Overall, estate planning generally serves two major functions. First is the function that most people think about: "Who gets my stuff after I die?" However, there is a more important reason to engage in estate planning. That is the second question which is: "Who has the legal authority to act on my behalf?" Most people don't think about this second function, but it is perhaps even more important than the first. It is certainly equally as important.
Most of the time, people just don't die instantaneously. Sometimes there are one or more periods of disability or incapacity where the individual cannot act on their own behalf. It could be a prolonged sickness or otherwise. Having the legal documents prepared in advance allowing those you've chosen to act on your behalf can be extremely beneficial to you and your family.
Most people don't think they will ever become disabled or incapacitated. However, you never know when something might happen. Do you have the proper paperwork in place? Do you have the proper authorizations allowing access to private medical and financial information? Do you have the latest health care documents? How recent are your documents? If your documents are more than 10 years old, your family may find resistance from certain entities that may not be eager to honor a document that is over 10 years old. In many cases, there is nothing legally insufficient about your documents. However, that being said, some institutions and facilities are reluctant to accept documents that are more than 10 years old. Many places are concerned about fraud and honoring older documents makes their legal departments very nervous. Generally, the more recent your documents (especially health care documents and powers of attorney), the more likely they will be honored when the time comes. I tell clients to refresh their documents every 7 years or so (or if there is a major life change).
Also, you want to think about long-term care options. If you need long-term care, your family might need to help you qualify for certain government benefits. If you don't have long-term care insurance or don't otherwise have the funds to pay for long-term care, you may need governmental assistance. For that to occur, your documents need to have the requisite language for those acting on your behalf to comply with all the rules surrounding said benefits. You need to make sure your living trust and durable power of attorney allow you to obtain medical or other government benefits.
Therefore, It's not just about who gets your stuff after you pass away. That's what most people think is estate planning is all about. However, you need to make sure people have the legal authority to act on your behalf when it comes to financial and health care matters.
After signing your living trust, you must take some time to know exactly how to use this legal tool. It's like buying a car - you want to make sure you actually know how to DRIVE the car! Having a car is great - knowing how to drive it is better!
First, you should realize that you are the creator of the trust. This person is most often known as the "Settlor" (also known as trustor or grantor). You are also the initial "Trustee" of your own living trust. The people who take over when you cannot be the trustee anymore are known as your "successor trustees." You are also the initial "beneficiary" of your own Trust. At some point, while you will always be the creator of your living trust, you will not always be the trustee and you certainly will not always be the beneficiary of your own Trust. When you can no longer handle your own affairs, your named successor trustees will take over (in the order that you have designated them). Also, after you pass away, your assets will pass to those designated as beneficiaries of your living trust.
During your lifetime, it's business as usual and you are in control of your living trust and all the assets in the name of your living trust. The trust is revocable and amendable during your lifetime. Consider it a "stand by" vehicle that helps you avoid the court system not only while you are living but also upon your death.
Whether or not your living trust helps you avoid the probate process depends on whether or not you actually take the time to re-title your assets in the name of your trust. Many people create a living trust but never re-title their assets. Also, while some people do take the time to re-title their assets, they forget to put later acquired assets in the name of the trust. If you refinance your real estate, make sure you re-title the property correctly. Don't depend on the mortgage company or lender to do this for you. At the very least double check!
Having a living trust is helpful. Knowing how it works and learning how to use it is a very helpful exercise to undertake. A living trust doesn't have any magical properties. You need to understand how it works and how to best utilize it.
People often wonder about probate court. probate court is simply a branch of the court system. You may have heard of Divorce Court, Bankruptcy Court, Criminal Court, Juvenile Court, Etc. These are all "branches" of the court system, and probate court is simply one of those branches.
The probate court not only handles post death matters dealing with the distribution of assets, but probate court also handles post death disputes between families, beneficiaries, etc. People could be fighting about something as simple as who was supposed to get Grandma's vase! Sometimes, people are arguing about more important matters - like why they were written out of the estate plan or why they got a lesser percentage than they thought they should get.
The probate court judge essentially serves as a referee, making decisions about many post-death matters. Depending on the size of your estate, and whether or not you have any estate planning documents (such as a living trust), the probate court may have to get involved in your affairs. After all, your assets may not "magically" transfer to your beneficiaries.
In some cases, some assets will simply pass by way of a designated "beneficiary." Typical examples of such assets include life insurance policies and retirement accounts. The only thing required on such assets is an appropriate beneficiary designation. This is accomplished by designating one or more beneficiaries on a form that is provided to you by the retirement account company or the life insurance company. Usually there will be a "primary" beneficiary and then a "secondary" or "contingent" beneficiary. They don't care what your will or living trust says. All they care about is who is on the beneficiary form.
Speaking of beneficiaries, you can also name beneficiaries on certain bank accounts. If all your assets simply pass by beneficiary designations, the probate court doesn't have to get involved at all. While beneficiary designations are convenient, they don't go as far as a living trust might go and certainly don't provide as much guidance and protection for your beneficiaries. However, in some cases, naming a beneficiary is the most efficient path to take.
Avoiding Probate Court may involve a combination of tools - such as a living trust and appropriate beneficiary designations. All you have to do is examine each asset that you have and make sure that it passes to your heirs one way or the other - there is no perfect solution - that's why it's called an "estate plan" and NOT an "estate fool-proof plan."
In many cases, a living trust would be a better solution. In other cases, naming beneficiaries is best. Finally, in many cases, a simple will might be all your need. What the best method/s might be in your particular situation is part of the planning process. It is usually a combination of methods that will help achieve the best result. Sit down with an estate planning attorney and focus on which methods would be best in your situation. Avoiding probate is great, but it's better if you really know what you are doing and the pros/cons of each approach.
The first step towards creating an estate plan to protect you and your family is to actually make that initial appointment. The idea of meeting with a lawyer and discussing heavy estate planning matters can be daunting and overwhelming. We walk our clients through the process. While it isn't a walk in the park, we do our best to make it easy and methodical. As noted earlier, the first step is calling our office and setting up the initial appointment. If you are married, it is important for both spouses to be at the initial appointment. Spouses are a team, and having both spouses involved is important and necessary. There are many occasions when one spouse is more interested in estate planning than the other spouse. That being said, it's still important for both spouses to be involved in the process. Furthermore, in most cases we are dealing with "community property" and one spouse cannot unilaterally dispose of such property.
Once an appointment is set, we ask our clients to fill out an estate planning questionnaire. We have two versions of this questionnaire - one for couples and one for single people. There is an online version and a PDF version of each. Both are available from the "Get Started" page of our website. The information provided on the questionnaire helps provide us with more information so we can offer you guidance and advice particular to your situation. The more information we have in advance, the more productive your initial consultation will be. Otherwise, the first meeting will only provide you with "general" advice, and that might not be the best use of your time.
During the initial meeting, we will discuss general principals and answer questions. We will also review your particular situation and offer guidance and advice. If you choose to proceed, we will ask that you sign a "retainer agreement" with our office. A retainer agreement is basically the contract between the attorney and the client. Half the total fee is then due. The other half is technically due when we deliver your drafts to you, but as a practical matter, we collect the balance at the second meeting when we sign and finalize your estate planning documents.
After you decide to retain our firm to assist you with your estate plan, we will get to work on your plan. About 30 days later, we send you drafts of your documents for your review. The drafts are usually accompanied by a summary to assist you with your review. In most cases, we also highlight certain sections of the documents where you should pay particular attention. When we send the drafts to you for your review, we usually contact you to set up a signing meeting for your estate plan. During that signing meeting, we will review your entire estate plan with you. Not only will we review the documents prepared, but we will also teach you HOW to use your estate plan. It's one thing to "have" a plan, but it's another thing to actually know how to use it. Once all documents have been signed, notarized, witnessed, and otherwise finalized, we will scan your entire estate plan to our computer system so we have a complete digital copy in our office. You will also be provided with the same scanned copy and all the original documents.
As the days, weeks, and months pass, you are always welcome to contact our office with any quick follow up questions. We are here for you and want to make sure you not only HAVE an estate plan, but that you actually understand how to use it.
Hi everybody, this is Robert Mansour. I'm a lawyer in the Los Angeles area, and one of my areas of practice is wills and trusts. One of the things that people often struggle with is they say, "Well, what is this living trust? It's so strange. What is a living trust?" Here's what it is:
It's a piece of paper. All right? Actually, it's a lot of pieces of paper, but essentially it's a contract at the end of the day. It's a contract where you, or perhaps you and somebody else like a spouse, you outline what happens with all of your "stuff." The reason I use the term "stuff" is a lot of people freak out about their assets and they say, "Well, I can't do estate planning because I don't have an 'estate.' That's for really rich people."
I say, "Look, if you have any stuff, bank accounts, a house maybe, some investments, that's your stuff, and you don't have to be a millionaire in order to do estate planning." So, a living trust is a contract where you outline what happens with your stuff, and you can decide who gets what under what conditions, and anything in your trust is governed by your rules.
So, that means that you have to actually put things in your living trust when you create it. So, you have this document - it says who gets what, who's in charge of your stuff, who gets it when you pass away...who's in charge if you're incapacitated - All of these rules and regulations, but the living trust governs the assets that are in the trust. So, let's talk about what that means.
You have to put things in your trust by changing title to your assets. So, you can't just create a living trust and everything "magically" is governed by it. You actually have to physically go to the bank and change title to your assets. So, if you have bank accounts, investment accounts, etc., any regular accounts, stocks, things of that nature, you have to change title to your asset right there in the middle.
So, a sample would be "Sam Jones and Betty Jones, trustees of the Jones family trust dated December 14, 2008." When you do that, that asset is now in your trust, so it's in your trust. Now, who are the people who are the characters of the trust? The cast of characters, I call it.
Number one cast of characters is the "Settlor." At the very top, you can see that. The Settlor is you. If there's more than one person like a husband and wife, you are the Settlors. Now, long ago they used to call this person the "Trustor" or the "Grantor." Those are some older terms that you might see (still very common terms by the way). So, what is this cast of characters or what does this particular character do? This particular character creates and controls the trust. So, that's you.
Next in our line of characters is the "Trustee." The trustee manages the trust, and usually you are the first trustee unless there's a compelling reason for you not to be your trustee.
The next persons or the people in this cast of characters are the "successor trustees." They're kind of like your "vice presidents," the people who take over in case you can't handle things anymore. These successors are people that you pick in advance. You can say, "I want my son Jimmy to be first trustee. I want my daughter Vivian to be second trustee, etc." This person steps in for the trustee and start managing everything in the name of the trust. Remember I told you, everything in the name of the trust is governed by it, so the successor trustees are in charge of everything that is in the trust.
The final people involved here are the beneficiaries at the very bottom of the schematic. These are the people who benefit from the assets, and that's usually you. You're the initial beneficiary of your own trust, and then after you pass away, other people become the beneficiaries of your trust. For example, your children, or any other loved ones that you've decided to pass on your assets to. So, there you have it. That's essentially the people in charge of the living trust.
Now, what we are doing is we are creating another way for assets to pass. So, at the very top you can see here I've indicated, you have essentially created a new way for your "stuff" to pass to others. So, in the first, on the left hand side of the screen, you can see that the initial way that things generally pass is through the probate system, which means that the court has to supervise the transfer of your assets from you to other people. Now that's not all assets, but many assets have to go through that system, and there's very expensive fees involved in that, taxes, etc., and finally everything goes to your heirs. However, it's a public process and it's very expensive.
On the right hand side of the screen, you can see we've taken everything that is our stuff - our investments, our checking accounts, our heirlooms, our house, our bonds, our stocks, and these are passing through a new funnel called the living trust, the contract that we created, and everything passes through here and goes to the beneficiaries according to the rules that you've set out.
Now the on the left hand side of the screen, that process is very cumbersome, very expensive, whereas on the right hand side of the screen, you've created a brand new way for everything to pass. The courts, and the government, and everybody's okay with this, so long as you set it up while you still have capacity to do so.
So, there's a brief introduction to living trusts - that you're creating a new funnel for which your assets can pass, through which your assets can pass. If you'd like to discuss living trust, wills, powers of attorney, or anything else that has to do with estate planning, please don't hesitate to contact my office.
My name is Robert Mansour. You can find my website at MansourLaw.com. Or you can call me at 661-414-7100. Thanks for taking some time for this brief lesson today, and we'll see you next time.
Usually, it's not what's in your estate planning documents that is a problem. On the contrary, it's what's NOT in your documents. If you want something to occur, whether it's a health care matter or how your estate will distribute upon your death, you should make sure you spell things out clearly in your documents.
Life is unpredictable. As a general rule, how you think things will unfold is not necessarily how things will unfold. If you've lived long enough, you know that's true. Therefore, if you something specific to occur with your estate or with anything involving your estate plan, the best course of action is to spell things out clearly. For example, if you don't want your children inheriting everything from you right away, then spell it out. How exactly do you want them inheriting from you? What can they use the money for? When don't they inherit from you? What if they are in the middle of a divorce? What if they are in the middle of a bankruptcy? What if they have a substance abuse problem?
With respect to health care decisions, who will be in charge of those decisions? Do you want extraordinary measure to keep you alive and breathing or do you prefer quality of life over quantity of life? When it comes to estate planning, the more you leave to the imagination the more likely there are going to be problems. If your kids are fighting over what to do with your real estate upon your death, wouldn't it be nice if there were some instructions about that issue in your living trust? If you anticipate certain issues are going to occur, the best thing to do is "spell out" your wishes clearly and without ambiguity. If you are choosing trustees, executors, agents, and others that you truly trust, then perhaps you should give them the discretion to act according to your wishes.
Again, being clear in your estate planning documents is much better than being unclear. Don't leave these things to chance. You've spent your whole life building up your estate. Why should you squander it all away by improper or inadequate planning? Remember, it's not just about who inherits from you. It's about what will happen if you can no longer act on your own behalf. A good estate plan not only addresses you gets your "stuff" when you die. It's more about who has the legal authority to act on your behalf and if you've given them the proper road map to do so.
I had the honor of being on Patti Handy's show, "Starting Over" on KHTS in Santa Clarita, California. This episode focuses on how estate planning dovetails with the issue of divorce. To learn more about Patti, visit http://www.PattiHandy.com.
Patti Handy: Hey there, and welcome to Starting Over. I am your host, Patti Handy. I'm so happy you're here. Thank you for sharing your lunch hour with me. You're listening to KHTS, your hometown station on AM 12:20, and 98.1 FM. We're also Facebook Live at KHTS, so you can send in questions if you want to. You could also download the app for free, KHTS app and listen live anywhere. The intro shared a little bit about Starting Over, but I wanted to repeat that, that the show is dedicated for those starting over after divorce or loss of a spouse. Having gone through a divorce myself, I understand the overwhelm, the feeling lost, the roller coaster that you're on. My focus is really to bring you tools, hope, inspiration, and navigate this time in your life. As a mortgage adviser, I'm going to talk about money and credit, but I'm going to also discuss very important topics such as estate planning, financial planning. We're going to have different speakers such as personal trainers, motivational speakers, nutritionists, therapists, life coaches. It just runs the gamut. Make sure you tune in second Wednesday of every month at noon, and welcome.
Rob Mansour is a dear friend of mine. He is an estate planning attorney here in Santa Clarita. I, right after my divorce, after I got my head out of the clouds, one of the first things I did was get an estate plan and living trust myself. My son was 18 months old, and I wanted to make sure that he was protected and everything was known as far as my wishes go. First, thank you for being here.
Rob Mansour: Thank you, Patti. Thanks for having me on your show.
Patti Handy: Welcome. I love that you're here.
Rob Mansour: I'm a little nervous. Is that okay?
Patti Handy: It's okay. It's all good. We're having lunch. We're just having lunch together.
Rob Mansour: Okay, very good.
Patti Handy: Just minus the salad. It's all good. Explain to us, out of the gate, what exactly is an estate plan.
Rob Mansour: Okay, I think it's a good place to start, because a lot of people heard the word estate planning, and some people think it has something to do with real estate. I'm like, "No, that's not what it is." Some people hear the word estate planning, and they hear that word, estate, and they think, "Okay, maybe I have to be really wealthy to do something like estate planning." I think it's the word estate that misleads a lot of people. They think that they have to live in a big mansion and they're like the Rockefellers. I said, "No, an estate plan is just a plan about what to do with your stuff." Whatever stuff you have, if you have $25,000 in the bank and that's all you got, that's your estate. If you have 5 million dollars in the bank, that's your estate. An estate plan is a legal tool box full of legal tools such as something you talked about just a second ago, a living trust, wills, powers of attorney, healthcare directives and healthcare documents, guardianship nominations for minor children. A lot of clients don't realize that that is what an estate plan is. It's a legal tool box full of legal tools, such as the things that I just mentioned.
Patti Handy: Yeah. That's huge. The important thing for me, too, not only was the financial piece but the medical directive. If something happened to me, who would take care of my baby? What was my wishes for that situation?
Rob Mansour: That's right. You'll notice something, a lot of what I talked about has absolutely nothing to do with wealth. It has a lot more to do with who has the legal authority to act on my behalf. That's really what this is about. It's about two things. That's what this estate plan does. Number one, who gets my stuff when I die? That's what most people think about. But the other more important thing is, who has the legal authority to act on my behalf? A lot of people think, "Oh, my spouse has that authority." No, that's not true. They might think, "My kid has that authority." No, that's not true. It's whoever has the legal documents to act. Even when I called my wife's credit card company to get information, I wanted to find out what her balance was, they wouldn't share that information with me because I did not demonstrate to them that I had the legal authority for that information despite being married. That's just the tip of iceberg.
Patti Handy: An estate plan obviously is important not just for those who are divorced, but everybody. There isn't anybody who shouldn't have one.
Rob Mansour: That's right, because there's going to come a time when you're going to need somebody to act on your behalf. You may not be able to do that, or you're in the hospital, or something like that, or after you pass away, who's going to get your stuff and how are they going to get it. Especially if you have minor children. You want to make sure that they get those things in a responsible manner, just like you were concerned about Blake about after your divorce. 18 months old, oh my goodness, you need to create a plan.
Patti Handy: Yes.
Rob Mansour: Yeah, absolutely.
Patti Handy: On that note, if somebody is going through a divorce or recent divorce, when is a good time to get this done?
Rob Mansour: Okay. Sometimes I get clients who call me literally the day after they get the divorce papers. "I want to do my estate plan." I say, "Well, there's not much we can do yet because the dust hasn't settled. We still don't know what's his, what's hers, how is the estate going to be divided, so you can't really do too much until everything has been divided. You have your column of stuff, he has his column of stuff." Then, you can say, "Okay, now that I have my stuff, my assets, now I'm going to make a plan with respect to those assets." I had a client one time, he called me and he said, "Listen, I want to move my house into a trust." I say, "Well, your wife's name is on the house. You can't just move it unilaterally." "OH, I can't do that?" "No, you can't." I said, "When the divorce is over, then let's sit down and create plan."I think that would be the when.
Patti Handy: Okay. I would imagine you would be separating, obviously through the divorce, the house, the banking, the debts, the whole...
Rob Mansour: Banking, IRA's, yeah.
Patti Handy: That leads me to the next question, how is the vesting? How should you, a medical term for that when you put your title into that trust?
Rob Mansour: How do I do it?
Patti Handy: Yeah. What's the ...
Rob Mansour: Okay, so let's say I'm John Smith, and I just got a divorce, and I have this thing now called the John Smith living trust. John Smith living trust says "Hey, I'm John Smith. This is my stuff, and this is where it goes when I die, and this is who is responsible if I can't act on my own behalf." Now, I have assets. The document itself doesn't have any magical properties to it. You actually have to go move your assets into the name of the trust. That requires assigning a new deed to your real estate, for example. Instead of the house being owned by John Smith, it's now going to say the John Smith living trust dated blah, blah, blah. You have to go to the bank. You say, "Hi, I'm John Smith. I have this living trust." They have to move the accounts from your name into the name of the trust which requires paperwork. A lot of people make this big mistake, they don't fund their trust.
Patti Handy: Funding, that was the term I was looking before.
Rob Mansour: Yes. Funding. They create this thing. It's like building a house but never moving into it.
Patti Handy: Got you.
Rob Mansour: They build the house to their specifications, all the things they want, but they never move into the house. My question to them is, "Well, what was the point of building the house?"
Patti Handy: Why do you have a trust?
Rob Mansour: Yeah, why do you have the trust if you haven't moved things into it? That requires paperwork and a little bit of leg work.
Patti Handy: The vesting on the house should be the trust, the vesting on all the assets, the checking, the savings, the IRA's, is IRA's ...
Rob Mansour: No, the IRA's, are a special animal.
Patti Handy: It's a different, okay.
Rob Mansour: That's right. I tell clients to imagine that there are two funnels. One funnel is called the living trust funnel, and some assets are going to pass by that funnel. Other assets like life insurance and IRA's, all they care about is what you put on a beneficiary form. Especially after a divorce, you want to revisit that, because what if your ex-spouse is still your primary beneficiary on a life insurance policy?
Patti Handy: Believe me, I visited that.
Rob Mansour: What if your ex-spouse is going to get your IRA? It's probably the last person you want to get your 401k.
Patti Handy: Yes.
Rob Mansour: Those assets you have to change the beneficiary. Now, the beneficiary can be your living trust. For people with minor children, I think that's a good idea, because my kids for example are 20 and 18. My life insurance policy is not payable to Alex and Veronica Mansour. Those are my kids. It's payable to the Mansour family trust because there's no way in heck I want that money to go directly to my kids at such a young age.
Patti Handy: The trust dictates when the money goes, at what age to the kids.
Rob Mansour: Exactly. Also, if you build it right, it also says when it doesn't go to the kids, so for example, what if my son is in a bad marriage? What if my daughter is in a middle of a lawsuit? What if one of my kids is disabled and shouldn't receive any money for some reason or another? There are protections that you can build into that living trust to protect your kids. Also, speaking of minor children, you may not want your ex-spouse managing the money for your minor kid. What could you do is the John Smith trust, you can say, "My brother, Jack, shall be my trustee." John's kids can get the money but his brother Jack will manage the money for the kids. Not John's ex-wife. That's especially important if your ex-spouse wasn't good at handling money or you suspect they're going to take the money and go to Vegas with it.
Patti Handy: Right, right. That's huge. You have to name who you want to manage those funds, and again, part of the trust that protects your kids.
Rob Mansour: That's right. That's exactly right. Also, don't just name one person. Name a deeper bench. Have like two or three people just in case the person you selected, exactly, can't do the job. Exactly.
Patti Handy: Something happens. Yeah. Should you ever put kids on title of anything?
Rob Mansour: I'm not a big fan of putting children on title to anything. A lot of clients, after they get a divorce or they lose a spouse or something like that, they'll start putting their children on title. There are three or four reasons why that's a bad idea. Whenever you add somebody to an asset, let's say Mary puts her son, Johnny on her house. If Johnny gets into any trouble, Johnny gets into a lawsuit, Johnny files for bankruptcy, Johnny gets a divorce, something wrong happens to Johnny, her house has a bullseye on it because she put Johnny on there. Also, if you put somebody as a co-owner with you, like on a bank account, there's nothing to prevent them from walking into the bank and just taking your money and going to Vegas with it again.
Patti Handy: Oh boy.
Rob Mansour: Also, if you have multiple kids. Let's say you have three or four kids and you decide to put Johnny on title, when you die, Johnny gets all of that. Maybe Johnny doesn't want to share with the other kids for one reason or another. I'm not a big fan of putting children on title. Now, there is one caveat. If you're nervous about stuff, put most of the stuff in your trust, and then create a very small baby account with five grand in it, or $2,500 or something like that, and put one of your kids on title to that. That way, the kid can help you right checks, can help you do this or that, has access to immediate cash. But don't put them on the larger assets. Keep all of that in your trust.
Patti Handy: Okay. That sounds good.
Rob Mansour: Does that make sense?
Patti Handy: Yeah, absolutely.
Rob Mansour: Yeah. There are other tax ramifications but it's too complicated to get into on this show.
Patti Handy: Okay. I want to revisit one thing, just to make sure I understand it. On an IRA, 401k, those things are such that the beneficiary should be the trust, not the child's name.
Rob Mansour: It depends. If you have three grown children and they all have good heads on their shoulders, and they're all in their mid 30's, and they're going fine, nobody's got any problems, name the three kids. Make life easier for everybody. But if you have minor children or if you have a child with a disability, or some reason where you might want to protect the kids, you might want to name your trust as the beneficiary. There are a lot of caveats to that, but the point is the shortest distance between two points is just naming the child. Naming the individual that you want that money to go to, but only if you think that they're going to be okay. There's not any trouble on the horizon and all the kids are doing fine. My trust is my secondary beneficiary. I have my wife first, followed by my living trust. Why my living trust? Because my kids are still kind of young. 20 and 18. I would much rather wait until they get to their mid 20's, late 20's, and then say, "You know what, I'm now going to put them as individual beneficiaries."
Life insurance is different. When you pass away, the life insurance company just writes one big lump sum check. It's not the kind of thing that gets [doled 00:12:25] out overtime like an IRA. What I do with life insurance, I just say name your trust as the beneficiary. They'll just write a big fat check to the John Smith living trust, and then the John Smith living trust will say what happens with all that money. I hope that helps a little bit.
Patti Handy: Yeah, absolutely.
Rob Mansour: Yeah. That's what I usually say.
Patti Handy: Then, the person who you've dedicated in the trust to manage those funds, would manage that life insurance money?
Rob Mansour: That's right. For example, I have a million dollar life insurance policy. I am worth more dead than I am alive, right?
Patti Handy: Yeah. You and me both.
Rob Mansour: I sleep with one eye open. Basically, that money is going to be written to the Mansour family trust when I die. Now, if my kids are there, uncle Charlie, my brother-in-law will be managing that money for my kids so that they don't have immediate access to it. That's why.
Patti Handy: Okay. That makes sense.
Rob Mansour: Yeah.
Patti Handy: Guardianship of children, that's also specified?
Rob Mansour: Oh yeah.
Patti Handy: Then, speak about that, and then also before I forget, I want to talk about the probate piece. Some of that, I know we're kind of jumping ship a little bit, but the probate piece, isn't that also why a living trust is helpful?
Rob Mansour: Yes. A living trust helps avoid probate, but let me address the issue of guardianship first. One of the things that you can do in your trust, especially if you've recently got a divorce, sometimes you may not want that ex-spouse to be the guardian over your children. I had a client one time whose husband, her ex-husband was abusive. He was verbally abusive, not physically abusive but verbal abusive. What we did is in her will, we named other people to be guardians over her children, and we also said why the husband wasn't suitable. She explained why in her will, where she addresses the guardianship, why her husband would not be the bet choice. Why is she doing that? Because at some point, a judge might be reading that information, and it's a way for her to communicate to a judge why she doesn't think her ex-husband would be suitable.
In some cases, you may not have much leeway because the judge is going to order the natural father, or the natural mom, but there may be times when that person is not available or doesn't want to be the guardian of the kids, is an absent father, an absent mother, so you should name in your documents who's going to be legally responsible for your children. Now, with respect to probate, probate is something that happens if you pass away and you've got something just sitting in your name alone, like a piece of real estate, and it's just in Patti's name. That's all, it's not in your trust, there's no joint owner, it just says Patti on it. In that case, I may have to go to court in order to get a judge to give that asset to your kids, to Blake. Why? Because I can't just walk unto the property and give it to Blake. I have to go get a judge's permission to do that.
Now, if it was in the name of your trust, I don't have to do that because your trust owns that asset. Probate only comes into play if there are assets that are sitting in your name alone, and in California, the current rule is if they exceed $150,000 in value. That's the current rule, but a lot of clients think that probate is a necessary evil, but the truth is if everything is properly titled, either by way of beneficiary or by way of your trust, you will avoid the probate system almost all the time. Which is a good thing. You want to stay out of the courts.
Patti Handy: Yeah. Absolutely. If somebody already has an estate plan, living trust, will in place, they just want somebody to take a look, make sure it's current, they did it 15 years ago, 20 years ago, and they want to just have it looked at again, will you review documents?
Rob Mansour: Yeah. I do that a lot. Clients will come with a previous estate plan, and say, "Hey, listen, first of all, what does this say? Is it any good?" Sometimes I tell the client, "This is actually very good. You don't need to do anything." But I will say, if it's been more than 10 years, at the very least, you probably want to freshen up the powers of attorney and the healthcare documents. Here's why. Even though they may be legally sufficient, and they're fine, they might be legally fine, as a practical matter, you present a very old document to a financial institution or to a doctor or a hospital, they might look at it and say, "Do you have anything newer than this? Do you have anything more recent?" It's not because of anything that you did wrong, it's just because their policy at that particular place might be, "We don't honor anything more than five years old, or more than seven years old, or more than 10 years old." You might have to go to court to get that enforced, but boy, that's a big pain.
As a practical matter, I'd say every seven years, revisit what you have, especially if it doesn't say what you want it to say anymore. You want to change guardians, you just got a divorce and you don't want your husband to have anything to do with this anymore, you want somebody else to manage the money for your child. Those are perfect examples of when you might want to do that.
Patti Handy: Yeah. Great point. If you're married, and you have this living trust in place, and you get divorced, obviously you don't want that trust to ... that's void...
Rob Mansour: That's right. You want to remake it. You want to revoke everything and start brand new.
Patti Handy: Start from scratch.
Rob Mansour: Exactly.
Patti Handy: Yeah. I could see that as being a huge piece.
Rob Mansour: That's right.
Patti Handy: Talk to us about remarriage. We don't have much more time but I know this is another probably...
Rob Mansour: You meet somebody new, right, after your divorce, right?
Patti Handy: Yeah. If you meet somebody new and you remarry, and you have blended family, second marriages. How does that play into ...
Rob Mansour: That's a very good question. Now, John Smith has his stuff, he made his own living trust, and he lives for a few more years, five years, six years, and he meets Sally, his new love. Sally maybe has children of her own. Maybe she's also divorced. Maybe Sally has her own estate plan, and maybe she has her own living trust. Sometimes, what I tell clients is, "Look, there's many ways you can go." I'm a big fan of his and hers trust, especially if people are getting married later in life. They already have their stuff, John wants to be in charge of his stuff, Sally wants to be in charge of her stuff. Sometimes what we do is we leave John's estate plan alone, but we make sure we include Sally now in some way, and then Sally sits down with me and she makes her own estate plan that includes John. That way, she's in charge of her own things. She can make changes if and when she wants to, and he can make changes if and when he wants to.
After they get married, their new marriage, let's say 10 years down the line, John and Sally may say, "You know what, this is going swimmingly. This is wonderful. We don't want to have his and hers stuff anymore, we want to have ours." In that case, we would just get rid of both of those trusts and we create the Smith family trust. A joint trust for both of them, but it's very important to address one elephant in the room, what happens when one of them dies? John has kids from a previous marriage, Sally has kids from a previous marriage, so let's say if Sally passes away, what's going to happen to her kids? Who's going to watch over those kids? Kind of like the Brady Bunch. What if Carol Brady dies? What if Mike Brady dies? We always have to talk about what happens if the first spouse dies, how are we going to take care of those children. Also, that's an example of where everybody gets along. I had a client, a couple of clients where his children did not like the new wife. They hated her. They despised her.
Patti Handy: Oh dear.
Rob Mansour: She said, "Well wait a minute, if he dies first, I don't want them just looking at me waiting for me to die. Just like, Hey, when are you going to die so we can get our stuff?" What we did, is when he died, we created a plan that says his children are going to get X, they're going to get $100,000 each, and then they're going to leave her alone. We created a plan that accounted for what happens when he dies first, take care of his kids, and now she rests easy knowing that she doesn't have to worry about those kids anymore. Or you can make a life insurance policy payable to those kids. In that way, you've taken care of them, and that way the new wife or the new husband doesn't have to worry about those kids. Blended family's absolutely a must, where you want to sit down and create a plan.
One last thing, if you meet that new spouse and you go meet the lawyer, both of you should come. The husband and the wife should come. Everything I above board, we create a plan that suits everybody's needs, because it's really hard to devise something if just one person comes to my office. I always recommend that they bring both people.
Patti Handy: That makes perfect sense. Just out of curiosity in that case, how often do you see the desire to have one trust with the blended family versus his family-her family, and keep it separate?
Rob Mansour: Well, it depends on the situation. For example, I just did one, it was his and hers estate plans. Why did I do it that way? Well, because Cathy, my client, she had a previous estate plan from before. A lot of her assets were already sitting in the name of her trust. It was going to be a real hassle to retitle all of that stuff.
Patti Handy: Sure.
Rob Mansour: What we did is we just tweaked her trust to include her new husband, and he did his own plan. Plus, they also liked the idea of having dominion over their own stuff. If he wanted to make changes, he could, he didn't need her signature and vice versa. But then I have clients who are like, "You know what, it's not going to be his and hers, it's just going to be one pot." The trust can still say what happens when one person dies and what happens when the other person dies. I would say it's about 50-50 where clients do his and hers, and the other 50%, they just decide to start over with a brand new joint estate plan.
Patti Handy: I would imagine too that if both parties have no children, it's a little simpler and that there's not much as far as protecting the kids and...
Rob Mansour: Fewer complications.
Patti Handy: Yeah, less activity going on in that.
Rob Mansour: That's right. That's right. Actually, the more details you put in the trust or the trusts, and the estate plan, the less problems you tend to have. The problems that we see a lot is where the trust is silent on a particular issue, or people got it from legal zoom or something like that. It's fine, but it doesn't say enough. It doesn't address thing specifically enough. That's where you run into problems. That's why when my clients come and visit with me, they're like, "Oh my goodness, I didn't know there was that much to talk about." I'm like, "Yeah, there's a lot to talk about."
Patti Handy: There's so much to that. We've covered a lot of great information. I need to have you back, because we need to talk about when the spouse passes away and how to deal with that, and so I will have you back.
Rob Mansour: All right. If they let me back in the building, yeah.
Patti Handy: You know what, I think you're good. There hasn't been anybody coming after us just yet.
Rob Mansour: All right, very good.
Patti Handy: Thank you. Tell us where people can reach you.
Rob Mansour: Sure. My website is the best place to find me. There's a lot of helpful videos there, et cetera. The website is mansourlaw.com. My last name, Mansour, which is M-A-N-S-O-U-R, then the word "law," .com. The phone number if people want to call is 661-414-7100.
Patti Handy: Awesome. I can attest to what an amazing individual you are. Not just brilliant attorney, but just a warm, kind human being that has the client's best interest at heart.
Rob Mansour: Thank you, Patti. You're going to make me blush. That's very kind.
Patti Handy: I'll collect my $20 later. No, honestly, I am proud to call you my friend, and I'm happy that you joined us.
Rob Mansour: Likewise, Patti. Thank you.
Patti Handy: You're listening to your home town station, KHTS, 98.1. Come back, we have a financial planner coming up in the next half hour. Stay tuned and we'll see you soon.
Most married couples I work with create a "joint" living trust. Basically, a joint living trust is an enforceable legal document created by two people outlining the following (1) Who they are and who's in charge if they can no longer manage their own affairs - due to death or disability, (2) and who gets what after they both pass away.
Sure, I'm simplifying it quite a bit but the point is that it's a joint document created by the married couple. After creating their living trust, the couple needs to "fund" this trust by re-titling their assets in the name of the trust. So their assets wouldn't be owned in their names anymore, but rather by their trust. For example, their house would not be owned by "John Smith and Mary Smith as joint tenants." Instead, their house would be owned by "The Smith Family Trust, dated January 23, 2017." In some cases, the assets wouldn't be owned by the trust per se, but instead might be payable to the trust by naming the trust as a beneficiary of certain assets. For example, the couple might choose to name their trust as the beneficiary of a life insurance policy.
So now that we know that most married couples create a joint living trust, there are times when it makes sense to have "his" and "hers" living trusts. Instead of having a common joint trust, each spouse would have their own living trust. This solution might make sense when husband and wife are trying to maintain separate assets, especially if they are getting married later in life. Each person may already have their own assets and their own ideas of how those assets should be distributed. They may wish to keep their assets separate. They might each have children from prior relationships. In some cases, one person might already have a living trust in place. As such, in certain cases, it might make sense to establish his and hers living trusts.
Therefore, husband John would have his own living trust named "The John Smith Living Trust," and his wife would have her own living trust called "The Mary Smith Living Trust." Each trust would be managed by the respective spouse - John would manage his trust and Mary would manage her trust. They can make whatever changes they want to their own trusts, outline any beneficiaries they want, etc. Basically, they'd be king/queen of their own castle. It might also be a good idea for John and Mary to sign a document outlining this understanding they have between one another.
If they want to have some "joint" assets, they can always do that - via a joint checking account or other solution. Basically, John's trust assets (those titled in the name of his trust) would be distributed according to his wishes, and Mary's trust assets (those titled in the name of her trust) would be distributed according to her wishes. That being said, each party can still make distributions and provisions for their spouse, but having his and hers living trusts might make sense if they both want to maintain some sense of their own autonomy over their own assets. After all, couples who get together later in life often have their own assets and often desire to mantain control over those assets.
If you would like to discuss your estate planning needs, please call our office at (661) 414-7100. Visit our "Get Started" or our "Contact" page if you need assistance.
My thanks to Patti Handy (www.PattiHandy.com) for conducting this interview about estate planning issues and remarriage. You can click on the link above for the audio. The transcript is below:
Patti Handy: Hey, welcome to Money Rules 101. I'm your host, Patti Handy. Today, in studio, I have my good friend, Rob Mansour, who is an estate planning attorney here in Santa Clarita. Today's topic of conversation is the estate planning upon remarriage. We've discussed after divorce and after death of a spouse and just starting over and this one is particularly important to me because I am divorced and may or may not get remarried someday.
Rob Mansour: A lucky man is who that will be!
Patti Handy: But it's important for me to understand. There'll be blended families. We each have kids. It's all kinds of nuances happening within that, so share with out listeners some of the things that you recommend for those getting remarried.
Rob Mansour: Well, I think that when you're getting remarried, especially if you're getting remarried later in life, in your 40s or your 50s.
Heck, even in your 60s, okay? People are getting remarried all the time, second, third time, so I think it's important, especially when you have children, each of you has children. The husband has children, the wife has children. If you ever needed a plan, that would be a very good time to have one because the amount of things that can go wrong are innumerable and so, that's why it's called an estate plan is because you and your new husband or you and your new wife need to sit down and talk about, "Okay, what are we gonna do now? What's the plan?"
Just like if you have an earthquake drill at your house and you know where everybody's gonna go if there's an earthquake. We all need to talk about what's important, so for example, if you have a blended family, so I had a client and her name was Lynn. She got married to this new guy and his kids didn't like her very much. He had adult children and they never really liked her.
Patti Handy: Ouch.
Rob Mansour: She was really worried. What if he dies first? Is she gonna be out of the house? Is she gonna have to move out? Is she going to have to relinquish all the estate to her stepchildren or are they going to be just waiting for her to die? Everyday, they call her on the phone and say, "Hey, Lynn. How you feeling today? Let's bake you a cake. We sent you a cake. You should eat the whole cake in one sitting."
She says, "Listen, when my husband dies, I want his children taken care of. I want to pay them off and I don't want to worry about them anymore." We created an estate plan that said exactly that. If her husband died first, she was gonna write a check for $100,000 to each of those kids from an insurance policy and also some bank accounts somewhere.
They were gonna leave her alone after that, so sometimes, we have to talk about that. Also, another issue is minor children, so, let's say, I get remarried and I have minor kids. If I pass away, who's gonna take care of my minor children? Is it gonna be my new wife, or is it gonna be my ex-spouse, or is it gonna be my brother or a sister of mine?
Each spouse has to talk about that if there is minor children involved. Also, how am I gonna provide for those minor children? Where's the money gonna come from?
Patti Handy: Yeah.
Rob Mansour: It especially becomes difficult if one spouse is much wealthier than the other. In one case, let's say, the wife has a lot more money and a lot more resources than the husband. Well, if she dies first and her family inherits, is he out on the street? Is he gonna have to sell fruit at a freeway off-ramp somewhere to make ends meet or is he gonna get to stay in the house until he dies? I recently did a plan for a Friendly Valley couple out here in Santa Clarita and we made it very clear that after the husband dies, the wife gets to stay in the house until she passes away, that's what's called a life estate. How do we do that? We do that in the living trust, we spell it out. I always tell clients, too. The more we spell things out, the less likely we're gonna have problems later on.
Patti Handy: Sure, yeah.
Rob Mansour: It's like a football team taking to the field. If they know what plays they're gonna run and they've worked on them and they've practiced them, they are more likely going to have a better shot at winning the game than if they just take the field and just run around with no plan whatsoever.
Patti Handy: Makes sense.
Rob Mansour: That's a very important issue. Also, what happens after the first death? After that first death, does the surviving spouse get to keep home the money or is some of that money gonna go to some children somewhere?
Just like in the case of Lynn that I mentioned earlier. Another thing, sometimes, clients come to me with no estate plan whatsoever and in those cases, we might say, "Okay, are we gonna do separate trusts?"
His, hers, and maybe ours, so she has a trust with her stuff. He has a trust with his stuff and they operate together and they speak to each other, but they're still independent of one another.
Another very important issue is what is community property and what is separate property and we need to spell all that out because, as you may know and others may know, whatever you accumulate during your marriage is presumed to be your community property. Also, what you bring to a marriage before you get married is generally your separate property; but that property, let's say, for example, a couple gets married. It's happened to me right now, a woman living in Lancaster.
She says, "Look, I know this was his house before marriage; but I've been dumping a lot of money into this place. We put a new roof, we put a patio cover. I'm paying for the gardener, I help pay for the property taxes; but he's still insisting this is separate property." We have to talk about those issues because your separate property, you totally control what happens to that; but community property not so much.
Sometimes, it's nice to create schedules of property. Schedule A will have her property, schedule B will have his, and schedule C might have our joint property or our community property on that. Another thing is what authority does the surviving spouse have, so if you pass away, is it gonna be the surviving spouse's decision or are you going to leave that decision with other people, like a sister, or a brother, or your mom, or your dad?
They might have the say over what happens with your estate or are you gonna allow your new spouse to do that? One strategy, by the way, is to create a plan for the first 10 years and then, see how things are going. If you really have a lot of faith in your new spouse and things are going very well, you may want to revisit your plan and do something new at that point. You might not be stuck with something for the rest of your life.
Of course, you're gonna have some accounts with beneficiaries on them, life insurance policies, IRAs, 401Ks. Is your new spouse going to be the beneficiary on those policies, or perhaps the sole beneficiary, or perhaps you want to spread that love around? Maybe she gets 50% of your IRA, but your children also get 50% of your IRA and of course, your spouse has a preference, if you will.
Your spouse has to sign off that it's okay with them not to get 100% and so, you're gonna find that there are ways to take care of your new spouse; but also, ways that you take care of your children or your loved ones from a previous relationship and so, that's why it's very important for the husband and the wife to sit together.
It doesn't really help if a client comes to me unilaterally and they say, "I just got married to this guy and I want to create my own plan." I say, "Well, that's great; but it will be so much better if he were in the meeting and all three of us created a plan that we all agreed upon, everything is above board. You sign off that it's okay with you. He signs off it's okay with him and everybody's happy."
Patti Handy: Okay.
Rob Mansour: It can be very tricky. You're absolutely right.
Patti Handy: Let me ask you a question. If there is a couple, they both have kids and they're both remarrying, they each have their own living trust.
Rob Mansour: Like a Brady Bunch kind of thing?
Patti Handy: Brady Bunch, exactly. Each family has their own individual living trust.
Rob Mansour: Right.
Patti Handy: You said then you come together and you have another one that's his, hers, and ours.
Rob Mansour: Yes.
Patti Handy: Does that ours trump those two that are separate or how does that work?
Rob Mansour: Well, each one of them, so, let's say, Harry has his trust and Sally has her trust, right? They have the Harry and Sally trust, a third trust. Those trusts only govern assets that are in the name of those respective trusts, so you're not gonna put an asset in all three trusts. It's either gonna go on Harry's pot, in the common pot, Harry and Sally's trust, or just Sally's trust.
Patti Handy: Gotcha, okay.
Rob Mansour: If an asset is sitting just in Sally's trust, so when I say sitting in, that means the title to the asset says, "Sally Smith's Trust", that's what it says, so that particular asset will be governed by Sally Smith's trust. They might have a house and they put that in Harry and Sally's trust, that's a separate document.
Patti Handy: Right.
Rob Mansour: That one will say what happens with that particular asset or you could just do a joint trust together. You say, "Hey, listen. We both agree that this is what's gonna happen when the first person dies and this is what's gonna happen when the second person dies." We do a different plan if the husband dies first or the wife dies first, we spell it all out in one common trust. Again, the less we leave to the imagination, the better.
Patti Handy: Yeah.
Rob Mansour: We need to really spell all those things out or do what we call separate schedules, we can say, "What's on schedule A shall go here, what's on schedule B shall go here, and what's on schedule C shall go here." But the husband and the wife agreeing to all that is very important and then, of course, the other issue is can the surviving spouse make changes to this common trust. If you do agree to a common trust, which I would not recommend necessarily if you're just newly remarried, leaving "carte blanche" to the surviving spouse to make any changes he or she wants, that may not be a great idea.
Patti Handy: Sure.
Rob Mansour: That's another very important issue.
Patti Handy: Yeah.
Rob Mansour: What changes can we make, if any, after that first death?
Patti Handy: Yeah, and I would imagine with the health directives, if, God forbid, that one spouse were in a car accident or came down with something and they were a vegetable and not capable of speaking for themselves.
Rob Mansour: Right.
Patti Handy: Does that new spouse then have full reign over everything?
Rob Mansour: Yeah, you want to spell it out in a little document, that's right.
Patti Handy: Yeah, yeah. Exactly.
Rob Mansour: Also, if your kids don't get along with your new spouse, what about disagreements about healthcare?
Patti Handy: Yeah.
Rob Mansour: Your new spouse might have one idea of what she wants to do.
Patti Handy: Right.
Rob Mansour: Your adult children may have a different idea of what they want to do and if you don't have anybody legally in charge, a lot of people think, "Oh, my spouse is legally in charge." That's not true, that's not true. If somebody has a dissenting opinion, now we have a standstill, a stalemate, so it's always good to have those documents that says who is in charge and in what order are they in charge.
Patti Handy: This is definitely an experience where more is better. The more clear, the more you've got dialed in.
Rob Mansour: That's right.
Patti Handy: The better.
Rob Mansour: Absolutely.
Patti Handy: It's not less is more in this case.
Rob Mansour: That's right. Don't leave it to the imagination.
Patti Handy: Yeah, yeah. Good information, so obviously this can go on for a much longer topic of conversation and everybody's gonna have their personal story that they're gonna need to talk to you about. How can they reach you if they need some guidance?
Rob Mansour: Of course, I think they can either call my office at the number's area code 661-414-7100 and they can make an appointment. Also, they can just visit the website, which is mansourlaw.com. Mansour is spelled M-A-N-S-O-U-R, the word law, .com.
Patti Handy: Great, thank you so much, Rob, loved having you here.
Rob Mansour: Thank you for having me, appreciate it.
My thanks to Patti Handy (www.PattiHandy.com) for conducting this interview about estate planning issues after losing a loved one. You can click on the link above for the audio.
Patti Handy: Hi and welcome to Money Rules 101. I'm your, host Patty Handy. In studio today, I am very excited to have my good friend Rob Mansour with us, and our topic of conversation is starting over after the death of a spouse. We're specifically discussing estate planning and how important that is to protect those loved ones left and to bring peace of mind for everybody.
Rob Mansour: That's right.
Patti Handy: So Rob, start us off with some of the things that you recommend in your conversations that you have with your clients.
Rob Mansour: Well, I think the first thing is that there is no rush. This is funny, sometimes I'll get a call from the client on their way to the mortuary. On their way to the funeral, and they're saying, "Hey Rob, my spouse just passed away. What should I be doing?" My answer to them is always, "You should be grieving, is what you should be doing. You just lost your husband. You just lost your wife. You don't need to be doing estate planning at this moment. Go take care of the funeral. Call me in a few weeks when things have settled down. Everything that was true the day before your spouse died will still be true a couple of weeks from now." So I always tell clients don't be hasty. Don't make rash decisions in the middle of all the emotional turmoil that you're going through.
Patti Handy: Yeah. Makes sense.
Rob Mansour: Yeah. So the first thing is you got to grieve. There is no rush. There's rarely a rush. The second thing that you might want to do is obtain death certificates, because you're going to need those to establish the death of your spouse. You can't just go to the bank and say, "My spouse died" They're not just going to take your word for it, you're going to have to present a death certificate. So that might be one of the only things that you need to do right away. Then, during this time, you need that downtime to reassess your situation. You need to kind of take inventory of all the assets that you and your husband or you and your wife had together, and start making a list of two types of assets.
There's regular assets like real estate, bank accounts, investments, and then other kinds of assets are retirement accounts, life insurance policies, things that pass by way of beneficiary. So take stock. Whatever you do, don't start moving money around, liquidating funds, calling in the IRAs, calling in the life insurance policies. Go meet with professionals first and then make your moves, because it's so much better when you're equipped with the information. I know a lot of people go into action mode right away, because that's part of the grieving process.
They defer the grieving, and instead they start moving bank accounts and distributing things, and I say, "Just take your time. Assess the situation." Now, after you've prepared an inventory of all the assets, you need to ask yourself how was title held to all those assets. Were there any assets in the name of your spouse alone? Were there some assets that you held jointly? Were there some assets with other people on them? Who are the beneficiaries of all the assets, the ones that pass by way of beneficiaries? You need to kind of ask yourself those questions first.
Are there any assets that are in a living trust? Maybe you and your spouse had a living trust together and some of those assets may be titled in the trust, in which case we may need to remove the spouse from those assets, and there is a procedure for that. If there are any assets that were only in your husband's or your wife's name, you may have a problem. Because some of those assets may exceed the $150,000 mark, which is the California limit, and you may find yourself in court because those assets were not in a trust or were not held jointly, or something like that. So we do that.
We also have to ask ourselves were there any debts owed by the deceased person? So if my wife passes away and she has $50,000 worth of hospital bills, those are my problem now. They're not personally, technically my problem, but they are the problem for the estate. But after all, my wife's estate is my estate. So I can't just throw those bills in the trash. I can't just disregard the credit card bills and all the bills that are coming in. So one of the other things that you should be doing, not only taking asset inventory, but also taking inventory of any and all debts that your spouse may have owed. If you're married, those debts belong to the community. Belong to the married couple. So you can't just walk away from those, you have to re-examine those. You may be able to negotiate some of them as well.
If you and your spouse had a prior estate plan, you need to examine what the trust says after the first death. Most living trusts for married couples will say what happens when the first person dies, and there's many variations on this. Some of it says that their surviving spouse gets to be in control. They still drive the bus until that person dies. Or it might say that the trust is supposed to split into two parts. I can't tell you how many people have those kind of trust, where it says when one person dies, the trust now splits into two portions, and a lot of people don't know that. Sometimes people did that for tax purposes, sometimes they did it because they had blended families.
There were many reasons to do that. Or some people have it because the attorney who drafted the documents didn't know what else to give them, and that's what they got. That is something that the clients need to look at. Another variation I see is it says that when the first person dies, no changes can be made to the trust. So we have to take a look at that document and see what it says is supposed to happen when the first person dies. The trust maybe still be revocable and amendable or it may not. So we have to take a look at that.
For the prior estate planning documents, powers of attorney, healthcare directive, wills, a lot of clients still have their spouse in the number one position on all of those documents. They'll say my spouse is my agent under power of attorney. My spouse can make healthcare decisions for me. What we need to do is we need to maybe revisit those documents and put other people in those roles, now that our spouse is no longer with us. Or a lot of people will only have their spouse and nobody beyond that. So they might say my husband Harry shall be my agent, but then no-one is beyond Harry. In which case, yes, it's time to probably redo those documents.
It might be important to redo the documents if they're over ten years old anyway, just because those documents are going to get older and older and older, and it might be a good idea to revisit all of that and put new people in all of those positions. Let's see here. Oh, are there any retirement accounts that your spouse had? You need to collect those IRAs, those 401ks. But don't make the mistake of liquidating them. Sometimes you'll call the IRA company and you'll say, "Oh, my husband died." They'll say, "Oh, would you like us to send you a check?" A lot of the clients say, "Yeah, sure. That sounds great," and they get this check in the mail, and what they don't realize is now there is a taxable event. That they have to pay taxes because they just got a check.
Instead, they need to do a spousal rollover. So they roll it into their own 401k or their own IRA. That's why I always tell clients to be careful about that. Then of course you want to talk with a CPA about any tax consequences, any pension benefits that you might be due, any life insurance proceeds that you might be due. You need to apply for those. Once you inherit those assets, now it's your turn to make sure you have the proper beneficiaries there. So when you get the IRA from your husband or from your wife, you need to make sure that you take the time now to designate the appropriate beneficiaries on your account.
One other thing, by the way. I think it's important. If the client is elderly, or maybe not even elderly, they're just not very good with money. I have seen a lot of people taken advantage of after their spouse dies and new people come into their lives, and I say, "Sometimes you might want to put a co-pilot with you." So let's say you do have a trust and you and your husband were handling that. It might be a good idea to put one of your children on now as your co-trustee with you. Especially if you are worried about other people coming into life and influencing you, or ... I had one client, she met a guy on Match.com and they started dating. They dated for a year, and he bamboozled her out of $300,000.
Patti Handy: Ouch.
Rob Mansour: He was a pro, and after he bamboozled her, he moved on to the next widow.
Patti Handy: Oh dear.
Rob Mansour: So from now on, my client and her son are co-trustees together. So that if a new guy ever comes along, he now not only has to go through her, but he has to go through her son as well, who's also standing guard, if you will, at the moat. So sometimes it is a good idea to name a co-trustee with you once your spouse is no longer there to assist you. But those are the kinds of things that I talk to clients about after the death of a spouse. I mean, there's much more to it than that, but those are some of the main points we cover.
Patti Handy: Yeah, those are good points and, you know, it sort of reinforces the importance of having a team with you. Whether it's a divorce, a death, or whatever it is, a life-changing event. Having a team. Having an attorney. Having a financial planner. Having a CPA. Having these professionals guide you, because you're not in a position to think, necessarily, logically when you're in the middle of this emotional, complete chaos.
Rob Mansour: Right, and you may not know all the options.
Patti Handy: Yeah. We're not specialists in law and in accounting any everything else so important. Really quickly, one thing that I made note of. You were talking about all the accounts, knowing where all the retirement accounts are and assets and whatnot. That's so important to know even before you're elderly. That should be discussed upfront so that the spouse knows where's all of our assets? I mean, the husband or wife could be killed in a car accident coming home, and if only one spouse was the money manager, that could be very dangerous. Because the other spouse has no idea what accounts are where.
Rob Mansour: It's overwhelming.
Patti Handy: It ... totally overwhelming. So it's important and it's fair for both of you to have a file of some kind with every account, every account number, current statements, so that there's no unknowns, and during that time of difficulty your child, somebody can come in and go, "Okay, where's that file? I'll take care of this," and then you can just go on from there.
Rob Mansour: That's right, and then now it's your responsibility to make sure that the new people that you're naming, your children or your siblings or whoever you're going to be naming in charge, they need to know where everything is, too. Because if something happens to you, now they're going to need to come to your aid, and you don't want them wondering what's going on, where everything is exactly.
Patti Handy: Yeah. Yeah. Great information. Thank you Rob. I know there's so much more to talk about this, and I think people will have a great resource in you for questions. How can they reach you?
Rob Mansour: Well, there's two ways. They can just pick up the phone and call the office, which is 661-414-7100. But if they really want to reach me 24/7, they can just hop on to my website, which is www.mansourlaw.com, and Mansour spelled M-A-N-S-O-U-R, the word law, dot com, and my website has tons of resources, tons of videos and articles that many people find to be very helpful.
Patti Handy: And it's all free.
Rob Mansour: And it's all free, exactly.
Patti Handy: That's a beautiful thing. All right. Thank you so much Rob.
Rob Mansour: Thanks Patti.
Patti Handy: Liked having you here.
Rob Mansour: Thank you.