How to Protect Your Assets and Prevent Probate

Durable Power of Attorney

A Durable Power of Attorney allows you to pick a trusted family member or friend (your “attorney-in-fact” or “agent”) who will take care of managing your money and other property if you become mentally incompetent.  That is, you are unable to make rational and informed decisions or become incapable of resisting outside influence.

Without a durable power of attorney, bank and investment accounts held in your name will become inaccessible, IRA distributions can’t be requested, bills can’t get paid, tax returns won’t be filed, and real estate can’t be bought or sold.

Instead, a loved one may be forced into court, an emotionally and financially draining process, to be appointed as the legal guardian.  And, a Judge will oversee the guardian’s every move. The guardian not only has to manage your affairs, but annual reports to the court are required at an additional annual expense.

A Durable Power of Attorney provides authority to handle your affairs without the court’s involvement.

Only by writing things down properly can you make sure your decisions and rights will be protected. 

Even if you have a Trust, you need a Durable Power of Attorney.  There are powers, personal to you, that a Trust cannot grant a third person.  For example, a Trust cannot allow a third party to sue somebody on your behalf, like if there was a car accident.

Revocable Trust with a Pour Over Will

Revocable means you can change the terms of the trust, transfer property freely in and out of the trust, control the property fully, and even revoke the trust.

Basically, you give your property to a trusted “person” to be managed for you or somebody else.  Person is in quotes above because the courts have ruled that even when you transfer the property to yourself as the trustee, you are a separate “legal person.”

In the case of the Revocable Living Trust used for Probate and other planning, you are the Grantor, Trustee, and immediate Beneficiary of the trust. 

You own the Trust, and the Trust owns the property.

If it sounds scary to transfer your property to somebody else, remember, in most cases a Trust is setup to avoid probate and manage property.  You often transfer the property to yourself as the Trustee (a legally separate person…).

Often, you, as Trustee, own the property and you are the Beneficiary and Grantor.

You literally own nothing in your own name.  The property is owned in your name as the Trustee.  When you have a Revocable Living Trust, you literally own nothing.  Your Trust owns it all.  But don’t worry.  Because you are the Trustee (in control) and the Beneficiary of the Trust, you stay in full control of all the assets.  You can have the income, spend the money, sell, buy, and do anything you need to with the property in the trust.  In every practical sense, have a Revocable Living Trust is almost identical to owning all your property directly.

If you become unable to manage the property, then you have already named a successor Trustee to manage the property for you.

The difference happens when you are gone or incapacitated.

Since technically you didn’t own the property, there is nothing to go to Probate.  Instead your property and assets are quickly distributed to your heirs without all the red tape and bureaucracy.  Your successor Trustee doesn’t have to get the approval of the courts.

A Pour Over Will is created to handle any property you didn’t put in the Trust.  Maybe you bought a new car and it isn’t titled to the trust (which is normal).

Last Will and Testament with Additional Planning

A Last Will and Testament alone is not a probate avoidance device!

A Last Will and Testament alone does not protect you during your lifetime!

A Last Will and Testament only goes into effect after you pass!

A Last Will and Testament requires Probate to be validated.

A Will is completely ineffective until Probate.  A Will is the instrument of Probate.  Probate is required to make the Will stand up and be followed.  Court and judges are required.

Your Will is like a letter to the Court telling the Court how you want your property distributed.  Somebody must make sure that the Will is proved to the Court (that is, this is the original Will and it was signed correctly), that all your property is collected and appraised, and all your bills and taxes are paid, before your property can be distributed to your heirs.

A judge must validate the Will and appoint the person in charge of the estate.  Only then is the Will valid and in affect.  Until then, it is just a piece of paper with no legal power.

Wills are among the most contested legal documents in the United States.  Today, it is common for unhappy relatives to challenge a Will.  This results in higher attorneys’ fees and even more delays.  It is not uncommon for a contest to be raised over trivial matters.  It seems that some people just want to cause problems despite the fact it doesn’t gain them much of anything.

Wills encourage challenges over assets because a petition must be filed in Court to probate them, which is like filing a lawsuit.  As a result, since a lawsuit has already been filed to probate the Will, a contesting party can simply file their claim in Court without instigating their own lawsuit.

However, if your estate is straightforward, a Will may be a good planning tool for distributing your remaining assets.  But you will need to do some additional planning.

Irrevocable Trusts (Medicaid Planning)

You need to understand, Medicaid has a 5 year look back period on giving away assets or making gifts.  Medicaid considers this to be a “gift” and will penalize you for it.  IF YOU NEED MEDICAID SOON, SOME OF THESE TECHNIQUES WILL CAUSE A PENALTY.

The Medicaid lookback period basically starts on the day you otherwise (but for any gifts) qualify for Medicaid and goes back for 5 years.  They are looking for anything you gave away (with certain exceptions) or sold for less than fair market value.  Giving assets to a trust (to the trustee) is considered a gift.

You can protect assets from Medicaid, with advance planning.

You can put assets in a properly crafted irrevocable trust.  After 5 years, your assets are protected.  But an irrevocable trust has certain drawbacks.

• You can’t remove assets from it, only convert them from one form to another
• You can’t change the terms of the trust
• You can’t receive distributions (other than income) from the Trust

You can also just give your assets to your children.

But there are negative tax implications as well as the 5-year lookback to worry about.

If you qualify, you can purchase long-term care insurance or a life insurance with a long-term care insurance rider.

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