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  • Jenny Rozelle, Host of Legal Tea

Cautionary Tales - "Simple" Last Will and Testament - Episode 60


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 episode, we’re going to be talking about something I hear people say to me, to my office, and to others in my industry all the time – it’s “I just need a really simple Will.” I get it, I promise you I do, that we don’t have to overcomplicate something that can be and should be … quite simple. I’m a fan of that. Though, asking me to draft a “really simple Will” is like telling the person at Lowes mixing paint that you “just want blue paint.” Like … what shade of blue? Turquoise? Midnight blue? Royal blue? If someone said, “Jenny, I’d like you to prepare me a simple Will.” I’d probably freeze for a second and say, “Wellllll … I don’t think that really exists.” Today’s episode is going to be about WHY I think/say that, and provide some examples on why I think/say that too.


You know, I think a lot of people say that sentence (I need a simple Will) because they think there’s nothing going on with them, their people (like children, beneficiaries, etc.) or their assets that require anything “unique” or “fancy.” I think a lot of people also say this because of my profession, too, that they think that “the lawyer is going to talk above my head, make things way over-complicated, and want to bill me to death” so they feel like they should vocalize exactly what they think they need. Interestingly enough, MOST people in front of me have issues or goals that honestly do necessitate further planning beyond a Will (think like a kiddo that is terrible with money; or a beneficiary that has a spouse that you’re massively concerned about; or a kid that is into drugs, alcohol, or gambling; or a beneficiary that you want to cut out … or whatever), BUT for the sake of this topic and episode, let’s pretend that things really … are that simple. There’s you … there’s you kiddos or beneficiaries … and everyone is groovy … and assets are super straight-forward.


Even though nothing is jumping off the page, there are STILL things that even a, I’m going to unfortunately say it, really simple Will should maybe have depending on your beneficiaries. These things are called “testamentary trusts” and now, don’t get lost in the legalese – basically a testamentary trust is a thing that creates through a Last Will and Testament (which a Will doesn’t kick in until after we pass away) and most of the time, we’re having to go through probate to kick it into action. As we have discussed on many episodes, Wills go through probate – depending on the asset threshold and how assets are owned/titled. Oftentimes, these testamentary trusts are created in two general scenarios: for individuals that are minors and for individuals that are receiving governmental benefits like Medicaid or SSI. While they’re created for two very different purposes, they have one similarity – that is, to protect the beneficiaries in your Will.


So, let’s talk about both – and why maybe you should consider having these, even in your simple Will. Let’s kick things off with ….


Minors – Someone under the age of 18

To really introduce this topic, I think I’ll start with a question – what would you have done with an inheritance at 18 years old? Or, even if you would have been wise with it, do you think MOST 18 year old kiddos would have? Probably not, right? That’s what this first topic is – protecting kids from themselves.


So, oftentimes, in someone’s Will, a client will have me say – “Okay, in equal shares to my children.” Immediately, I always say, “What happens to a child’s share if they pass away before you?” (It’s good to do this proactively so you don’t have to update your Will if something tragic like that happens.) Most of the time, clients say, “Well to their children.” That could be when we start dealing with minor kiddos –that level. That’s your grandchildren, right? So, it’s quite easy to do in a Will, but what can happen is to have your attorney build a testamentary trust, that is on standby (like, if we don’t use it, that’s fine – but it’s there if we need it!), to house an inheritance for anyone under the age of “x” – and you pick what “x’ is. Is it 21? Is it 25? Is it 35? (That may see too old, but I just had someone yesterday pick 35. Ha!)


What ends up happening is that the child’s inheritance drops into an account, which yes can be invested, that happens to be in the name of a Trust, a testamentary trust. Then, you put someone else in charge of it, say the child’s surviving parent or maybe you don’t like the surviving parent (your in-law) so you put someone else, but nonetheless, that person is the child’s moral compass. If the child comes to that person and says, “Hey, I want money out of my account for a deposit on a Lamborghini” ideally, that person is like, “Uh – no, kid!” But say the kid comes to the person and says, “Hey I need some money out of my account for textbooks” then the person in charge can access the account (NOT the kid access the account) and pull funds out for the textbooks. Insider secret: I tell that person to make the funds payable directly to the textbook store … so the kid doesn’t sayyyy they need textbooks, but really just want money to buy something silly.


So, the next thing on “things you should consider even in a simple Will” is…


Individuals on Governmental Benefits (i.e. Medicaid, SSI, etc.)

The thing about this topic you have to know/remember is that oftentimes, governmental benefits have asset limitations – so, if someone walks into an inheritance and is on an asset-based benefit, they could get kicked off the benefit by receiving an inheritance. So, instead of the inheritance going to the individual and supporting them, their benefits get terminated, they have to spend the money on, usually, health services, and then when they get through the money, they have to reapply for the benefit and hope they can get back on.


The kicker, too, with this topic is so often, people think, “Oh, none of my beneficiaries are receiving any governmental benefits…” But my question for you – WHAT IF they start after you do your Will? The example I often give to clients is, “So, when I pull out of the office in the evenings, it’s in the middle of rush hour and I have to play frogger to get out of this parking lot. What if I started pulling out, got hit, survived, but can no longer work anymore due to my injuries? And I start receiving asset-based benefits…” There, NOW I’m THAT person I was just talking about – things change so fast. Then, say my parents pass and I’m set to inherit, their assets would fall to me and I’d probably lose any benefits I’m on. Yikes! Not exactly the intention of my parents – to put me in a bad position!


Again, like the last testamentary trust we described, there could be a standby testamentary trust for these situations too – called a supplemental needs trust or special needs trust. It could be inside your Will and if it’s never needed, no biggie. But what if it IS needed, we sure are thankful it’s in there to not have a negative impact on any beneficiaries!

It works very similarly to the testamentary trust for young kiddos – that, the inheritance would drop into an account, which yes can be invested again (it can even hold property -i.e. like a house!), someone else is in charge, and it’s in compliance with federal laws to meet the necessary standards to allow the trust beneficiary (the individual receiving the inheritance) to receiving an inheritance AND not get kicked off any benefits that they’re entitled to. Win, win!


So, one last topic to talk about on the “simple Will” topic, which is…


Probate Avoidance

I had a financial advisor ask me somewhat recently to explain testamentary trusts. I think a lot of financial professionals have heard of these creatures – but miss the piece that they are called testamentary trusts for a reason. It’s because they’re created in a Last Will and Testament. And if a Will is controlling an asset, that means we’re likely going through probate. So, this piece of the conversation is especially important if you have concerns about minors inheriting and/or individuals on governmental benefits that are more likely to inherit based on a “normal sequence of events” – like, I brought this up earlier as in, “What if your grandkids inherit because your child predeceased you?” But what I mean by that last sentence is – what if you have concerns about how YOUR young kiddos inherit or maybe you have beneficiaries that are already on governmental benefits.


Well, if you rely on testamentary trusts to accomplish those wishes, that means 1) you need to structure your assets in a way that will actually have the assets flow through the Will and 2) the Will will have to get probated to get the testamentary trust created. Probate can be a costly, lengthy, and not-very-private process – so if you want to provide protection for kiddos/beneficiaries AND avoid probate, a super simple LIVING Trust (i.e. Revocable Living Trust) may be more beneficial. I always explain it as a teeter-totter or a see-saw – a Will is cheaper than a Trust, so it’s cheaper now, but to probate the Will later, it’s $1000s. While the Trust is more expensive than a Will, but it doesn’t require probate (and not paying the $1000s). So, your Estate actually comes out ahead (most of the time) in these situations by doing a Trust.


As we start to wrap this episode up, I think the big thing to know and understand …. is THIS is why there are estate planning attorneys. I know people roll their eyes at me when I say there’s really not a simple Will. I just truly think there’s more than slapping names down and moving on – but maybe it’s because I’ve seen SO many things go bad, go wrong. So those experiences mold me to how I practice and recommend things to clients – I truly don’t mean to overcomplicate things; instead, it comes from a place of protecting you … and your wishes.


Alrighty … let’s wrap up this episode. Next week, we are back to the current events/current trends topic – where we talk about something I’ve seen or run across, maybe on the news or social media, that I think would be interesting on here. During next week’s episode, we are going to be talking about an article I stumbled upon about things you can do to your house (or look for in a house if you’re buying) that will support a desire to “age in place.” Anyway, yeah, tune in for that next Tuesday, Legal Tea Listeners! Until then, be well and talk soon!


Sources:

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