How to Give Your Family Fewer Fights Over Money

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How to Give Your Family Fewer Fights Over Money

Because of the nature of what we do, we’ve seen lots of instances where sons and daughters, or maybe even grandsons and granddaughters are trying to sort through the finances of a loved one who has recently passed. I would say that in 80% or more of these cases, these families experience frustration over the difficulty of transitioning the assets to their appropriate place. There are a host of reasons for this. The purpose of this podcast episode is to identify some low hanging fruit that can make it easier to get things where they need to go following someone’s passing. We call this Estate Planning. So, we’re going to have a bit of Estate Planning 101 where we identify a few terms and then give you a few tips. Perhaps you need to hear these tips for your own estate. After all, whether you are 45 or 85, the time of our passing is unknown, so there is great value in making plans now. It may also be that these tips apply to someone else that you love, maybe with whom you’ve never had uncomfortable conversations about what happens to their assets in the future. Let’s start with one of the most important tools in estate planning, the Power of Attorney.

A Power of Attorney gives someone else the right to transact business on your behalf, in some ways almost to act in your stead. Power of attorneys can be broad, allowing a loved one to do almost anything on your behalf. Or they can be very narrow. I’ll give a couple of examples. Let’s start with a broad power of attorney. I’m going to try and make this easier by using a family we all probably remember: the Cosby’s.

• Let’s say a 75-year-old Cliff has noticed he is becoming more forgetful lately. He decides to ask his daughter, Rudy, to be his Durable Power of Attorney. Cliff could draft the document in such a way that Rudy is able to sign on his behalf to open and close bank accounts, pay bills, and buy or sell his property. Cliff should only do this if he trusts Rudy completely, as a broad Durable Power of Attorney can allow her to do just about anything in Cliff’s name. But there are other instances in which Powers of Attorney can be very limited.

• Let’s say Cliff doesn’t want to turn over that much control. He just wants his son, Theo, to be able to make health care decisions, should he not be able to do so at some point in the future. So, Cliff creates a Springing Health Care Power of Attorney. This type of power of attorney is not active until Cliff is unable to make decisions for himself. Often, the document will spell out that he has to be certified as unable to make health care decisions by a doctor. Once this certification is made, Theo’s ability to act on Cliff’s behalf “springs” into effect. Thus the name, Springing Health Care power of attorney. But Theo would not be able to do any financial transactions on Cliff’s behalf, because this power of attorney was limited to healthcare.

So, as you can see, POA’s can be drafted in very broad or very limited ways, but the essence is that you are authorizing someone else to be able to act on your behalf in some kind of capacity at some certain time. This can be incredibly valuable if it is drafted thoughtfully and carefully. Here are a few things a Power of Attorney Does Not Do:

• It does not exist once the person who drafted it has passed. If Cliff passes away, his daughter, Rudy, no longer has any control over his assets. Powers of Attorney cease upon death.

• Powers of Attorney are not beneficiary documents. They don’t direct the movement of assets upon death. That leads us to talk about something that will do that: the concept of joint ownership.

Joint Ownership is a wonderful tool to pass the proceeds of an account to someone else almost immediately upon the primary owner’s passing. Let’s get back to our example of the Cosby’s.

• 75-year-old Cliff and 74-year-old Claire have been married for almost 50 years. They are joint owners on their bank account, their house, and their investment accounts. Cliff ends up having a heart attack unexpectedly and passes. Regardless of what the will says, the assets in Joint name will pass to Claire immediately. This makes the movement of assets upon Cliff’s death much simpler. Although she will need to move these assets into a new account, Claire has a death certificate she will be able to do this rather seamlessly. This joint ownership allows a co-owner to help the primary owner manage the assets, but it also transfers those assets upon death, which a POA doesn’t do. Quick side note: be careful not to confuse joint ownership with being an authorized signer on an account. Being an authorized signer does not allow assets to pass to you upon death – it merely allows you to transact business on the account owner’s behalf while they are living. This is an important distinction in which some people get confused. I’ve seen children who were the authorized signers on their parent’s account to help them pay the bills. But when their parents passed away, they lost the ability to manage these assets and the assets had to go through the process of probating the will. One last caveat about joint ownership, there are different kinds of joint ownership. The kind of joint ownership I have been discussing is joint ownership with rights of survivorship. This is the kind you want if you intend for the assets in the account to go to the co-owner.

The last tool we’ll talk about is a will. A will is a document that disposes of your assets after you are gone. As we’ve already seen, you can pass many of your assets along through joint ownership without the need for a will. But there may be other assets you want to pass along that are not in joint ownership. Wills set up a person to take care of the assets of the deceased. This is typically called an executor. This is the person that takes the time to gather all of the assets and distribute them where they need to do. But the distribution of assets is done through probate court to make sure they are distributed in a way that is consistent with the will. In some case, this can be a very lengthy process. If you do not have all of your assets in some kind of joint-ownership, or if you do not have beneficiaries already set up on all of your accounts, you will need a will. Whether you are young, old, or somewhere in between, and will allows you to direct the disposition of your assets after you are gone.

So, what are some takeaways from this episode?

1. Give thought to estate planning. Many people put these considerations off because they are uncomfortable to think about. When the time comes, it makes it so much more difficult for those left behind. The first question to ask is “Who would I want to help me if I’m unable to make my own decisions one day.” The second question to ask is, “What do I want to happen to my assets when I’m gone.” Those two questions are a good starting point to just getting the ball rolling.

2. Talk to your loved ones about these things at an appropriate time and in an appropriate way. I have seen many families split over the disposition of assets after a loved one has passed away. You can’t keep this from happening, but you can make things as easy as possible to limit the chance of that happening. Let your intentions be known to someone. And be willing to consider documents that will make those intentions official.

3. When it comes to estate planning, take one step at a time. There are so many moving parts that it can be overwhelming to know where to start. A competent estate planning attorney can give you a checklist and guide you through each of the items one by one. Don’t get overwhelmed. You can’t address every scenario, and you certainly can’t see the future. So, prioritize and do one thing at a time.

Maybe you need to retitle your bank account. If you’re already making a change, why don’t you also consider a change that includes Foundation Bank? We are well equipped to serve your deposit needs with compassion and integrity. And we have some pretty awesome and unique accounts that you won’t find anywhere else we are aware of that are worth your time to check out. Start a financial conversation with us today by visiting foundationbank.org. We also hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. To be clear, we are not attorneys and thus this episode is not a recommendation specific to your own unique circumstances. Please consult your own legal advisor for guidance that pertains specifically to you. Foundation Bank and MBC are a member FDIC and an equal housing lender, and until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/Mckenzie Banking Company on August 20, 2024. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.