Wills, trusts, probate - clueless and confused

[dvalley]

Off and on I've looked into these things but never really took any steps (or understood clearly) to get my financial affairs in order. Based on my situation today and in the near term what would be a good starting point for me? Here are some specifics:

40yrs old
Home (So. Cal) worth approx $500k (with a mortgage approx $300k).
Investments (taxable and tax-deferred) and cash combined $400k
Term life insurance (I don't know what the term age is but I think I started it when I was 34. I pay $50 per mo for it)
One newer car ($25k)
Have a $1M umbrella
11yr old kid
Divorced
Two younger siblings
Hoping to ER in 10yrs with approx $1M, at least that's the plan.

If I died I'd want (I think), after funeral expenses etc
- 65% to go to my kid (at various stages in life, like $50k when she starts college, $50k when she turns 24 etc)
- 10% to one sibling
- 10% to the other sibling
- 10% to the gf
- 5% to ex-wife

Would starting with a basic Will (nolo.com) be a good immediate next step or not worth it from the probate perspective?

 

[robertf57]

As a divorced parent of a minor, your initial concern should be (IMHO) the support of the child should you pass on. Need to re-assess your life insurance first. You will require a trust, since you wish to control the distribution of your assets to your heir over time and because he is a minor. I am a strong proponent of DIY, but from your post it looks like you will need some help getting a reasonable estate plan in place. Shouldn't cost very much given your assets. Find an attorney

 

[38Chevy454]

Agree, a trust is needed to control the assets and distribute them to your kid per your schedule, Trust would be an [-]irrevocable[/-] edit: Revocable trust, and you need to designate a trustee (and successor trustee). This trustee can be one of your siblings, or can be someone else. Best money you can spend is talk to an estate attorney, in your state, and they can set it up for you and explain the best way to accomplish what you want.

I assume your term life ins has a beneficiary listed; which could be your daughter. If that has your ex listed, you may want to change that Your work 401k/403b accounts need to have a beneficiary listed, same thing can be your kid. The trust includes distribution for other assets and also will have financial and medical power of attorney authorizations.

A trust does not avoid any tax liability, but it avoids probate.

 

[gauss]

You would need a will at a minimum if you want your assets to go to your relatives/friends in any other order than defined by the state (aks Intestate Succession). This would apply to assets that you own solely that do not have beneficiary designations.

If you need to to have something other than distribution of your full assets soon after your death (ie 1 year), then you will need to setup a legal trust, and identify a trustee to manage it.

-gauss

 

[Pilot2013]

Agree, a trust is needed to control the assets and distribute them to your kid per your schedule, Trust would be an irrevocable trust, and you need to designate a trustee (and successor trustee). This trustee can be one of your siblings, or can be someone else. Best money you can spend is talk to an estate attorney, in your state, and they can set it up for you and explain the best way to accomplish what you want.

Do NOT do an irrevocable trust. A Revocable Trust becomes Irrevocable upon your death. My In-Laws (just FIL now as MIL recently passed) created an Irrevocable Trust and regret it immensely. They would like to make adjustments, but once signed (before the ink is dry) you NO LONGER HAVE ANY CONTROL of anything assigned to the trust. In fact, anything inside of an Irrevocable Trust is no longer yours. Their house is in their trust, and they are not allowed to borrow against it, reverse mortgage it, sell it, anything. Basically, all of the beneficiaries of the Trust are the owners of the house, they just occupy it.

 

[MBAustin]

I have to agree with all of those who said "see an attorney". This is not something you want to mess around with. You also need to consider guardianship of your child should that become necessary.

 

[robertf57]

You would need a will at a minimum if you want your assets to go to your relatives/friends in any other order than defined by the state (aks Intestate Succession). This would apply to assets that you own solely that do not have beneficiary designations.

If you need to to have something other than distribution of your full assets soon after your death (ie 1 year), then you will need to setup a legal trust, and identify a trustee to manage it.

-gauss

Will won't do it. Your minor child can not own the assets at your death outright and with a will you would not be distributing it over time. Also, without a trust all these assets remain in the estate and will need to pass through probate. Some states that isn't a problem and in others it is a boondoggle for lawyers and a tax for the beneficiaries

Agree, a trust is needed to control the assets and distribute them to your kid per your schedule, Trust would be an irrevocable trust, and you need to designate a trustee (and successor trustee). This trustee can be one of your siblings, or can be someone else. Best money you can spend is talk to an estate attorney, in your state, and they can set it up for you and explain the best way to accomplish what you want.

I assume your term life ins has a beneficiary listed; which could be your daughter. If that has your ex listed, you may want to change that Your work 401k/403b accounts need to have a beneficiary listed, same thing can be your kid. The trust includes distribution for other assets and also will have financial and medical power of attorney authorizations.

A trust does not avoid any tax liability, but it avoids probate.

I would NOT do an irrevocable trust for these assets. Your would want a living trust.

Best advise: Spend a few dollars and consult a good estate attorney to get this squared away.

 

[38Chevy454]

Do NOT do an irrevocable trust. A Revocable Trust becomes Irrevocable upon your death. My In-Laws (just FIL now as MIL recently passed) created an Irrevocable Trust and regret it immensely. They would like to make adjustments, but once signed (before the ink is dry) you NO LONGER HAVE ANY CONTROL of anything assigned to the trust. In fact, anything inside of an Irrevocable Trust is no longer yours. Their house is in their trust, and they are not allowed to borrow against it, reverse mortgage it, sell it, anything. Basically, all of the beneficiaries of the Trust are the owners of the house, they just occupy it.

I messed up typing, I meant REVOCABLE, good catch. I knew what i was thinking, but typed it wrong. edited my original post too so no confusion

 

[ERD50]

I have to agree with all of those who said "see an attorney". This is not something you want to mess around with. ...

I'm not so sure I agree.

I've been helping getting things settled after my FIL passed away. AFAIC, the estate lawyers did an awful job. The in-law's situation was very simple, business already sold off, no difficult children or extended family or Estate Tax concerns. But the trusts just seemed to be mostly filled with busy-work for the lawyers to make things sound impressive so they can charge a lot. Bottom line, strip away all the fluff, and the trust is a pretty simple document. Title your assets under the (revocable) trust name, name the heirs same as you would in a will, your will just says 'see the trust'. There really isn't much to it. Nolo has a book for that.

Separate from that, you need a living will and POA and it looks like some other trust for the minor child, so a bit more complex.

I also had trusts done by lawyers years ago - my plan, after seeing what a mess the lawyers made of things, is to rewrite them myself. If I write them, then I understand them, and can explain them to my grown children. My in-laws had to go back to the lawyers to understand what to do with the trust when FIL passed, and that ran into to several more $x,xxx. Really for nothing once you realize what is needed.

So along these lines, we routinely review people's financial plans, I bet an open review of people's trust documents would really shine a light on how simple these really can be - a 'coffee-house / couch-potato' equivalent for trusts.

-ERD50

 

[MichaelB]

I'm not so sure I agree.
./.
So along these lines, we routinely review people's financial plans, I bet an open review of people's trust documents would really shine a light on how simple these really can be - a 'coffee-house / couch-potato' equivalent for trusts.

-ERD50

As soon as I saw the beneficiary distribution, my first thought was "attorney". Off the shelf SW does not deal well with complex situations, and this is complex. I also have dealt with experienced trust attorneys and feel they are worth the price.

If I died I'd want (I think), after funeral expenses etc
- 65% to go to my kid (at various stages in life, like $50k when she starts college, $50k when she turns 24 etc)
- 10% to one sibling
- 10% to the other sibling
- 10% to the gf
- 5% to ex-wife

 

[mathjak107]

if you think good estate attorneys cost alot you should see what it costs when something is not 100%. i know first hand.

 

[H2ODude]

Yes, attorneys are quite capable of fowling things up, as any of us are. However, most of this stuff is state specific, and when you have anything that opens up things to contest (as in giving $ to ex-wives, unequal distribution to children, etc) it seems paramount that a qualified attorney should be consulted to make it bulletproof. I'd ask knowledgeable folks about what attorney is highly competent for your purposes. FWIW while we have considerable assets, our distribution is very simple; 50/50 to kids, with all the pass throughs to grandchildren if they not be there. Right now almost everything we have is titled in both our names, so it would only likely come into play if we both got offed simultaneously. So even though I toyed with idea of doing it ourselves, I found a competent attorney to do the wills, POA, HCPOA, for us and it cost $900. I'm sure he made money, but I have no doubt it is quality. Having the witnesses all come in and do the attesting and signing just made it seem .... as it should be. Could I have done it ourselves? Probably. Would I have a niggling little doubt it might not hold up? Yeah, so for $900 there's no worries. As written it should last us our lives. I suppose if we change states I'd want a review.

 

[ERD50]

As soon as I saw the beneficiary distribution, my first thought was "attorney". Off the shelf SW does not deal well with complex situations, and this is complex. I also have dealt with experienced trust attorneys and feel they are worth the price.

Well, the delayed payments to the child would (I think) require a separate trust, but it's not that complex - it's just as you wrote it.

So IME, finding good trust attorneys is like finding a good FA if you don't know about finances. The firm my in-laws have is in a high-worth area, they specialize in estate planning, fancy web site with all the buzz words. But the were awful/lazy.

A couple examples - MIL had mentioned over the years that it is spelled out for equal shares to be split to each child and an equal share split across all the grandchildren. Pretty basic.

When I reviewed the documents, it pointed out that it was 10% to the grandchildren share (not the 25% it should have been for their 3 children). Now, my MIL is not a flake, if she thought it was an even split, it should have been, or the firm should have explained it so they knew it was 30/30/30/10%. They signed stuff they didn't understand then, and I think it is the lawyer's responsibility to be sure the client is understanding what they sign.

So they updated her trust to sum the two and divide hers so that it goes back to equal splits overall (which may not be mathematically possible if her accounts drop too low).

Second, I reviewed her new trust, and the key element of a trust is how the pot is split. Yet, when I read that section aloud to the family, we all agreed it didn't make sense, there were redundancies. Or maybe what we thought was a redundancy was some complicated, convoluted distinction that we did not understand (remember, this is a simple split). I ask the lawyers, one writes back insisting there is no redundancy. When we go with MIL to sign, I ask the other lawyer and point it out - he agrees it is redundant, and re-writes it on the spot! Wow, I'm supposed to have confidence in this team? They can't agree, I'm an amateur and I point out mistakes in the very heart of the document? The rest of the document is filled with fancy filler with options that this family would never pursue (allows successor trustees to form some sort of 'conservation area', under some archaic tax laws?).

When I asked why these were included, when the family made no request for such options, we were just brushed off with "it is standard language". Basically, they run a software package that spits out all this stuff, and they don't even understand it.

Earlier, another family member asked about a section of the original trusts (from mid 1990's). Now, this same attorney produced those trusts, yet he could not explain what that section was for or meant - he just said 'Oh, we put that in all the trusts back then'. Now, a legal document like a trust could have stood for far longer than the 20 years since this was written, and anyone with basic legal knowledge should be able to interpret it (after all, the executors/successor-trustees are not lawyers) - yet, even the lawyer that produced it could not explain it!

There were many instances of this.

See why I want to take a DIY approach (with NOLO guidance)?

-ERD50

 

[ERD50]

...Could I have done it ourselves? Probably. Would I have a niggling little doubt it might not hold up? Yeah, so for $900 there's no worries. As written it should last us our lives. I suppose if we change states I'd want a review.

If you got it done for $900, and the attorneys explained every word of the document to you, and made sure you understood every word, and agreed with everything, and explained what to do when one of the trustees passes, so you don't have to go back for more billable hours, then I think you are in great shape.

If I could count on getting that service for that amount of money, I wouldn't have any issues. In-laws were charged many multiples of that for shoddy work that was wrong in many ways.

-ERD50

 

[MichaelB]

Well, the delayed payments to the child would (I think) require a separate trust, but it's not that complex - it's just as you wrote it.

So IME, finding good trust attorneys is like finding a good FA if you don't know about finances. The firm my in-laws have is in a high-worth area, they specialize in estate planning, fancy web site with all the buzz words. But the were awful/lazy.
./.
See why I want to take a DIY approach (with NOLO guidance)?

-ERD50

Yes, I see your point - but you are unique - more adventurous and trusting than I am when it comes to other people and postmortem assets. .

We must have different experiences with trusts and beneficiaries. In my experience a problematic beneficiary or trustee can cause lots of trouble, much if it irreparable, while an experienced trust attorney can be very helpful, at the cost of adding lots of boilerplate. Their value is most evidenced by the absence of real problems.

Of course, I am thinking specifically about an experienced trust attorney who, unlike a good FA, is credentialed and licensed. Don’t want to hijack the thread, so we can agree to disagree.

 

[zinger1457]

My mother had a will drawn up from a lawyer and it was just a very basic 2 page document, listing the executor and stating that the estate would be spit equally among the children. The issue we as children had was that we knew almost nothing about our parents financial/investment/savings accounts and nothing was documented with the will. We had to dig through all of their financial documents to see what was out there and can only hope we found it all.

I used WillMaker to create my own will and one of the features I like is that it has sections to document all of your financial account details, list where all your important papers are kept, home safe combination codes, create a living will, etc. I didn't have a need to create a trusts so can't speak to that but it did seem to be very thorough in the sections I used.

 

[Independent]

My Mom's will described a trust (a "testamentary trust") that didn't exist until after she died. I was the trustee, one of my under-age-25 kids was the beneficiary.
I'm sure the language in the will was boilerplate.

It worked fine when she died. No need for any pre-arranged anything (other than asking me to be the trustee).

In my state, the will had to go through probate and we had to hire an attorney for that. None of the heirs had any immediate need for an inheritance after she died, and we didn't miss any "avoid probate" strategies.

 

[Katiek]

I'd also recommend a lawyer if you want to set up a trust. In addition, look at any beneficiaries that you named on your investment accounts. Consider how those amounts will be paid when you figure out what to do with the rest of your assets.

 

[Rick_Head]

I have to agree with all of those who said "see an attorney". This is not something you want to mess around with. You also need to consider guardianship of your child should that become necessary.

Here in the frozen north, I'd say see a lawyer. In the USA, maybe an attorney might be ok. (OK, you Merkins, I know they are the same.) Some things just aren't good DIY. Especially those where you ain't there to Do It.

 

[pb4uski]

.....If I died I'd want (I think), after funeral expenses etc
- 65% to go to my kid (at various stages in life, like $50k when she starts college, $50k when she turns 24 etc)
- 10% to one sibling
- 10% to the other sibling
- 10% to the gf
- 5% to ex-wife

Would starting with a basic Will (nolo.com) be a good immediate next step or not worth it from the probate perspective?

What I think you need is a will that 1) establishes a trust upon your death for the 65% for your daughter and the terms of the trust distribute money to her in accordance with your wishes and 2) distributes the remaining 35% of your estate to the adults as you have specified. Given the trust, I would suggest that you consult a lawyer rather than DIY. YMMV and I am not a lawyer.

and +1 that you need to coordinate your beneficiary designations with your wishes as beneficiary designations trump the will.

 

[nwsteve]

Well, the delayed payments to the child would (I think) require a separate trust, but it's not that complex - it's just as you wrote it.

So IME, finding good trust attorneys is like finding a good FA if you don't know about finances. The firm my in-laws have is in a high-worth area, they specialize in estate planning, fancy web site with all the buzz words. But the were awful/lazy.
................

They signed stuff they didn't understand then, and I think it is the lawyer's responsibility to be sure the client is understanding what they sign.


When I asked why these were included, when the family made no request for such options, we were just brushed off with "it is standard language". Basically, they run a software package that spits out all this stuff, and they don't even understand it.

There were many instances of this.

See why I want to take a DIY approach (with NOLO guidance)?

-ERD50

We are in the midst of finalizing new estate documents for DW and self. We are using an elder care attorney who gets quite good reviews on several sites for her estate work. Our docs include a Revocable Living Trust as well as the usual POA and healthcare docs.
Even though I hate to do it, I have forced myself to read all the docs and have found a number of issues that had to be corrected. I am not an attorney but have spend enough time reading legal docs to know to expect errors and omissions.
For example, the legal descriptions for real estate did not match the ones we get from the county, clauses we inserted got dropped between revisions, instructions for revisions where "forgotten" until pointed out, etc.

I am in the camp that for an estate with any complexity, you want an in- state attorney handprints all over your estate docs. The financial community as well as healthcare administrators will look for any reason to tell your administrators that your docs are not sufficient.

Lessons from our experience so far include insisting your attorney walk you through EVERY section and tell you the purpose of the section and what will happen by having it. You may be surprised what the legal words mean. I agree with ERD50, the docs are heavy to a lot of lawyer gobbly gook. Unfortunately, a lot of the terminology can have lasting legal implications. Are the implications consistent with your wishes? You got to ask!!
You are paying the attorney to get what you want so insist the docs do it in the way you want in a way you understand. If the attorney declares there are "lots of implications", have them explicitly describe the ones relevant to you. Unfortunately, like ERD50 experienced, some attorneys are lazy, use boilerplate they have never read and depend on their paralegals for all the drafting.

Other "ah ahs" include making sure your RLT provisions make sense with similar provisos in your other docs. For example, does the incapacity clause in your POA work the same as in the RLT?

It can be a bit of a slough but our experience is you have to take the time or face the reality, what you thought would happen if you die or become incapacitated, may not be the case.
Nwsteve

 

[dvalley]

Great thoughts and suggestions, thanks everyone. It sounds like the first thing I should do is review the designated beneficiaries and percentages on my various accounts because even in the absence of a will/trust those will still apply.

A few more questions came to me as I was reading the responses:

1. If the child is a minor when are the funds distributed, say from my 401k, IRA etc?
2. Is there a form where I can designate the beneficiaries for checking, savings and even the mortgage accounts?
3. Soon after marriage we did a power of attorney but I can't locate the paperwork or lawyer contact, how would I go about tracking it down and canceling it?

 

[nwsteve]

Great thoughts and suggestions, thanks everyone. It sounds like the first thing I should do is review the designated beneficiaries and percentages on my various accounts because even in the absence of a will/trust those will still apply.

A few more questions came to me as I was reading the responses:


3. Soon after marriage we did a power of attorney but I can't locate the paperwork or lawyer contact, how would I go about tracking it down and canceling it?

I can help with number 3--When you do a new POA, it includes language that specifically cancels all pre-existing POA's and any authorizations or powers it granted.
Nwsteve

 

[dvalley]

Thanks Steve, that makes sense.

 

[meierlde]

Great thoughts and suggestions, thanks everyone. It sounds like the first thing I should do is review the designated beneficiaries and percentages on my various accounts because even in the absence of a will/trust those will still apply.

A few more questions came to me as I was reading the responses:

1. If the child is a minor when are the funds distributed, say from my 401k, IRA etc?
2. Is there a form where I can designate the beneficiaries for checking, savings and even the mortgage accounts?
3. Soon after marriage we did a power of attorney but I can't locate the paperwork or lawyer contact, how would I go about tracking it down and canceling it?

For checking saving etc go to the bank and they will have the forms. Note that by adding a payable on death clause to an account, you also get an addition amount of FDIC insurance for that account.