What’s love got to do with money? Everything Part III

What’s love got to with money? Everything – Part III Making the Complex Simple (or not)

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Bob and Karen, both having both been married before, were thrilled to find one another, full of hope for a promising future together. In spite of the love they shared, Karen was a smart and practical woman in her early 40’s who had seen the mistakes her girlfriends had made. She was determined that wouldn’t happen to her.

Bob and Karen wisely discussed money long before they ever married to make sure they shared common beliefs about how they would handle money. Karen made sure she and her new husband went to an attorney to draw up a will naming each other as beneficiaries of their estates. Bob and Karen specifically planned for Bob’s children by setting up a trust and funding it with life insurance.

After fifteen years of marriage, Bob unexpectedly died.

And Karen was shocked by what she learned.
After his first marriage ended, Bob had changed the beneficiary on his $250,000 life insurance policy to his mother. It made sense at the time. He had minor children and wanted his mother to have the money to take care of them and their education. Bob just never got around to changing the beneficiary to Karen.

But it got worse. Before meeting Karen, Bob had rolled over a 401k from a previous employer into an IRA. Guess who he named as his beneficiaries? Right. His children. The IRA had grown to over $700,000. Bob and Karen had made big plans to retire early next year and use the IRA as income to help fund their travels.

Luckily, Bob did have a 401k with his newest employer which named Karen as his beneficiary. Unfortunately, because of the downturn in the recent bear market, there was only $78,000 in the account. A far cry from the $700,000 in his IRA.

Karen did automatically become the sole owner of her home. The title was held as “joint tenants with rights of survivorship.” She also inherited the $98,000 mortgage.

But wait … Bob had a will! Doesn’t that change things?

Karen got the car, Bob’s train collection, and his personal savings account held at the local bank. Value $36,000. Every other asset had an overriding beneficiary designation.

Not only was Karen grieving for the loss of her husband, she now had limited assets to rely on for her future. Correctly titling assets to reflect what Bob and Karen had talked about would have changed everything!

Common Misconceptions about Wills

Although having a Will is a very important, often people are confused in what a will actually does. Your Last Will and Testament is a legal document which helps transfer property at your death. Your named Executor (Executrix if a woman) is the representative who will carry out your wishes.

A will has no jurisdiction over assets that are titled to pass to someone else at death.

If you do not have a will, any assets without a named beneficiary will be distributed by the will your State has already prepared for you, called the Statute of Descent and Distribution. This may very well be how Anna Nicole Smith’s estate is settled.

Some states, ex. Ohio, have great charts outlining exactly how your estate will be distributed. Other states, ex. Florida, make it somewhat confusing. You have to do a lot of reading. But each state has its own Statute.

What assets avoid probate?

It all depends on how they are titled. Property held jointly, with a named beneficiary, or titled “transfer on death” or “payable on death” is not subject to the provisions of your will and therefore avoids probate. Assets held within a trust are not probatable assets.

Many times it is our most valuable assets that do NOT pass through a will due to the way they are titled or because of named beneficiaries.

Bank Accounts.
Trust assets.
Retirement accounts, like an IRA, SEP, 401(k), 403(b). or PSP.
Life insurance.
Savings Bonds.
Your home.
Even a car!
Jointly held property*

It also may depend on the state you live in. Community property states have adopted a different conception of the relationship of husband and wife. These nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) consider all property acquired during a marriage, except by gift or inheritance, to be community property. Each spouse owns half of the community property.

*NOTE: Not all jointly owned property has survivorship options. Even then, “Joint and Survivorship” property ownership is generally recommended for small estates and for transfers between spouses, not parent and child. Also, it is not normally recommended for large estates because of tax reasons.

Why is this important for every woman to know?

Even if you and your partner have wills, if you have not properly designated beneficiaries on your assets, you could be left out in the cold. With no options. It’s too late.

Bob and Karen entered into their second marriage full of love and a hope of a promising future together. They truly thought they had taken the right action by preparing wills.

Why should you have a will?

Probate is not a terrible thing and can actually have great benefits.

• If you have minor children, a will allows you to name a guardian.
• A well planned estate can avoid estate taxes. This may involve use of a trust. (This is an issue beyond the scope of this article. Please consult with an attorney.)
• You can choose someone to help make the administration of your estate run smoothly.
• You may own joint property without rights of survivorship.
• A will makes sure assets are distributed as you direct. It is not a good idea to name one child as the beneficiary of your accounts and then expect them to equally distribute assets according to your wishes.

One of our roles is to help you become aware of the issues so you can find answers to questions you didn’t think to ask. If you are single, there are additional considerations. An attorney can help you decide on the best titling option for you. What is the right option for someone else may not be the best option for you. Your situation and options are not the same as another family member or your girlfriend.

Understand your options and consult with a professional who can help you make the right decision.

After all, that is what love is all about. Taking care of ourselves and our loved ones.

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