Settle Matters Quickly: Bypass Probate

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So, welcome to Finishing Well with my good friend and financial planner, certified financial planner, Hans Shile. Today's show is bypassing probate, controlling your assets. Along those lines, this one's pretty self-explanatory in that Jesus actually said it in Matthew 5 when in his Sermon on the Mount. He said, Settle matters quickly with your adversary who's taking you to court.

Do it while you're still together on the way or your adversary may hand you over to the judge and the judge may hand you over to the officer and you may be thrown in prison. And again, that's not going to happen over probate, we hope, but anybody who's been through this process realizes, oh my goodness, how valuable is it when you can bypass probate? And interestingly, as Hans would tell you, you know, two and a half years ago when I started the show, I thought probate was something, you know, one of those purple worms that they use bass fishing. But that's not what probate. Probate is what happens, unfortunately, when someone passes away and their assets go into, well, I'll let you describe it. So probate, official proving of a will, court process of distributing assets after death. So when you have a will, you got to prove it. The will gets presented by somebody other than you because you're deceased. And it gets presented to the probate court. And then that has to be proven or there's a process to say this is really his will or her will. And this is really valid.

And it was given a sound mind. And this is what they say they want to do with everything. And then the court process then, within there of probate is just distributing things according to that will. And I also looked up bypass, which didn't really do that. But I just thought if we're going to the title of the show is bypass probate. Well, I'll look that one up to it says go around or avoid. What we're wanting to do here is we're setting things up to go around this lengthy process when it's all possible. Yeah. And having been through that process with my father's stuff, which took almost 18 months before my brothers and sisters got their portion of his assets, because there was so much that went into all that, that you had to make sure the taxes were right.

You got to file newspaper things so that anybody has a claim against the state. There's just all sorts of things that are happening. And so wow, if somebody was in desperate need of some of these assets in the meantime, this is a really, really, really good show. I would recommend it to everybody because I have to know that you got a number of things that you're really going to help people with today, huh? Well, yeah, well, it's really the seven worries that we go over.

So I'm sitting across the table with people. And I'm really wanting to assess with a new client and incoming client like, okay, so what's important to them? And not just in the state planning, what happens after they die? I mean, what's important to them? How do they want to live? You know, how do they feel about taxes? How do they feel about government programs like Medicare and Social Security? How do they feel and how do they want their spouse to be looking after after they pass away? Just just kind of getting their general thoughts on everything.

And this specifically around this estate business, is I really want to find out how important their state is to them. And sometimes it's difficult to talk to people about or get them talking about, but I really want to hear at the deepest level, what is your desire in some people, when I really get their desires out, it's not real pretty, they kind of come out with things like, I don't care what happens now, you know, just whatever. And that's, that's some people. And then with a lot of them, it's not really true what they're saying. It's just kind of defensive, because they're a little afraid of death.

But some people, it's really sincere. And then there's other people, it's the most important thing in the world, I want my son to have this, I want my daughter to have this, I want my grandchildren to do this, I want them to continue on with this property, I want to provide for this, you know, it just and everything in between. And so what we're talking about here is then, how do I assist them in making this happen?

And bypassing probate is just like on my mind from the minute I meet somebody. I'm thinking of ways to do that. And so I've got, you know, when I, I've got six of them listed here.

So I would think that we're, we're not going to make it through all six in the first part of the show. But let's start. That sound good to you?

Oh, yeah, let's go. So, so like, I just had a client who passed away in the last couple of weeks. And I was just sitting with his widow and beneficiary yesterday. So a lot of this is fresh in my mind.

And I'm really neat guy. And he, you know, his, his home is really the only asset that's going to pass through probate. And it might not even have to do that. Because his name's on there, his wife's name's on there. And that's how most people hold their houses. They just got husband and wife, if they're married, and they've got two names on there. And so if you hold assets jointly, with rights of survivorship, the way most home titles are set up, then that your home doesn't have to go through probate. I mean, she just keeps on living there. And we just send a copy of the desk to get down to the registrar deeds.

And we just asked for his name to be removed from there. Because he's deceased, which they will do, and then it just leaves her name remaining. There's a lot of people want to do this with their children, where they want to add their kids onto their house. And that is a way to do it. And, you know, it has its pluses, it'll avoid probate. But I always want to caution you is anytime you add somebody's name onto an asset, it's just like giving it to them. And if they were sued, or they got divorced, or they died before you did, there could be people that would make claims against that on their estate. So holding assets jointly with rights of survivorship, you want to do very carefully.

Okay, that's what I'm going to say. But it is a way to avoid probate. Okay?

Okay. The next one is hold assets jointly with assets in a trust. So you probably hear these just commercials or read about things where you're going to a seminar, and they're going to buy you free dinner. And, you know, it's going to tell you that put everything you got in a trust. And at some level, that can be good advice, because it's going to avoid probate. And that's usually the demon in the whole thing is that so they're trying to go on after the same goal that I am.

What I don't like about that is, you know, a huge serving of anything at the extreme isn't always good. There's a lot of people that do that, that spend a lot of money on their trust. And then they really could do it other ways.

So I'm not necessarily promoting those. I'm just simply saying that you could set up a trust, you could do that with a piece of real estate, and you could just put it in the name of the trust. And you still have control over it because it would be a revocable trust. And then when you die, the real estate just gets transferred to whoever you wanted it to get transferred to. You put money in there. So if you held things in a trust, the trust is going to live beyond you.

And then you could just put the distribution in there, you'd avoid the probate court, right? But those things are expensive. They're expensive. And many times, they don't work out exactly like you thought they were because a lot of these orders sold to people in a big seminar is they just give you the boilerplate document trust. I mean, they just spit that thing out of a word processor.

And it hasn't anticipated a lot of things. So you know, again, I'm not pitching them as an end all be all. But there are places with clients that I recommend that they open a trust and they start a trust for a specific purpose. So I do use that in my recommendations for some people. And if you have things in a trust, they will bypass probate.

Okay. Darrell Bock And one little tidbit I would add since I was on the end of a bad trust, right? My dad had one where nobody had taken into account that his wife may pass before him, which because she was so much younger than him. And then they had never opened the trust. And so what I went through with all that, and there weren't many assets in that trust, but the stuff that was there, oh my goodness, to unravel that mess was like, man, you're not talking to a big fan of trusts, right?

John Greenewald Well, people, I've heard many people use the word will and trust interchangeably. Say, Oh, yeah, we opened up a trust, we did a trust. And sometimes when I look into it, all they did was write their will, but they're calling it a trust. And then there are times when their will contained a trust, or can drain their provision to write a trust.

I mean, so there's a lot of confusion with that. And then what you just spoken of, there's a need to keep up with a trust to to to put assets in it, take assets out of it. When when the beneficiaries die before the grantor of the trust, then you need to go redo it. You need to anticipate those from the beginning. So there's so much involved with the trust.

That's why I'm just generally I'm not a real fan of people pitching those from the podium, and then everybody signs up and moves all their assets in there. So, so I'm not a I'm not selling any of these things. I'm just telling you that some combination of this, we can figure out a way to have most of your money pass to the next generation or to your spouse or whoever. And we can avoid the probate court.

Okay, okay. So next one is if you have an IRA or a 401k, it has a beneficiary designation on it. In fact, if it doesn't, it's not a 401k or an IRA, that's part of the deal. And whoever you put down last is going to get that money right after you die. And it has nothing to do with the will and probate and all that kind of stuff. And I can tell you that a lot of people, when I start asking about all their stuff and taking in information on their money and their assets, and we begin the planning, oh, well, who's the beneficiary on the IRA? Oh, well, we took care of that in the will. People will just interrupt me and they'll just say, oh, that's been all taken care of.

Darrell Bock Speaking of interrupting you, we got to go to a break. But let me tell you, the beneficiaries on your IRA, oh my goodness, that's a great can of worms to open up in the next segment. In the meantime, I want to tell you that the show is brought to you by CardinalGuide.com and Hans' book, The Complete Cardinal Guide to Planning for and Living Retirement. And so many other things are links and all sorts of wonderful resources there at CardinalGuide.com.

We'll be right back. Welcome back to Finishing Well, and today's show is Bypassing Probate and Controlling Your Assets. And when we lift our hero Hans, he was describing the whole idea behind beneficiaries on IRAs and 401Ks, and this is such a critical category, isn't it, Hans? Dr. Charles significantly wider Europe Well, and everybody that's listening is going to get my little lecture on beneficiaries. Just think about every beneficiary that you have.

And if this is the only one you have, when's the last time you checked it? I've run into people where we've had ex wives or ex-spouses still on the beneficiary, and then the person died and their ex spouse lost money. Some people put the estate down. So now you got a a beneficiary and they just listed the estate. What that's doing is taking a non-probate asset and actually putting it in probate.

I don't really recommend that. I guess if you've got nobody else to put down and you really want the probate court to muck around and figure out who they ought to give it to or you want your will to rule, you could do that. My recommendation is that you update these regularly and it's any IRA, 401k, 403b, they all have a beneficiary designation on it, make sure that they're current and then put down contingent beneficiaries so that it says, like my beneficiary says all my stuff is Rhonda and then with the contingent beneficiaries are my two sons and that way if Rhonda passes away before me and then when I pass away, I don't even need to change that beneficiary, I would. I'd change it if she passed away first but if I didn't, my sons would just, as soon as she passed away, would step up and they'd be the primary beneficiaries. So the important thing for this show to understand is that your beneficiary is going to, they're going to send the money directly to whoever it says on there and it's going to be paid out long before the will gets even probated or settled or anything else.

Okay? Yeah, which is really a huge help and I mean that that transfer happens almost immediately and that's a beautiful thing. Well, it is and so the thing I want you to understand, it almost sounds like I'm dissing the will and probate and I'm not. What I want to get clear on is the will and the probate process, the way I view it, is a pour-over document.

It's a pour-over process, it's going to catch anything that is not covered in the techniques that we put forth to avoid probate. So you may want some of your assets to actually pass through probate, if you've got a farm to divide up or something and you just want that to go through all the proper processes and you don't want to do a trust, well then by all means, use that and just know it's going to take them a year or so to have the court sort it all out. But also know that if we use a beneficiary, it's not going to have anything to do with the will and the probate or if you have it called, if you actually put it in your will that I want my IRA to go to Fred and then your beneficiary form said, well even if it said Fred, Fred's already going to have the money by the time the probate court figures out that you put it in your will.

And if the beneficiary form said Mary, Mary's already going to have the money and the probate court doesn't have any way to go back and undo that, they don't have any authority. Annuity beneficiaries. So that's a benefit to putting some money in an annuity and you haven't drawn it out as income yet, you've just been letting it sit there and accumulate value and when you name a beneficiary, the money is just going to go straight to the beneficiary just like all the other beneficiaries we talked about. And it happened fairly quickly and it's not going to go through probate and the thing I wanted to point out with annuities is if there's deferred taxes, you know, so a lot of people put money in annuities so they don't have to pay tax on the interest that they accumulate currently, but somebody's going to have to pay tax on that accumulated interest and who it will be is your beneficiary.

So the principal will come to them tax free but they're going to have to pay taxes on the accumulated interest but it's still nice it's going to get settled real quickly. Now the next one I brought up is life insurance beneficiaries and this is another one that people are generally familiar with and usually the life insurance beneficiaries are filled out by the insurance agent, the life insurance agent that's selling you the policy. So as opposed to an IRA beneficiary, that's usually something you're filling out yourself. Life insurance, it's usually on the application, there's many times we find life insurance even with our own clients, people just haven't updated this stuff. So again, you're going to get the same lecture, check all your beneficiaries, you know, every few years and I'll be glad to help you do it and just make sure that you got the right person that you want and that they're still living and that they're going to get the money. And the thing about life insurance is most of the time life insurance benefits pass to the beneficiary's tax free. So in other words, if you put money into a life insurance policy and then it's accrued value and then it's now paying out at the death benefit, which is way more than you put in there, it's not going to be like the annuities, your beneficiaries are just going to get a check and it's going to be tax free and it's completely avoiding probate. Now the sixth one that I have listed here, and there's more than these, but I just wanted – Well before we get to the sixth one, I think it's helpful to remark on the poor widow that you just saw yesterday, right? I mean this was one of those situations where that was the whole reason, or one of the reasons that you were going to see her was that he had bought life insurance at an older age.

Well he did. I mean I met him in church where I was talking to a group at his church and what he told me is, he came up to me after the thing, he says, I've got about $25,000 that I've saved out of my military pensions and I'm saving that because my wife doesn't have any survivor benefits on my military pensions. One of them is for disability and I'm just worried that I'm going to die before she does and then she's going to have trouble making house payments. And so I want you to tell me what to invest this in so she's going to have a lot of money when I die. Well, you're 77 years old, I said, you need to be looking at life insurance because we're just not going to grow this to that much money and we're going to have to take risk. And he looked at me and he just said, I can't get life insurance, I'm too old and I'm too sick. And I said to him, I said, well I'm the guy that's in the life insurance business for 40 some years, so how about if I be the one making that decision? And I said, so he turned it into a question, can I get anyhow, long story short, we got him a policy.

It was expensive because he had a pacemaker and he had type 2 diabetes, but other than that, he kept himself in very good shape, he's very active and so we got him insured. And yesterday, I was just filling out the paperwork to get her the $100,000 life insurance policy that I sold him 7 years ago and praise the Lord, I mean it's just tax-free. And I told him at the time, I said, we may pay off the house, we may not pay off the house. And first of all, there's not enough money to pay off the house, but he's got other life insurance, so we could, but what we're going to do is we're just going to make the payments on the house out of the money and just kind of keep control of that money. But all of that is bypassing probate, which is the topic of the show. And not to mention his wishes that were like, wow, his wife doesn't have to worry at all that she won't be able to make the payments on the house based on the planning that they did 7 years ago.

Sure. And then she was telling me about something in the will, that she gets the house and that she can sell it under these conditions, but she's supposed to leave the house to the kids and his kids and her kids and all this business. And I just looked at her and I said, you know, you could do anything you want with that house because you're married to him and you bought it together and his name's on there. We're going to do with a probate court. And so I think it'll be fine and good for you to carry out whatever he put in there the way you understand it. But you don't have to explain it to me or the probate court or nobody, you just go do that.

And she was so happy about all that, this was so overwhelming to her, he just passed away a week ago. And I'm thinking that we might not even have to probate his will. I mean, I've got an attorney that helps with that kind of thing, but we might just not because everything is passing by beneficiary.

That's beautiful, isn't it? There is a sixth one that I wanted to put on here and this is probably the most overlooked one on any bank account, any brokerage account, stock brokerage account, any, well we already went over IRAs, but they have this thing called TOD, transfer on death. So it's very similar to a beneficiary, well I guess it is a beneficiary, it's just called something different.

And I can't tell you the number of people where they have just nothing put in there. And I think that a lot of these forms are filled out by the person at the bank or the stockbroker or somebody and they just skip over this because it just adds detail that they got to mess with. But if you go to your accounts and you make a designation of a transfer on death, then this isn't going to go, your bank account is not going to go through probate or your stock brokerage account is not, it's just when you make a designation, it's just going to go to who they say it goes to, they'll just remove yours and name and add theirs. So we can sit down with most people and set up a plan with their money that most of their stuff other than their real estate is going to pass outside of brokerage.

Really it's a way to help your heirs essentially access resources that you really want them to have and you don't want them to wait two years in order to be able to get it. Well sure, I mean the biggest thing on her mind was paying the funeral director. I mean the bill is $14,500, I mean she knows exactly and I was, she was just, she got some money in her account, more than that. And so I'm saying that's a bill we need to pay and you can pay it.

And they're already stopping his social security check and all that, she's in the middle of all that stuff and very worried. And I said all this life insurance money is going to come in and then we're going to deposit it all in the bank and then we're going to sit down and put together a plan from there. But just to have all this done quickly is a real blessing. So again this, all these are covered in Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. That's right there at cardinalguide.com and then these YouTube videos are really a resource and Hans, tell our folks how to find them. Yeah, so if you go to Cardinal Advisors and you just search on YouTube and that's O-R-S, advise ores, cardinal advise ores, and I believe if you just type my name into the YouTube search, Hans Scheil, S-C-H-E-I-L, either way, they're just going to come up and there's a whole series of very similar radio shows where we're on video with a whiteboard and we're just walking through all these topics and we're just getting calls from all over the country.

That's wonderful. Well, thanks again Hans, another great show. Again, it's cardinalguide.com. Thank you. Finishing well is a general discussion and education of the issues facing retirees, cardinalguide.com, Cardinal Advisors, and Hans Scheil CFP, Cell Insurance. This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' bestselling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on The Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com, cardinalguide.com. This is the Truth Network.