Author: Gloria Qiao, Founder & CEO of Trusli
At the beginning of the year, we wrote a piece about what to do to not get screwed and lawyer up this year. Ironically, the Chinese community has recently been talking about this poor lady who died of stomach cancer mid-age. Her husband received $2M+ worth of life insurance proceeds from her employer. Her parents were in the US when she passed. Subsequently, the husband found a new girlfriend and married her within two weeks of the woman’s death. After the new wife got pregnant, the husband chased the dead wife’s parents out of their house (which presumably all went to him). Finally, are you ready for this—he didn’t want to spend money to bury her in a cemetery so he split the ashes into two halves: half for the parents to take home, and the other half to bury under their porch!
One could argue about the husband is selfish, cold, or even immoral. However, all these tragedies could have been avoided if this woman wanted. When she was alive and conscientious, she could have easily made arrangements about her assets like her house, the proceeds of her life insurance policy, and even her own burial! While many of these topics are unpleasant or seem morbid to a healthy person, this could easily happen to any of us and we don’t want to rely on our luck with our surviving spouse’s morality and character alone (how she could have chosen such a husband is a separate debate).
1. You must have a will
For starters, I hope this woman had a will. If she didn’t, all her assets passed automatically to her heirs. In this case, if she didn’t have children, her only heir maybe her husband. This may be shocking to some Chinese people or even Chinese lawyers as parents are considered natural heirs and share the assets equally with the surviving spouse and children in China. I was unpleasantly surprised to find out that half of my father’s assets went to his parents when he passed, who in turn have 10+ heirs! This is a big difference between the US and China when it comes to inheritance rights. In this case, she may or may not have assumed her parents have the inheritance rights, but they don’t in the US.
If you die without a will, in legal terms “intestate”, then your entire estate has to go through the probate court. It is a lengthy and complicated process that involves lawyer fees. In addition, people get to search up your asset distribution via public records.
Even if you do have a will, you only get to avoid probate if each of your single assets is distributed to specified beneficiaries. If you miss anything, the assets which don’t have precise, specified beneficiaries will still go through the probate process.
In the will, you can also arrange for important decisions such as burial. Although I wouldn’t mind being buried on my front porch, this is a sensitive topic in many cultures and religions. If you have a preference, for sure include it in your will so your ashes don't end up at an unexpected place like this poor lady’s.
2. Even better, set up a trust
If the idea of probate sounds daunting to someone like yourself who wants to leave your affairs neat and clean for anyone you leave behind, a trust may be a much better idea.
A common way to avoid probate is to set up a revocable living trust. You can be a trustee yourself so effectively you are in full control of your own assets. Even if you set up a revocable living trust with someone else as a trustee, you can revoke it, modify the trustee, and change which assets are within the trust. When you do pass, all the assets in the trust will be passed to your designated beneficiaries without ever having to go to the probate court. This is a big advantage over the complicated, lengthy and costly probate process.
To avoid any leftover assets that you don’t end up transferring to the trust, you can also have a “pour-over will” in case there are any assets left outside of the trust that needs to be arranged for.
3. A living trust is good, but an irrevocable trust might be better
In comparison with a revocable living trust, there are a few advantages to an irrevocable trust.
First advantage: no creditor can touch assets in an irrevocable trust
Your assets in a revocable living trust can still be traced by creditors. In the case of an irrevocable trust, once the assets are transferred into the trust, they cannot be touched by creditors or any legal judgment. This safeguards the assets from any potential liability if you are a high-risk professional such as a lawyer or doctor.
Second advantage: estate tax avoidance
An irrevocable trust is a good way to avoid any estate tax when the person does pass. To set up an irrevocable trust is a bit more complicated, but here at Trusli, we have plenty of professional yet affordable trust and estate lawyers to help you through the process.
Third advantage: works better than a prenup
For spouses who are trying to arrange for the division of their property for the children after their deaths, this may be a good way to distribute their assets fairly knowing the other spouse can’t change the arrangement if one of them dies. Many couples with complicated arrangements such as pre-marriage children and significant pre-marriage assets may think they can protect themselves and their heirs by entering into a prenup agreement. However, such agreements may be challenged in court. Also, it always involves a difficult conversation with your future spouse about very unpleasant and sensitive topics. However, if you put all your pre-marriage assets in an irrevocable trust, such issues can easily be avoided and you are guaranteed to protect the assets and ensure they go to who you want them to go to, be it your children before this marriage, your parents, or whoever you choose.
4. To avoid last-minute scramble, have a living will
A living will is intended to arrange for your healthcare in case you can no longer make decisions for yourself. For example, if all fails, do you want to be kept on a breathing machine for a long time? For me, the answer is hell no; but you decide for yourself. In conjunction, you should have a power of attorney for your healthcare and financial affairs in case the unthinkable happens. Make sure this person knows your wishes about your healthcare and financial arrangements.
Sounds daunting? Don’t worry, Trusli can help you find lawyers to navigate through these complicated matters. Again, just because something is unpleasant doesn’t mean we shouldn’t plan for it. This poor lady is a good example of what not to do. If you don’t want your parents being chased out of your own house a month after your death, talk to us today and take action to set up your will and trust!