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  • Writer's pictureJenny Rozelle, Host of Legal Tea

Cautionary Tales - Estate Planning Misconceptions - Episode 99


Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is a cautionary tale, where we talk about real-life cases with real-life clients with real facts – they’re things me or my office have worked on. For today’s 99th(!!) episode, we’re going to be talking about a few different stories, dare I say cautionary tales, that really exemplify some common estate planning misconceptions that I see and hear all too often. And to clarify, they’re called misconceptions because they are things people believe … that are not accurate, or at least not fully accurate. So, for today’s mini-stories/mini cautionary tales, we’re going to go into several misconceptions and I’m going to try to keep them relatively brief, so you can 1) hear the story and 2) hear the misconception – and we’ll dive into WHAT is inaccurate about the misconception. Alrighty, let’s get into it..

#1 Misconception: “Everything will go to my spouse.”

That’s not necessarily true. It depends on how you own assets and/or the type of estate plan you have, if any, and what it says. The only way to make sure that definitely happens is to ensure your assets and estate plan are setup in the appropriate manner/way. So, here’s a quick story to share what I mean:

Let’s call the clients, John and Nicole. They were very-recently married, in their late 30s and tragically, John got a terminal cancer diagnosis. Of course, both thought they had long lives ahead of them. When the diagnosis came down, there was SO MUCH happening – so many doctor’s appointments, procedures, etc. etc. That they failed to stop and think about estate planning. They assumed it’d all go to Nicole. Wrong. I’ll never forget sitting in the conference room … meeting with Nicole … and her sharing this story with me. It was after John passed away. After inquiring whether John had a Will or any estate plan, she said, “No.” I asked, “Do you and John have children?” She answered, “No.” I then asked, “What about John’s parents? Are they living?” She answered, “Yes, they are.” She looked at me puzzled like, “Why are you asking these questions?”

Indiana states that if someone dies without a Will AND their spouse AND parents are living, a portion goes to the spouse and a portion goes to the parents. Weird, right? So, I gently explained these laws (which are called intestacy laws) to Nicole – and shared that his parents are entitled, under the law, to a portion of John’s Estate. She immediately shared how “awkward” that would be to bring up to John’s parents. Keep in mind – these weird money conversations are having to happen WHILE Nicole is grieving the loss of her husband and John’s parents are grieving the loss of their son. NOT ideal. Thankfully, this story ends on a happy note – Nicole worked up the courage to talk to John’s parents … and John’s parents agreed to waive their interest in the Estate and let everything flow to Nicole. Remember - They did NOT have to do that – I’m sure we all can think of people where the in-laws would NOT have waived their interest.

Alrighty, let’s go to #2 Misconception: “My spouse won’t change the Will after I pass away!”

Gasp! That’s a misconception, Jenny? It sure is, my friends. It sure is. The only sure-fire way to ensure assets are not changed is through a Trust and to place restrictions on each other, as spouses, on what happens after one passes away. But, in this next cautionary tale story, the couple only did a Last Will and Testament… Let’s name them … Ralph and Sarah. Ralph had no children, but had a dear, dear niece. Sarah had a child. We get to chatting about “who” is going “where” like beneficiary-wise –The conversation got a little heated – Ralph wanted his niece and Sarah’s son as equal beneficiaries, and Sarah did not want Ralph’s niece listed as a Beneficiary at all. Ultimately, Sarah, sort of, gave up and said, “Heck with it.” So, Ralph and Sarah do their Wills and Ralph’s niece and Sarah’s son get placed as the Beneficiary (after Ralph and Sarah both pass away, of course).

Fast forward some time, not long actually at all – maybe 6 months or so – and my office gets a call from Sarah. Totally frantic. Ralph unexpectedly passed away. Completely unexpectedly. It was 2 days after Ralph had passed away – I think it was on a Saturday that it happened, and she called on Monday. We got a phone call scheduled for the following day, Tuesday. (If you’re keeping track, a mere 3 days after Ralph passed.) On the phone call, Sarah kicks things off by talking about what changes she wants to make to HER Will. Aka, she wants to cut out Ralph’s niece. And that is exactly what ended up happening. You see, everything asset-wise fell from Ralph to Sarah, so at this point, it’s going to be her Will that governs. Honestly, too, Sarah is still our client – so if she wants to make the change to the Will, then just because we may not agree with it, doesn’t mean anything. It’s her Will; she can do whatever she wants with assets at her passing.

So, when it’s time to do your own planning, remember Ralph and Sarah here! Like I said a minute or two ago, let me be loud and clear for you all – there are estate planning options that would have definitely prevented this. So yes, you can create an estate plan to prevent this very thing from happening; unfortunately, it just requires more planning than maybe you want to do. It definitely requires more than “just” a Last Will and Testament. So yes, Ralph and Sarah could have done MORE planning (i.e. like through a Trust) – but more planning comes with a touch more expense (like legal fee-wise), and they didn’t want to spend the money. Well, the result of that decision is that Ralph’s niece is not going to get anything.

Okay, are we ready for a third story - let’s go to #3 Misconception: “My Will will take care of everything, all my assets, when I pass away!”

You know, there’s one thing I’ve realized in my little lawyer world – that, if it sounds too good to be trust, there’s probably some catch you’re missing. If it sounds too easy, then you’re probably missing something. That’s the case here. A Will very well may NOT take care of everything – like beneficiary designations. So, let’s dive in…let’s name her Sherry.

A couple years back, I tragically worked on a case that involved someone that passed away that was YOUNG – Sherry was in her early 40s and a single Mom to 2 awesome kiddos. She (good, girl!) had done a Will in case something were to happen to her. Her biggest asset was a life insurance policy. She rented (so she didn’t own a house), she had a small bank account, and so her total estate value didn’t rise to the level of needing probate. I was meeting with Sherry’s Mom about “what to do” following her daughter’s passing. It was heart-breaking, to say the least, and by the end of the meeting, somehow it got even worse.

I was talking to Sherry’s Mom about each asset one-by-one when we got to the life insurance policy. She shared it was a term life policy and the death benefit was $1M. So, of course, I inquired about its beneficiary designation. She said, “For some reason, she has me and her Dad on there as 50/50 beneficiaries, and not the kids on there.” Her Will, of course, left everything to her children. So often, unfortunately, I get the be the bearer of bad news … so, I share that the life insurance policy is going to her (Sherry’s Mom) and Sherry’s Dad – and not through the Will (which would go to the kids). That’s when she laid it on me, “Oh my gosh, Jenny – Her Dad is estranged and they have not talked for 10+ years.” Guess what happened? Sherry’s Mom got 50% and handed it over to the girl’s kids. The Dad? He claimed his 50% and after multiple attempts to contact him, he never replied and got to pocket his 50% (um …. $500,000) … meaning he didn’t share it with the kids, which were his grandchildren technically-speaking (but again, there was no relationship there).

So, please, please, please know and remember that if there’s a conflict between a beneficiary designation and the estate plan document, the beneficiary designation wins. Isn’t that crazy? I’ve seen assets go to ex-spouses even because the person that passed away failed to update their beneficiary designation!

Let’s do a final and quick 4th misconception – “I have to wait [fill in the blank] years before Medicaid will help pay the nursing home!” Guess what? That’s not always the case! Let’s talk about it…

Oh, the infamous Medicaid lookback! Well, first, I hear people say that the lookback period is 3 years. I’ve been doing this for about 12 years now and it’s never been 3 years in Indiana during my time. Now, since I have Legal Tea Listeners in several states, SOME states still have 3 years – some states even are at 7! So, I only mention Indiana because I’m an attorney in Indiana, so when I have a chance to drop an Indiana tidbit, I do. So yes, Indiana is 5 – but, for purposes of making it general, just use any number really … as part of a Medicaid application, Medicaid can look back whatever-your-state’s-number of years for any gifts and transfers made by the Medicaid applicant. Now, I belong to an awesome national organization that support estate and elder law attorneys like me, and nation-wide we use similar strategies.

There are two ways to deal with this – first, from a pre-planning standpoint and second, from a crisis planning standpoint. To be BEST prepared, there are ways to do an estate plan years before any sort of need for long-term care. That is best case scenario because we’ve structured assets beautifully to get ready for any future long-term care. Unfortunately, a lot of people do NOT pre-plan. They wait until the 11th hour. In those situations, there are ways to maneuver assets to NOT have to wait the ## of years your state’s lookback period is. It’s very, very fact-specific, family-specific, etc. so if you have a loved one possibly looking at some need for long-term care, do NOT rule out Medicaid helping foot the bill just because your loved on didn’t plan. There may still be a way to protect assets and qualify for Medicaid. We do that all the time – all the darn time!

Alrighty … let’s wrap this episode up because I’m running out of time, my friends, and shift to a sneak peak of next week. Next week is going to be NOT a little, but A LOT different because next week is our 100th episode! I can’t believe I’ve been puttin’ the blood, sweat, and tears into this for 100 episodes. As it may be obvious, I don’t bring guests on the podcast where I’m just interviewing people – conversely, my episodes require a lot of time to research and write out the episodes – it’s basically a small paper I’m writing each week for you guys, so NEXT WEEK is going to be no substantive information; instead I’m going to give a few announcements about what’s to come with the podcast; maybe I’ll do a giveaway or something for the 100th episode; nonetheless, stay tuned my friends, there are exciting times ahead! Thanks for hanging out with me for nearly 100 episodes, Legal Tea Listeners, … to 100 more!


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