Blog

General Motors is currently offering buyouts to 18,000 salaried employees who have 12 or more years of experience. Employee buyout packages can come in the form of a one-time lump sum payment, which without proper planning, can have tax and estate implications.

If you decide to take the buyout, there are a few things to consider. Where is the money going to be deposited?

If you deposited the money into a bank account and were to pass away without designating beneficiaries, then your estate could have to go through the probate process, which can be lengthy and frustrating for your family.

Or, the you may think you are covered because you have a joint account or some version of a pay on death clause.  But joint account holders and pay on death beneficiaries can inherit the entire sum at once, and if this is a younger child, then they may have access to a large sum of money before they are ready to handle that kind of financial responsibility.

In joint tenancy, each person owns the entire asset, not a part of the asset. This legal fiction of two or more people owning 100 percent of the same asset is derived from the full name given to joint tenancy: joint tenancy with right of survivorship. “Right of survivorship” means that whoever dies last owns the property. The previous joint tenants merely had the use of the property while they were alive.

Joint tenancy property is “uncontrollable.” Even if a joint tenant intends to have his or her share pass to loved ones, the property is not controlled by the instruction in the joint tenant’s will or trust. Joint tenancy automatically passes to its surviving owners by operation of law.

Some of the more devastating pitfalls of joint tenancy are:

1. There is no control, and property may pass to unintended heirs.
2. There are no planning opportunities.
3. For married couples, probate is at best delayed, not totally avoided.
4. For non-spousal owners, unintentional gift taxes and death taxes can be generated.

Proper planning here could include designating who you want as your beneficiaries; designating how and when you would like your beneficiaries to inherit; and designating that beneficiaries like younger children have to learn about investing before they inherit or have to have protections in place, so they won’t spend their entire inheritance in the blink of an eye.

Proper planning for the future can save you and your loved one’s time and money and should be considered before taking any form of lump sum payout.

Let’s look at our definition of estate planning:

I want to maintain control while I’m alive and well,

Plan for myself and my loved ones, if I become disabled,

And after I’m gone

• Give what I have
• To whom I want,
• When I want,
• The way I want

All while assuring my wisdom is transferred along with the rest of my wealth.

Using this definition as a guide, you can see that no matter how much money you have, it is important to plan for the different stages of life.

A trust can be created to handle the things we own and preserve our independence and control during our lifetime, including periods of disability. A fully funded trust can provide for a private transfer of your assets in the event of a disability or death. A trust allows you to remain in control when you are disabled.

After you have died, a trust can provide personal protections and instructions for your loved ones to achieve other goals. For example, a parent may want their children (especially minors or young adults) to use the funds for their own education or to send grandchildren to college. It can also prevent creditors, predators, and ex-spouses from taking your child’s inheritance.

In addition, keeping assets in a trust after death provides protection for beneficiaries who may have special needs or be prone to financial mismanagement. Similarly, trusts can ensure assets intended for a surviving spouse and children, do not get diverted should the surviving spouse remarry.

Depending on your personal goals and circumstances a trust may be right for you. There are many points to consider, including some that have not been included here. It is recommended that you seek proper counsel before making this decision.

If you decide to take the buyout, and want to start your planning, you can reach me at (248) 409-0256. We offer a free initial consultation to learn more about our process.