There are two questions we often hear from people considering whether to make a living trust estate plan or just a simple will. “Why do I need a trust instead of a will if I can set up my accounts to pay to my heirs when I die? Or, “I do not have any special circumstances in my family, so why do I need a trust instead of a will?”
These are good questions. While every case is different, there are some concerns that apply to everyone.
If life happens as we expect, then pay-on-death and transfer-on-death plans backed up by a simple will may work just fine. But – and here’s the rub – life does not always work the way we want it to. Loved ones can die unexpectedly young, causing your assets to pass to minor grandchildren. Family can become injured or ill and unable to take care of their affairs. Children or grandchildren can be born with special needs. Family members can get sued or divorced, go bankrupt, or just use plain bad judgment. Taxes consume wealth. And so on.
These factors are such that you may never see them coming! No one is immune.
Relying on simple wills and POD / TOD planning cannot accommodate everything life throws at you. Special circumstances are ignored. Unintended bad and costly results can happen.
No special circumstances existing now? That simplifies your planning a bit but not much. There are 6 basic reasons why people plan. (1) To make sure the right people inherit, no matter what; (2) prevent family feuds; (3) control who is in charge of your affairs; (4) set the timing for an inheritance to be released; (5) protect the estate by avoiding the costs of probate and taxes; and (6) planning for incapacitation. Differences from person to person are a matter of detail. The last point is a biggie because it’s easy to see how families can go broke from nursing care costs of $85,000 to $110,000 a year or more in Ohio.
A living trust plan with Medicaid Triggers plants the seeds now to protect assets later so that you can become eligible for Medicaid or VA benefits without going broke first. It also accomplishes all the above goals, without any limitations or effect on your life now. As for special circumstances, the unpredictability of life makes a living trust a great tool because it is so flexible and accommodating to future developments. Simple wills and TOD/POD do one thing and one thing only – divide and dump, whether that’s a good idea or not.
Even if you think you’ll react to special circumstances if and when they occur, ask yourself if it’s realistic to believe that you’ll recognize what life events affect your estate planning and what you should do about it. When bad things happen, changing account titles and beneficiary designations are not top of mind actions. They are often filed away in the “I’ll get around to it later” category, and never get taken care of.
On the other hand, a well-crafted revocable living trust plan can accommodate the unexpected twists and turns of life and protect your family – no matter what.
Bottom line? It’s really about protecting your loved ones and wealth, and what will make you sleep better at night. A comprehensive estate plan built on a living trust that addresses your current situation and what the future may bring, is a great tool to plan for what you know, and for what you do not know the future may bring. The simpler approach of wills/TOD/POD might work or it might not work. Is it worth the risk?
Barry H. Zimmer is the founder of the Zimmer Law Firm. He has helped more than 3000 Cincinnati area residents set up estate plans since 1993. The Firm focuses on estate planning, estate settlement, and nursing care asset protection planning. Contact the Firm at 513.721.1513 or at www.zimmerlawfirm.com for more information or to see how to get a free estate planning consultation.
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