Dear Michael:

We read, with great interest an article about how to go about avoiding probate on our savings and investments and, yet, still maintain some control after them after we die. Every time we talk to our financial advisor or banker, they just give us forms for Payment On Death or POD. However, this means these assets would go to our children directly upon our death.

Without a doubt, this would mean some or all of our savings would be squandered. We have good kids but some of our in-laws keep coming out to the farm and mentioning what a nice inheritance it will be and how they’ll be able to buy the lake house, etc. Plus, they can’t even get their credit cards sorted out or put any money away themselves.

I don’t know what’s happened to saving in the USA, but it’s just not part of this next generation’s idea of life.

– Waiting On Us To Die

 

Dear Waiting On Us To Die:

Payment On Death (POD’s) is a great way to avoid probate. However, as implied in the name, it does become payable to your heirs at the time of your death and there are no strings attached. It goes directly to them – usually in the same type of investment it is in now.

There’s a psychological factor that differentiates you from your children (or their spouses) in regards to savings – whether that be stock accounts, CDs, or other investments. You took over half a century to build what you have in your savings accounts. This next-generation has spent over fifty years figuring out what they can buy next and have it covered by the income they receive. Two totally different ways of thinking.

A few facts that will really jolt you:

  • Almost eighty-four percent of all inheritances are gone within two years of the death of the previous owner.
  • Over fifty-five percent of million-dollar-plus lottery winners declare bankruptcy within three years of winning.
  • Almost ninety percent of all professional athletes are broke within two years of ending their professional career – even those who made millions of dollars such Warren Sap, Evander Holyfield, Mike Tyson, Terrell Owens, etc., etc.

How could these people squander such huge amounts of money? Because it came to them suddenly and somewhere in the human brain there exists a little “I can finally afford to do THIS!!!” Whatever this is? Or they have somebody who tells them how they will double the money they received and they become prey to any and every huckster out there trying to take their money.

In the estate cases, I advise on, as a financial advisor I first tell my clients as they age to take less and fewer chances with their money and liquidity becomes more and more vital. For people who have complex investments, converting these investments to cash can be a long, frustrating endeavor.

Oftentimes, children will receive inheritances of investments and they do the dollar cost averaging in reverse – they take out a little at a time (instead of putting in over years and years) and their net losses can be significant. Second, there is a thing called a testamentary trust. This is a trust created by your will and can be named as a POD of your investments, savings, or other assets such as CDs, annuities, or life insurance. A place to pool the money, if you will.

You get to decide what to put into your testamentary trust as to when and how the children will receive the money and you can change your will (and the trust) at any time. You might state that other than a small initial sum, the children have to meet with the bank trustee and wealth management advisor prior to receiving additional sums.

You might state the children have to pay off all their credit cards (make 20% on your money) and show up the next year with clean balances in order to get another installment.

You might state they can pay off their house, their cars, or you can merely state the funds will be put into an investment trust until they reach a certain age. That way if there are any divorces or bankruptcies looming your unaware of, the money can’t be lost.