Episode 44 What Works Wednesday: The Four Ways Money Passes After Death

PeaceLink Financial Planning LLC

Transcript:

Welcome back to another episode of What Works Wednesday. Today I've got a really exciting topic that people love to talk about, death. Just kidding, and not just kidding that we're gonna talk about death, we are, but people don't like to talk about it. It's a really painful topic, even when I'm meeting with clients and we're kind of going through building their financial plan, it's a really important topic to talk about.

because we know it's gonna happen eventually. As sad as that is, as much as we don't like to deal with our own mortality, it's important. And it's important to make sure that our loved ones are set up for success, that our spouse, our kids, our friends, our community are not negatively impacted if something were to happen to us. But even when I'm working with clients, you see them kind of retract back. You see them brush things off. And so it's a really hard conversation.

but it's really, really important. And it's a big topic. It's a huge topic with lots of areas to talk about. Life insurance, retirement income, estate planning. It just is big and it's overwhelming. And so if you're listening to this and you're like, I'm just gonna click the next episode because today is not the day I'm gonna talk about death. That's okay. But I do encourage you to come back at some point and listen to this full episode.

because we're going to talk about a really high level basic touch point, which is what are the four ways that money passes should you die? And this is kind of the foundation to estate planning, which estate planning basically says if something were to happen to you, what's the game plan? Where do things go? Who takes care of the kids? Who can make decisions and to understand what the four big options are can allow you.

to take control of that situation and make a plan for yourself and your family that is the best for yourself. Do not be someone who passes without a plan in place and leaves your family in a world of hurt. It's not a good move. It's not being a good steward of the relationships and the people in your life. So make a plan and understand if A then B on how these things work.

So let's dive in. Let's talk about the four ways money passes. When we pass away, our stuff has to go somewhere. Our stuff did not disappear and it doesn't turn to dust. So we can't have bank accounts and cars and homes just rotting on the side of the road that are owned by someone who passed away 10 years ago where it never transferred ownership. So...

there is a responsibility to actually transfer ownership of these things one way or another. So the primary, if there's not a plan in place, the responsibility for that falls on the local jurisdiction, the state, the city, where their job is then to say, okay, this person passed away, they didn't have anything in place, we now have to figure out where this stuff goes. This is the first way money passes. It's called intestacy. If something passes, intestate.

That means the state or local jurisdiction is in charge of making those decisions for you. You'd be shocked at how common this is and how detrimental it is. Because we just automatically assume it's gonna go in order to my spouse and my kids and everything's gonna be fine, so who cares? But that's not always the case. First of all, the state can then take a big fee because they're like, hey, this is all of your stuff, all your bank accounts, your life insurance, your house, your cars.

Well, we're taking on this responsibility, we need to get paid for this. And so they can take some significant fees from your estate through probate at court, through executor fees, things like that, where then your family doesn't get as much. Secondly, you may have designated wishes that they don't follow through on because they don't care and they don't know because you never wrote it down. So in the state of Virginia, specifically,

If something moves and tested, on average, the state will take their chunk. What's remaining, a third will go to the spouse and two thirds will go into a trust for the kids. Well, that might be fine because the spouse will be set up as the custodian of the kids, but when the kids turn 18, that means that's their money. They take it. And your spouse is left with just a little bit that is not theirs. It didn't move all to the spouse and then the spouse passed away all to the kids.

That's just a local jurisdiction thing here, but you may not want that. Or you may be estranged from a family member. Ideally not. No one wants that, but that may be the case. Or you may have a special needs child who has more specific needs where you would say, Hey, I actually want to give more to that child. Or I want to put certain protections for that child. You may have a child who you're not estranged from, but who has, you know, substance abuse or mental health issues where you would say, I would rather give them.

this money differently, not just in a lump sum. So when things pass and test it, typically your family gets the least amount of whatever the assets of the estate are, and you have the least amount of control. And if you're a surviving spouse or surviving child, it can be really, really painful. So we don't want option one. Option two is legal passing. Whether things are owned jointly or you have a beneficiary or something called a pa-

or transfer on death notice on accounts, we can set this up on your retirement account. Who's the beneficiary? You have a legal document that says if I die, this specific account passes to this specific person. I own my house jointly with my wife, so if I pass away, she's still the owner. It doesn't have to pass. She just is now the only owner because the one owner, me, passed away. So legal ownership, titling, beneficiaries.