Ask Liza: Everyday Estate Planning

Every now and then, I get a call from someone whose parent has recently passed away, leaving behind a will that leaves everything equally to all the children. Except -- and this is the reason for the call -- a bank account, or a house, or a retirement plan, or a life insurance policy that was left to just one brother or sister. The first question they have is whether this is legally possible: "Can Dad have done that?" they ask plaintively. After all, the will, they point out, left everything equally to all of the children -- how could something be given to just one of them? The answer is that Dad was perfectly entitled to leave an asset like a bank account, a brokerage account, a house, or a retirement plan to a specific child, regardless of what his will said, because wills only govern the distribution of some, but not all, of the assets that a person owns. (Though spouses have certain legal duties towards each other, there are no such protections for children.) Retirement assets and life insurance benefits go to the person designated as the beneficiaries of those plans. If Dad named his youngest daughter, Grace, as the beneficiary of his IRA or life insurance policy, the money is hers, and she has no legal obligation to share it with her siblings. The way in which an asset is legally owned, called its title, can also determine the person who owns it after somebody dies. If Dad had placed Grace on the title to his home or bank account as a joint tenant, she would be the sole owner of that property upon his death. Owning property in joint tenancy means that when one owner dies, the other automatically owns the entire asset by what lawyers call the "right of survivorship" and no probate is required to transfer the asset. And many bank and brokerage accounts can be transferred at death to a named beneficiary as well. If Grace had been the sole caretaker of Dad during his last illness, and he had wanted to reward her for her selfless dedication, he might also have left her one of his bank or brokerage accounts by making that account a transfer-on-death (TOD) or a payable-on-death (POD) account. By filing out a simple form at the bank or brokerage company's office, he could have designated Grace as the sole owner of the account upon his death. Again, such a designation would trump his will.

You can write your will online right now with Nolo's Online Will, and ensure that your final wishes are carried out.

If you're a senior citizen with a valuable house, a scarcity of cash, and a low income, you're likely to have been approached by a salesman for a reverse mortgage. Reverse mortgages are aptly named: Loans are made based on the equity in your home -- you receive cash now and the loan is paid off, with interest, only when the house is sold or you move out (often after your death). A recent New York Times article reports that there's now a $20-billion-a-year industry in reverse mortgages, with "elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier." While reverse mortgages can offer financial security to seniors otherwise unable to qualify for a traditional second mortgage or to find any other source of cash, they tend to be expensive and are often sold with high-pressure tactics. One woman, profiled in the Times' article, borrowed $218,900 against the value of her home, and received only $33,000 in cash. She disbursed the rest of the loan into complex investments that made it difficult to get her money back (and probably generated large commissions for others.) And if that's not scary enough, a financial regulatory group has just issued a report that warns seniors not use these expensive loans as a way to finance their retirement, because they have high fees (typically 7% of the home's value) and can make it difficult for homeowners to leave their property to their heirs. For helpful consumer information on what to look for and what to avoid when shopping for a reverse mortgage, check out the Federal Trade Commission's fact sheet and the AARP's Reverse Mortgage section.

To learn more about reverse mortgages, and whether you are a good candidate for one, see Nolo's article Should You Consider a Reverse Mortgage?.

A well-done estate plan takes care of those you love most: partners, spouses, children, and friends. But what about your beloved bunny, dog, cat, hamster, or parrot? How do you plan for their lifelong care and protection? Often, people's wills designate someone to take care of their pets. But what if you also want to leave behind money (say, $5,000) for your beloved rabbit, Bunny, for her lifetime care?

Because animals are not legally able to own money or property, you couldn't make a direct gift of $5,000 to Bunny. (Imagine a rabbit trying to open up a checking account!) So people who want to leave money for the care of an animal generally do one of two things.

The first, and simplest, way is to leave the money as a gift to your friend Bob in your will, along with a request that he use it for the lifelong care of Bunny. Upon your death, your executor, Rachel, would make this gift to Bob. Bob is now the owner of the $5,000. He has a moral obligation to use it for Bunny because you asked that he do so, but he doesn't have a legal duty to do so. If Bob instead uses his new windfall to take a trip around the world, no one can sue him to return the money to Bunny or to provide for Bunny's care. If you don't state what should happen to any money left over after Bunny dies, Bob would keep it.

The second, and more complicated, way to provide for Bunny would be to establish a pet trust. Pet trusts are now valid in nearly all states, though states differ in the details of what they allow and forbid. To check if pet trusts are valid in your state, check with your local Humane Society or go to Estateplanningforpets.org.

Think of a trust (pet or otherwise) as a gift with strings attached. Legally, a trust is an agreement between a person contributing money or property (the grantor), a person who will manage and distribute that money (the trustee), and the person (or, in this case, pet) who will use the money (the beneficiary). The trust agreement spells out what the money can be used for and how it should be distributed. Pet trust laws make it possible to create trusts that benefit an animal, not a person. If your state has one, Bunny can have her own Bunny Trust.

The money in the Bunny Trust can be used for the care of Bunny and for her expenses, such as food and medical care. Your trust should, at a minimum, spell out:

• who the manager of the trust would be


• who should take over if your first choice can't do so


• who would take care of Bunny


• how to identify Bunny


• what kind of care she would need, and


• what to do with any money left over after Bunny dies.

Depending on how your state's pet trust law works, if Bob doesn't use the money for Bunny's care as directed, a person named in your trust to enforce it, or possibly a person appointed by a court, could sue Bob to enforce its terms.To learn more about pet trusts, pick up a copy of Every Dog's Legal Guide: A Must-Have Book for Your Owner by Mary Randolph, J.D. (Nolo).

Actor Heath Ledger made a will when he was just 23 -- unusual, and very smart for a rising star in the movie industry. Unfortunately, Ledger didn't update his will after his daughter was born two years ago. So when he died unexpectedly at age 28 in January, his will left nothing to his daughter Matilda or her mother, actress Michelle Williams. In most states, this means that little Matilda would be entitled to nothing from Ledger, because in most situations children who are left out of a will cannot claim a share of a deceased parent's estate. There are exceptions in some states -- for example, in Florida, a minor child (younger than 18) is entitled to your residence. Luckily, in this case, Ledger's family -- who inherit under that five-year-old will -- have promised to do the right thing and take care of the girl and her mother. But Matilda must depend on their good hearts, not the law. Almost everyone eventually needs more than one will. If you've made a will, pat yourself on the back -- but then go dig your document out of the back of the filing cabinet and see whether or not it still reflects your wishes.

You can write your will online right now with Nolo's Online Will, and ensure that your final wishes are carried out.