depending upon the terms.

The simplest ways to leave your assets typically are not the best. The simplest of plans typically do a disservice both to you and to your beneficiaries. A more robust plan using a trust could provide for you during your incapacity and would provide the protections you want for your beneficiaries, whether that is asset management, divorce protection, or creditor protection.

While keeping it simple is an understandable goal, the simplest solutions are not often the best. This article shows a couple simple solutions for estate planning and why, in most circumstances, a living trust is at the center of a more robust estate plan and more likely to provide the desired protections. Call (913) 262-2000 for a personal consultation with Chris Gaughan or Casey Connealy.

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Jamie at Gaughan and Connealy

Jamie at Gaughan and Connealy

Jamie at Gaughan and Connealy

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“Chris and his staff were awesome to work with. I felt like I was their only client with the personal attention and time they spent with me setting up a trust. Chris did an excellent job of making sure I understood everything I needed to and things were being set up for our families specific needs and desires. I look forward to having Chris continue to be our estate planning attorney.”
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“Chris and his team led us through what we felt was a complicated process in a very organized manner. Everything was explained to our satisfaction and then our decisions were executed quickly. All we had to do was sign documents. Most important, the after support has been excellent. If we have a question, the answer is always.....let us take care of that for you! Everyone in this firm is unpretentious, helpful and very knowledgeable.”
carla–
“For about 10 years my husband and I kept saying, "we need to prepare a trust or a will. We had already planned and paid for our funerals but trying to figure out the will or trust was overwhelming to us. We received an invitation in the mail to attend a seminar. After meeting with Chris we both agreed that Chris and his firm were whom we wanted to execute our Trust documents.”
kay–
“My wife and I took advantage of the free evening program put on by Gaughan and Connealy back in 2013 and later hired Chris Gaughan to do our estate planning. First thing that sold us was not only Chris's professionalism, but his knowledge and his passion for what he does. The process was very easy and thorough. Chris brought up scenarios/issues that were unforeseen but were important to have in our plans. ”
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