This week on The Pete the Planner Show on 93 WIBC I spoke to our show attorney, Jim Reed of Bingham, Greenebaum, Doll, about asset protection and estate planning. These are tricky subject with lots of legal ins and outs but thankfully Jim Reed was there to walk me through it. Listen to the segments below courtesy of 93 WIBC for insight into these confusing, yet extremely important issues.
Estate planning is what you do now in order to protect your assets after you pass away. Here is what happens when you have a will and plan for your estate, your assets go where you want them to go. It’s as simple as that. Whether you decide to give your assets to a person or institution, your assets will be appropriated as you planned. But what happens if you don’t have a will, or your assets aren’t properly titled? That’s when things get messy. Basically your assets will be distributed according to the law. And as Jim Reed clarified for me on the show, the law changes all the time. Mostly likely scenario involves your assets going to probate estate. In probate estate, the law decides where your assets go. Most likely the assets will go to your spouse, children, or some other relative, but there’s a problem with this scenario. In probate estate, all fees come out of the estate. So if you have a $100,000 brokerage account that isn’t listed in a will and is only titled in your name with no listed beneficiaries, it will go into probate estate. From there the law will decide who gets what from this account and then pass it on to them, but by then it will be less whatever fees were necessary to get it to the right person. Something similar could happen to your home. If you’re married your home should be titled ‘tenants by entirety’ in order to ensure the home will remain with the living spouse. Titling is very, very important in asset planning.
Let’s jump to another hot topic in asset planning, children as beneficiaries. We’ll use an example of two 30 year old parents with two young children. The parents die at the same time and since they named each other as beneficiaries, the assets move on to the contingent beneficiaries which in this case is their children. Apparently, children can’t own property. Or even open a bank account on their own. So in this case a guardianship would be set up, and a court appointed guardian would be chosen. The court will choose a ‘natural parent’, someone whom the kids know and trust, and the funds will be in their care until the children are of age. The reality is the guardian has access to the money and even though major transactions must be approved by the court, ulterior motives can come into play. All this can be avoided by setting up a trust, which ensures your children will be cared for by the person of your choice and your assets will be protected until they are of age.
Bottom line: Have a will, title your assets appropriately, and set up a trust. Oh, and hire a professional because this stuff’s confusing.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.