COMMON MYTHS / MISCONCEPTIONS
- Since I have a Will, my estate won’t go into probate.
A Will must be probated if the estate contains real property worth $20,000 or more and certain liquid assets with a combined value of $150,000 or more in the decedent’s name.
Probate, in a nutshell, is the court-supervised process of transferring property out of the name of someone who has died, into the name of the living beneficiary who was intended to receive that property. Probate is often a lengthy and expensive process. Probate fees are: 4% of first $100,000; 3% of next $100,000; 2% of next $800,000; 1% of next $15million; .5% of next $15 million, plus various costs.
- My Living Trust protects me from my creditors.
The Trust DOES NOT act as a shield to protect you from creditors. It is primarily designed to avoid conservatorship upon incapacity and probate upon death. While you are alive and competent, you have full control over your assets and consequently, your creditors can access trust assets through you.
- My assets are listed in the trust document- therefore, they’re “in the trust.”
In order to be “in the trust,” the title of assets must be changed. Real property requires new deeds; bank accounts/investments require new forms and signature cards to affect change. If the Trust name does not appear on a property tax bill or bank statements, that asset is not in the trust and may be subject to probate. Only assets in the Trust name avoid probate, unless they are Annuities, Life Insurance Policies, Retirement Accounts, Automobiles or personal items.
- A Power of Attorney Is Valid Even After I die.
Authority to act under a Power of Attorney stops when someone dies. At death, assets must go through probate or, if there is a Living Trust, then the Trustee powers take effect.
- 5. I cannot get Medi-Cal Long Term Care benefits because I own a home.
Actually, you can. A home is an exempt, non-countable asset and owning a home does not disqualify you from eligibility for benefits. You can legally (and should) take further steps to protect your home from recovery after you pass away. Also, other assets may be legally protected or repositioned as well, to allow for eligibility. It is important to protect these assets in case you are able to return home from the hospital or convalescent home, so there is a place to return to and money to live on or pay for caregiving expenses, etc.
- Since I didn’t plan for Medi-Cal 3 years ago, it’s too late now.
You can plan to qualify for Medi-Cal at any time. Under the current rules, there is neither a 3 year nor 5 year bar to protecting your assets.
- If I add my son/daughter to my house, everything will be ok.
Transfers of property under Joint Tenancy are very popular because they avoid probate. However Joint Tenancy causes many problems and is not good planning:
*Disinheritance– If you have 3 children, but only name one as the co-owner to avoid probate, then you have just disinherited the other 2 children, regardless of any Will or Trust to the contrary.
*Loss of Control– You must have consent from the co-owner to sell/refinance/transfer your property. If they disagree, you may end up in court.
*Exposure to Unintended Creditors– If your co-owner has creditors, gets sued or gets divorced; your property may be exposed to those claims; *Tax Consequences (gift/income tax issues)
Remember- “you can always give something away, but you can’t always get it back.”