“It's really important to understand the reasons that you are doing estate planning and the goals and objectives. Down the line, it's going to save money, and it's going to save hard feelings and save your loved ones' time and energy to do this correctly. And if you can save money, whether it be tax-wise or administratively, I think it makes all the sense in the world to at least at some point... you don't have to think about it often, but every five to 10 years, you should be thinking about what you want to have survive you, and whether that's your own legacy in making sure that your ideas and thoughts are surviving you, which can be built into a plan, whether it's just monetary related...”
“Everyone's here for a certain amount of time and you want to be sure that that time is well spent and meaningful, but you also want to leave what you can to the next generation and be able to continue that legacy.”
- Bill Ellsworth, J.D.
Less than 50% of adults have a will, and only 33% have an estate plan. They're not just for "rich" people; not having a proper plan can cost thousands of dollars in unnecessary legal fees. Those fees could cost your family and estate even more than the cost of creating an estate plan! What's more, leaving assets and people behind without the right paperwork could cause enormous heartache, family conflict, and burden your loved ones with days, months - even years of estate settlement work if you become disabled or die.
Bill Ellsworth is an Estate Planning attorney who has spent years creating comprehensive estate plans for a wide range of incomes and ages. This episode of The Matt Feret Show will give you an insider’s guide to all the aspects and considerations of estate planning, including healthcare power of attorney, wills, trusts, special situations, and a whole lot more.
Listen to the episode on Apple Podcasts, Spotify, Deezer, Podcast Addict, Stitcher, Google Podcasts, Amazon Music, Alexa Flash Briefing, iHeart, Acast or on your favorite podcast platform. You can watch the interview on YouTube here.
Brought to you by Prepare for Medicare – The Insider’s Guide book series. Sign up for the Prepare for Medicare Newsletter, an exclusive subscription-only newsletter that delivers the inside scoop to help you stay up-to-date with your Medicare insurance coverage, highlight Medicare news you can use, and reminders for important dates throughout the year. When you sign up, you’ll immediately gain access to seven FREE Medicare checklists.
“The times that I see the most problems is when the planning hasn't gotten done or hasn't been thought through in the proper manner. So, if there are illiquid assets, and frankly, they haven't used an estate planning attorney, maybe they had someone else do these documents or they didn't get done at all, they never wanted to think about it, that's when there tends to be a power struggle, when there's a lot of shuffling, estates don't get administered in the timeframe that would be expected. I've seen estates drag on for 20 years.”
- Bill Ellsworth, J.D.
“When designating a healthcare power of attorney, I think it's important to try to think about your closest relations and then who you trust to be able to make these decisions. I like to tell clients that this is one of the roles that you definitely want to talk to, the person you're designating, before the need arises. Make sure that, number one, that they're comfortable with making these decisions on your behalf. Number two, make sure that they understand what you'd want those decisions to be, what it looks like as far as treatments. Is there any treatment that you've seen that you know you don't want? I've had clients tell me very specific treatments that they've had other loved ones go through that they know it's not worth it, they would never want that for themselves.”
- Bill Ellsworth, J.D.
00:02:09 Bill’s professional background and specialization
00:03:21 What is estate planning?
00:06:46 When you need a will and what wills cover.
00:08:51 Wills, assets and age.
00:10:51 How wills and trusts work together.
00:12:02 Trusts and tax planning.
00:16:46 Should you DIY wills and trusts?
00:20:10 Estate planning and power of attorney.
00:22:12 Risks of not having power of attorney designations.
00:24:02 How to choose a healthcare power of attorney.
00:27:20 How to choose a property or financial power of attorney.
00:29:42 Beyond estate planning basics – premarital agreements and general asset protection.
00:30:43 Gifting trusts.
00:31:52 Irrevocable trusts and intentionally defective grantor trusts.
00:33:12 Estate planning with children.
00:39:51 Do you have to be present for the reading of a will?
00:42:08 Estate planning and family dynamics.
00:45:48 How do I make my passing easier on my family and heirs?
00:49:31 Show Wrap!
00:00:00 / 00:52:55
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Matt Feret (00:02):
Hello, everyone. This is Matt Feret, author of the Prepare for Medicare book series, and welcome to another episode of The Matt Feret Show, where I interview insiders and experts to help light a path to a successful retirement.
Hello, everyone. This is Matt Feret, and welcome to another episode of The Matt Feret Show, where I interview insiders and experts to help light a path to a successful retirement. Come say hello at themattferetshow.com for show links, notes, websites referenced, quotable quotes, and the complete show transcript. You can also check out prepareformedicare.com, and my new site, prepareforsocialsecurity.com. Both support the books Prepare for Medicare: The Insider's Guide to Buying Medicare Insurance, and Prepare for Social Security: The Insider's Guide to Maximizing Your Retirement Benefits. Each website has a spot where you can sign up for my monthly newsletter. I cover Medicare, Social Security, plus wealth, wisdom, and wellness topics in or nearing retirement.
Did you know more than half of US adults don't have a will? According to my guest on this episode of The Matt Feret Show, there are a whole host of reasons every adult over the age of 18 should have one. Wills are just one piece of estate planning, and according to a recent survey by a senior living referral service, over 67% of people don't have an estate plan. Think you need millions in assets to have an estate plan? That's simply not the case, and for a lot of reasons, most of which you probably haven't even heard or thought about.
Bill Ellsworth is an estate planning lawyer who has spent years creating comprehensive estate plans for a wide range of incomes and ages. We also spent a lot of time talking about sensitive topics like end-of-life considerations, as well as advice around complex family dynamics that often emerge when a loved one dies. This episode of The Matt Feret Show will give you an insider's guide to all the aspects and considerations of estate planning, including healthcare power of attorneys, ages and stages where certain parts of estate planning make more sense and when they don't, wills, trusts and a whole lot more. Enjoy.
Bill, welcome to the show.
Bill Ellsworth (02:13):
All right. Thank you, Matt.
Matt Feret (02:15):
So, tell everybody what you do, how long you've been doing it, and how you help people.
Bill Ellsworth (02:19):
Yeah. So, I've been an estate planning attorney since 2007 and an attorney, I guess, since 2007, and I've consistently kind of whittled my practice into the estate planning field. So, I've started my practice, I started doing estate planning with probate, with general corporate work, and a lot of tax planning as well. And then, I kind of began representing a lot of closely-held business owners in really doing business succession planning along with estate planning. And that's kind of what I do right now, is continue to do just estate planning primarily with the closely-held business owners, with people across the financial spectrum as well, though. So, from young families starting out that want simple wills to really high net worth individuals.
Matt Feret (03:21):
So, define that for me. So, estate planning is a phrase or a term. What does that mean? Wills? Wills and trusts? Anything else?
Bill Ellsworth (03:30):
Yeah, so as far as the tools of estate planning, we're talking about documents, and documents that you're leaving to individuals, you're putting in places with authority to act on your behalf. So, we're talking about wills, trusts, powers of attorney, business succession planning documents, premarital agreements. All of these fall within the realm of the general term estate planning.
Matt Feret (03:59):
Okay, thank you. So, do you mind if I take them one by one?
Bill Ellsworth (04:03):
Matt Feret (04:04):
Let's talk about wills first. No one really likes to think about their eventual demise. The 22-year-old marathon runner may not be thinking about his or her impending death as much as, say, an 85 year old might be. Talk about wills. I mean, there are all sorts of stats all over the internet. Anywhere between 45% of the people say they have a will. 65% of the people say they have a will, but not a trust or an estate plan. Wills. In very simplistic terms, why do you need one and when should you start thinking about it, and when do you absolutely have to have one in your estimation?
Bill Ellsworth (04:46):
Yeah. So, will deals with two important functions primarily. One is disposition of assets after death, and then the secondary piece is guardianship for minors that you might leave behind. So, if you don't have a will, what happens is you still have an estate plan, it's just the estate plan that's given to you by your state of residence. So, every state in the United States has a probate code. And the probate code is going to say if you pass away and you have an asset that's subject to probate, where that asset would go to. And it's pretty typical for the state to set that law at, if you've got a surviving spouse, it could go to the surviving spouse, if you've got children, it could get split up 50/50 between spouse and children. And from there, it goes to more remote descendants.
So, the first object of just putting a will in place is to make sure that your estate plan is reflective of what you want to do as opposed to what the state statute might say. A will is a public document, meaning it gets filed with the court after death. So, every will, once you've got one, is eventually going to get filed in the court. It's eventually going to become a public record. So, what you're putting into the will is going to be exactly what you want to have happen. And for that reason, since it is public record, a lot of times, what a more extensive estate plan is going to do is set up a revocable trust as well because that's a private document. But I'm getting beyond the question, so I'll stop there.
Matt Feret (06:46):
We'll go to revocable trusts here in a minute. But before wills, when does someone have to start thinking about this? Is this when they actually have an asset? I mean, are we talking like a car, or are we talking more substantial than that? And is there an age or a stage that it's more important to think about?
Bill Ellsworth (07:00):
Yeah, so it's important to recognize what a will actually covers. And so, a will, like I said, it gets filed with the probate court. It covers probate assets. And a probate asset is an asset that is held by a person individually and does not have a beneficiary designation. So, if I had a bank account and it was just titled to me individually, I didn't have any designation assigned to it, whether it be a transfer on death TOD or any beneficiary, at my passing, now I'm not around anymore, that's part of my estate. That's a probate asset. A will would govern that asset, as opposed to other assets that are governed outside of a will, such as accounts with beneficiary designations. So, typical accounts with beneficiary designations would be life insurance, retirement accounts. So, absent of beneficiary designation on those accounts, those would also be probate assets.
Also, there's ways of titling assets that the law is going to govern where those assets go, like joint tenancy with rights of survivorship. So, a lot of times, you'll see married couples hold joint accounts. In that event, that's not a probate asset either. At death of the first spouse, those assets automatically transfer to the survivor by operation of law. So, again, not governed by the will. So, a will governs really these very specific assets that you're just holding individually. They're not subject to any contract, meaning a beneficiary designation. They're not subject to operation of law by joint tenancy. And now, the will is telling the executor where these assets are going.
Matt Feret (08:51):
And to the age and stage question, is that a financial number? Is it an age? Do you have to have kids?
Bill Ellsworth (08:57):
Yeah. So, I think it's dependent on the assets, right? And also probably an age. So, it's kind of a little bit of both in that case. If you have assets and you know that you want them to go to specific persons, maybe you're doing that through a beneficiary designation. If that's not an option, then a will is the first step in figuring out exactly how you're going to get them to the people you want to get them to. So, is it something that everyone over the age of 18 should have a will? Not necessarily. Is it something that everyone that's married and has children should have a will? Absolutely. Absolutely.
So, I think one of the first steps in having a will is often that family dynamic when you're having children. Those persons definitely need a will because of that second function I mentioned with respect to guardianship. So, it's asset dependent. If you can take care of your estate without having a will through beneficiary designations, I suppose you can get away with it. But I think it's always good planning and definitely recommended that any adult should have a will, because it's necessary for planning to have that comprehensive plan and make sure that the assets get to where you want. You should really think about where you want them to go and put that in place in writing in a document that's official, that's witnessed and notarized with the authority of a will.
Matt Feret (10:51):
Thank you. So, let's go back to the two phrases that... You already brought the other one up, but will and trust, those things get mashed together all the time. So, you mentioned if you have a will, and there's a trust that goes along with it most times? Sometimes? Why is it important to marry the two?
Bill Ellsworth (11:11):
Yeah. So, a will and a trust work together. And they're different in a number of respects, but one of the most prominent respects is that a will gets filed with the court and is public record, whereas a trust is by nature a private document, and the only persons that have the right to see that trust document are your beneficiaries. So, a trust, number one, it makes administration of an estate a lot easier because it can eliminate that court process, that probate court process where an executor has to go to court to get authority from the judge to begin to act. So, it eliminates that step, and your successor trustee can step right in and do what the trust says right away.
The other thing a trust can do better than a will, I would say, is tax planning. So, a revocable trust is going to have the tax terms to deal with estate taxes and income taxes that a will might... Simple wills tend to just say, "Okay, these assets are going to this person or that person," are not necessarily setting up trusts within that will document. Whereas, a trust can divide an estate into many different sub-trusts and deal with how those sub-trusts are funded in accordance with the estate tax exemptions. The other thing-
Matt Feret (12:47):
Sorry to interrupt you. Is that a big thing? Because again, I have a very, very small amount of knowledge around this stuff, which is why I asked the question. You hear wills and trusts and then taxes. Is really a large part of this the tax treatment? If you go through probate, is there a different... If you only have a will, or don't have a will, sorry, and go through probate, are there taxes the state's going to take taxes, taxes the feds are going to take, that can be at least mitigated or bucketed by a trust?
Bill Ellsworth (13:19):
Yeah, so right now, the federal estate tax is... there's an exemption amount, and it's the highest exemption that there's ever been. It's tied to the Trump tax cuts. So, it's a $12.92 million exemption per person in 2023. So, obviously, that affects very few people. The Trump tax cuts expire at the end of '25. January 1st, 2026 rolls around, if there's no changes in the law prior to then, then we're going to have a $6 million exemption, indexed for inflation. So, it will rope in a few more people, but still very historically high as far as who that tax would touch. So, a couple would need $12 million in assets or more to be subject to that 40% federal estate tax rate.
So, the answer to your question is, though a will and a trust don't necessarily avoid the tax, what a trust can do better than a will is the tax planning, meaning that there's certain states where we want to keep each person in the married couple, their estate separate, and be able to utilize both exemptions. And Illinois is one of those states. There's certain other states that are like that. So, one of the things a trust can do is keep each person in the couple estates in their separate lanes and create these separate sub-trusts for the survivor of the two, where those assets are for the survivor's benefit, but not part of the survivor's taxable estate, for tax purposes.
So, when we're talking about estate planning and taxes, we have to deal with the estate tax, but we also have to deal with income taxes as well. And with income taxes, for non-qualified assets, non-retirement assets, you get a step up in tax basis at date of death. And so, depending on what the objectives for the estate are, we can try to maximize that income tax step up and basis as well.
So, to take a step back, I guess when you talk about the overall objectives of estate planning and why these tools are important, why wills and trusts are important, what we're really trying to do is create efficiencies, number one, keep you out of court. We're trying to do the tax planning, number two. The other objective is to get assets to the persons you want to get them to in the manner you want to get them to them, with the control required. So, there's a difference between saying, "Here's here's your inheritance. Off you go. Do whatever you want with it," versus, "Here's your inheritance. It's in trust for your benefit. We've got this professional or we've got this person that's also available to help you manage these assets. And at a certain point, maybe we trust you to take care of this inheritance yourself, but maybe you're not ready to do so just yet." So, I think those are really the primary objectives of any estate plan.
Matt Feret (16:46):
So, to wrap up wills and trusts, before we move into broader estate planning, as wills and trusts are kind of a bucket underneath that umbrella, is a will and trust a DIY kind of thing? There are all sorts of online providers, fill this out, hit enter, and it's not a legally binding document, but you've got a will and trust. Is this something that people should tackle on their own, or is it really something they should trust a professional with, or are there different levels for different needs?
Bill Ellsworth (17:20):
Yeah. Well, as with most things, I think there's different levels for different needs. Is it a DIY thing? I would recommend that it not be for most people. There's too many mistakes that can be made. There's too much legalese that's built into even the LegalZoom type documents, that unless you are in the field and understanding the nature, you may be making mistakes that are unintentional.
And so, there's been cases throughout the years that have proven this fact, that maybe the beneficiaries aren't the people that the principal intended to benefit. There's always these contingencies that you're going to get built into the plan that may not be thought through by a professional. So, like with most things, whether you're dealing with your car or your lawn, you might be better served to find a professional that can help out and get you in the right spot.
Matt Feret (18:33):
Thanks. And one last question about wills and trust. You mentioned Illinois. Are there states across the country that it's more important or not as important to have a will and trust combined together, given what you know about different state laws and processes?
Bill Ellsworth (18:52):
Yeah. So, certain states, it's definitely, probate is much more of an expensive endeavor than other states. And the reasons for that are certain states are going to charge for the executor a fee that's a percentage of the estate assets. Certain states are going to be more expensive to get into court, or more time-consuming, more delays. So, definitely depending on where you're at in the country, the different statutes, the different processes are going to affect that administration and the problems you might run into. That being said, the proper funding of a revocable trust is often going to avoid those issues regardless of where you're at in the United States.
Matt Feret (19:55):
Thank you. Let's go to estate planning. So, wills and trusts are part of estate planning, but only a part of it. What else does estate planning, the umbrella term, mean? What are the different parts of it?
Bill Ellsworth (20:10):
Yeah. So, one of the other common tools of estate planning... So, will and trust, really you can think about those documents dealing with what happens after death, where the estate's going to get distributed and how it's going to get there. The other documents that are really required of anyone over the age of 18 are powers of attorney. And powers of attorney deal with disability and what happens if you are unable to act during your lifetime.
And so, you've got two typical types of powers of attorney. You've got a medical power of attorney, a healthcare power of attorney, that deals with agency for making medical decisions on your behalf if you're not able to do so. And then you've got a property power of attorney for financial agency and dealing with any financial power that you might otherwise be able to deal with. And what the powers of attorney sidestep is the need to go to guardianship court if you do have a disability.
So, if a person is disabled, can't act, and doesn't have a power of attorney in place, what a hospital might require, what a financial agency, a bank, a custodian might require is a guardian to get appointed by the court to get authority to act on the disabled person's behalf. And if you have a power of attorney in place, that agency is already there. That person that you've appointed, that you trust has the agency, has the authority to act on the behalf and make sure that the bills get paid in the financial case, that there's authority to make medical decisions on the principal's behalf.
So, these are really important documents. They can avoid a lot of heartache. They can avoid a lot of fees. Frankly, guardianships are a very expensive process. There's attorneys that have to represent the petitioner that's going to petition the court for guardianship. The principal has to be represented as well, the disabled. So, the court has to appoint an attorney to represent the disabled. Medical opinions have to be gained. So, there's all these steps that go into guardianship that make it time-consuming and expensive. And if a person can think about who they want to be able to step in their shoes, who they trust to act in a fiduciary capacity for them prior to the need for guardianship, it's just a big savings for the estate, for the person, and tends to make the family situation a whole lot easier.
Matt Feret (23:13):
Yeah, I bet you've seen or heard of a couple of instances where those things went sideways, and it's not only the legal and the cost, it's the family dynamics I have to imagine as well.
Bill Ellsworth (23:27):
Yeah, that's absolutely right. And with all these documents, what we're trying to do is draft into these documents the exact wishes of the principal, of the party whose documents are being set up, so that all these family dynamics can be thought through and dealt with prior to that time so that it's an easier process for everyone.
Matt Feret (24:02):
What do I look for in a healthcare power of attorney if I'm trying to deem one? Brother, sister, aunt, uncle, someone completely... a friend. How do I go about thinking about who I want to make medical decisions for me, up to and including pulling the plug? How do I go about thinking about who to designate?
Bill Ellsworth (24:23):
Yeah. Well, I think it's important to try to think about your closest relations and then who you trust to be able to make these decisions. I like to tell clients that this is one of the roles that you definitely want to talk to, the person you're designating, before the need arises. Make sure that, number one, that they're comfortable with making these decisions on your behalf. Number two, make sure that they understand what you'd want those decisions to be, what it looks like as far as treatments. Is there any treatment that you've seen that you know you don't want? I've had clients tell me very specific treatments that they've had other loved ones go through that they know it's not worth it, they would never want that for themselves.
So, the conversations with those persons are important. I think it's important to have one person acting on your behalf as opposed to co-agents, because the problem you run into with co-agents is that they're not always going to agree. And now you might run into the same issue as to whose opinion is going to get more weight. And so, you might end up back in court. So, I like and prefer to have one person acting. And some states require one agent to be acting as opposed to having a co-agency situation.
So, those are really the things that I think... the conversations that have to be had, the things people have to think about when designating an agent. And then, this is not a financial role. So, a lot of these roles in estate planning are financial roles. Who would best be able to manage the money? Who could make these distributions? This is a very, I guess, more personal type of role because everyone has their own opinions on what healthcare means and quality of life to them. So, it's putting that... It could be a friend, it could be a family member.
I think it's important that the person that they're designating also be close or able to be close in proximity, to be able to be at the hospital to make those decisions, just because these are decisions that are, I think, more effective to be communicated in person as opposed to any number of ways we can communicate nowadays, video conference or whatever else. So, I like proximity to at least be a factor when determining who to appoint.
Matt Feret (27:20):
That's really helpful. What about the financial piece? I think you called it a... did you say property POA or just POA?
Bill Ellsworth (27:27):
Matt Feret (27:28):
What's the official phrase? I know I'm not getting it right.
Bill Ellsworth (27:30):
Yeah, the official phrase is a property power of attorney. Yeah, so property power of attorney is financial agency. And so, again, you're appointing a person to be able to step in your shoes and make fiduciary decisions on your behalf with respect to any financial decision, is the broad general property power of attorney.
A few decision points with the property power of attorney. One is when you want that to be effective. So, it could be effective immediately on signing, or it could be effective... what's known as a springing power of attorney, effective later. And it springs into effect at a certain time. A springing power of attorney tends to be... You said, define what that means, and what that tends to be is effective on disability, and you have a physician's order that says the principal is now disabled and now your agent that's named is able to have power and to act on the principal's behalf.
So, when you see springing powers of attorney, that tends to be for non-married persons, maybe single individuals. They don't want anyone being able to access their bank account prior to a disability, prior to when they actually need to act. Because what the property power of attorney is, in the dark sense, it's the power to steal. Once you have an agent that has this document, they have the right to take that to a bank or take that to a financial institution and access your accounts. So, you wouldn't name an unscrupulous person as your agent, but when you run into problems, these are the types of issues that you see, is that that agent has overstepped their bounds and their powers when acting in these roles.
Matt Feret (29:31):
Yeah, money can do strange things sometimes to people.
Bill Ellsworth (29:35):
Matt Feret (29:36):
Yeah. All right, so those are the power of attorneys. What's next around the estate planning planning piece?
Bill Ellsworth (29:42):
Yeah, so that's your basic estate plan, those pieces.
Matt Feret (29:46):
Bill Ellsworth (29:49):
There's other documents that are used often in estate planning, and there's other avenues of estate planning. So, you could talk about premarital agreements and the rights of spouses, and defining what that means prior to going into a marriage. You could talk about more general asset protection and putting your assets in various buckets so that creditors could only attack certain pieces of your net worth. And so, sometimes, asset protection involves setting up limited liability companies and making sure that those companies are properly funded and insured and you've got your various wealth lined up into those companies.
Sometimes, you're talking about maybe doing some gifting prior to death and what that looks like. So, there's gifting trusts that could be set up for grandchildren or for children, where you're starting to fund those trusts with lifetime gifts. So, one of the tax code provisions is that you could give a gift to any person during a year without reducing your lifetime exemption, your estate tax exemption. And so, in 2023, that amount is $17,000 per year per person. So, you could gift up to that amount without having to file a tax return, a gift tax return to report the gift to the government. So, sometimes you might see grandparents that want to gift into a trust for their grandchildren, and if they've got 10 grandchildren, they could gift $170,000 into this trust and still be able to manage those assets for the grandchildren's benefit. Those assets are not part of their taxable estate anymore.
And so, there's all sorts of irrevocable trusts that go into estate planning, irrevocable life insurance trust, intentionally defective grantor trust, SLATs, spousal lifetime access trusts. All these various acronyms.
Matt Feret (32:11):
Right. You lost me on the one prior to SLATs. What was that one?
Bill Ellsworth (32:16):
Intentionally defective grantor trusts. Yes, yes.
Matt Feret (32:20):
My brain had a picture of a toaster in it, but that's not a toaster. What is that? I'm even going to have you repeat it again. What is it again, and what is it?
Bill Ellsworth (32:29):
Yeah. So, that's a irrevocable trust. So, what it is in the most basic form, it's a trust you can fund to move assets outside of your estate. It's no longer part of your estate, but for income tax purposes, it's intentionally defective, meaning all the assets are still on your personal tax return for income tax purposes. So, it's a way for estate planners to split the estate between what our goals are for estate tax purposes versus what our goals are for income tax purposes.
Matt Feret (33:09):
Thank you very much.
Bill Ellsworth (33:12):
Matt Feret (33:12):
So, let me pivot really quickly to something we touched on earlier, but I want to go back to: ages. And so, if I think about my kids and my situation, if I passed away tomorrow, let's pretend I had $100,000 that one of my kids was going to get. Well, I don't want my 19-year-old college kid to have $100,000. When I'm thinking about this, and again, the age range of my kids is late teens to early twenties. Obviously, you're not going to give a five year old $100,000. In those situations, how do you set up your estate planning? What are the considerations that need to be made for a married person with kids at various stages in ages? Do you see, nothing happens till 30? Is there a POA that kind of helps it, that oversees it? Do you trickle in a little money every year and then a lump sum? How does all this work typically?
Bill Ellsworth (34:08):
Yeah, so I think a typical married person with children, the typical plan is that at death of the first spouse, the assets are around for the benefit of the survivor's spouse. And whether or not the survivor is controlling all those assets is really factual and dependent, and probably tax dependent as well. So, there could be a self-trust set up for the survivor depending on what that tax situation looks like.
But the basic concept is, most couples want the survivor to have the assets, have the ability to utilize the assets to support the lifestyle. And then what happens is that after death of both spouses, now the kids come into play. And typically, for a younger family, you've got typically one trust that's set up for all the kids until they get through school age, through college. And so, you have a trustee that's assigned to manage that trust. And that trustee could be a professional, it could be a corporate trustee, bank or trust company. It could be a trusted advisor, accountant, attorney, financial advisor. It could be a friend or a family member. A lot of times, it's a family member that knows these children.
And so, the trustee is around to make distributions on the children's behalf, to pay for school, to pay for their needs. And then, once the kids hit a certain age, and like I said, it tends to be beyond college, now college is paid for or supported for all the children potentially, and then, now they're adults. Now they all have different needs. And now, what happens is, in a typical family situation, you're dividing the estate in equal shares for each child. And those shares would tend to go into sub-trusts for a child's benefit rather than outright, especially if they're 25 to 35 or 40. It tends to be the best situation where rather than just saying, "Here you go, here's your inheritance. Here's a big pot of money. Go and do what you want," that's not great for a lot of people just because of where they're at in life. There could be pressures from friends or from significant others that say, "Hey, we've got all this money. Let's go do X, Y, Z." Or, there could be internal pressures, dependency on certain substances or whatever else life offers as challenges.
So, I like to recommend to clients that sub-trusts are set up, that there is management of those trusts until... if you've got great kids and they're well set up financially and they're making great decisions, I think that's great to be able to manage their own inheritance at age... I tend to like age 30, but I've seen clients go all the way to age 55 prior to managing funds themselves, if a beneficiary is ever able to. Some clients always want third-party control and trusteeship, and sometimes that's warranted so that the financial pressures and any outside pressures on the beneficiary can be deflected to that person that's managing the money and controlling it.
Matt Feret (38:07):
I didn't think about that. You said 55. So, now I'm thinking of forget school-aged kids, and let's go to... Let's say I'm 65, 75, 85. I was just assuming, okay, I've got $100,000, here you go. But that's not always the case it sounds like.
Bill Ellsworth (38:25):
It's not always the case. And like I said, it's always factually dependent, and every plan is very different in that sense. So, some clients do say, "Hey, I want my kids to have their inheritance. They're good kids. Their marriages are in good shape. I'm not worried about creditors." And obviously, one of the biggest creditors that anyone faces with divorce rates being where they're at is a marriage situation that dissolves. And if you've taken an inheritance, which is a separate asset, and you've commingled it and it's become marital property, now that's going to get split up to that ex-spouse.
So, one of the things that a trust can do is avoid that situation. It shuffles that those funds to a separate trust account. It's going to stay separate property. So, these are all considerations, creditor issues, asset protection issues, tax issues, as to why you might say, "Okay, I want to keep these assets in trust versus giving an outright gift to someone."
Matt Feret (39:40):
Wow. Yeah, my brain is spinning. All good stuff, but gosh, how many ways to slice this thing? There are a million, it sounds like.
Bill Ellsworth (39:48):
Right. Yeah, that's right. Yeah.
Matt Feret (39:51):
So, I've got a silly question. This goes back to watching TV. Do people read wills out loud anymore? Does everybody gather in a room and have tea and coffee and there are gasps from those in the audience that didn't get what they thought, and there are big wide smiles for those that got more than they thought? Does that even happen anymore?
Bill Ellsworth (40:12):
Yeah, so there's no formal... So, I'm thinking of the Grand Budapest Hotel or something.
Matt Feret (40:19):
Bill Ellsworth (40:19):
Yeah, there tends not to be a formal reading of the will, but this question comes up quite often. What happens after someone passes, and how does this all get arranged? And so, the administration process is that a client's going to typically reach out to a professional, to an attorney, and say, "Okay, I've got these documents, what do I do?" And the attorney's going to walk the client through that process.
But what that looks like is really... Again, it depends on the family. Sometimes a family will come to me and they'll have one person that reaches out and says, "Everyone wants to be involved. We're having a family meeting." And everyone comes, and whether it's in person, video conference, whatever, everyone's involved at least at that meeting, and we lay out what happens. Okay, here are the assets, here's what the plan says, here's how long it's going to take, here's what needs to get done, here's who we need to involve.
So, that kind of is like the reading of the will. Sometimes, one of the kids is kind of the ringleader and everyone else just stays in the background, and that person is the one that's going to communicate to everyone else what the steps are. But from my perspective, it's always easiest if the communications can happen early and often so that the family is both involved in the process, but also understands exactly what the process is going to entail.
Matt Feret (42:08):
Yeah, I was going to ask you about that. What is your advice? You've done this a long time. What's your advice around that family dynamic? Again, I said earlier, money makes people do crazy things. What's the best approach here? Grandma dies, Grandpa dies, Mom dies, Dad dies. What's your advice? You've seen a bunch of them. What's your advice? You said open and clear communication, do it together, have one person lead it. What have you seen works the best in terms of keeping a family dynamic that is already likely in mourning, but also interested to see what's going on with the assets? What's your advice?
Bill Ellsworth (42:41):
Yeah. Well, I guess my first piece of advice would be to do the planning early. And so, the times that I see the most problems is when the planning hasn't gotten done or hasn't been thought through in the proper manner. So, if there's illiquid assets, and frankly, they haven't used an estate planning attorney, maybe they had someone else do these documents or they didn't get done at all, they never wanted to think about it, that's when there tends to be a power struggle, when there's a lot of shuffling, estates don't get administered in the timeframe that would be expected. I've seen estates drag on for 20 years.
And so, definitely, number one is to try to start thinking about it. These aren't easy conversations, they're not easy things to think about. People tend to put them off, but certainly to start thinking about them and to try to do the planning beforehand. Now, if the planning's been done, one of the things you want to think about is, "Okay, who is in the best position to handle this job?" It's a job to be an executor and to be a trustee. There's work to be done. It's time-consuming, and you might have to clear the house. You might have to sell the house, sell real property. There's tax decisions to be made, accounts to be gathered. So, it is real work to do this. And so, I like to tell people that you want someone that is versed in the acumen of financial planning or just financially savvy.
And so, that's an important piece of this. The other piece is inter-family relationships. So, one thing you don't want to do is pit siblings against each other because that brings back all sorts of family dynamic issues. So, to the extent that you can avoid that, to the extent... If you're naming co-trustees, you want them to be able to work well together. So, you have to understand what that family dynamic looks like. So, again, estate planning is very factually specific, it's different for... In one sense, I guess Tolstoy said all happy families are happy in the same way, but unhappy families are different in many different ways. That's not a quote, but...
Matt Feret (45:46):
Bill Ellsworth (45:47):
Matt Feret (45:48):
So, if I'm thinking about this, how do I make this easier on my kids? What proactive steps can I take or someone listening or watching can take to make this easy? Do I print out a big booklet? Do I have a conversation? Do I write down where everything is? Do I make copies and give it to everybody? Do I even tell them what's in the will beforehand? Thinking about having to help this family dynamic after I'm gone or help this process not drag on 20 years like your example, how do I make it easier on people?
Bill Ellsworth (46:27):
Yeah. Well, I think it's important to understand and to document what you have, number one. So, I think everyone should have an estate planning file somewhere in their house that has the documents themselves, but also what's there. And it may be the case that everyone knows what's there, but it may not be. So, the various accounts it's nice to have listed out. And that makes it easier from the executor trustee perspective, that they're not sending letters all over the place trying to discover assets. There's certainly been cases where we've gone all over the place trying to discover what might be out there. And so, that makes it easier.
The other thing that makes it easier is putting it in the documents, what you want to have happen. So, there's certain assets that you might want to have sold, but there's certain assets that you might want to have managed and continue to be held. And so, just an example, one of the things I see that leads to a lot of problems often if there's not proper planning done is a family vacation home. Is it the case that you want to hold onto it? Okay, that's fine. How is that going to be managed? Where are the funds going to come from to support it? Who's going to be in charge of doing it? Over and over again, that's an asset that the families argue over, and frankly, clients have not wanted to deal with the problem.
Matt Feret (48:15):
Any other ones like that? Any other common ones that you need to be more specific about?
Bill Ellsworth (48:24):
Yes. So, other common problems that I see a lot of are advancements... or maybe a child has had some need for money or a loan, I'll put in quotes-
Matt Feret (48:37):
Bill Ellsworth (48:38):
... in the past, and how a parent is documenting that in the estate plan, or whether it gets documented at all.
Matt Feret (48:47):
I gave Timmy a loan for $20,000 so he could buy a car to get to work, and now that I'm gone, does that $20,000 come back out of his inheritance?
Bill Ellsworth (48:57):
Right, exactly. And again, these are problems we can deal with in the documents, but if the proper planning's not done, it doesn't get dealt with and it leads to arguments, issues, hard feelings.
Matt Feret (49:13):
Well, this has been really, really informative, and I'm sure there are a million questions that I should have asked that I didn't. Is there any one or two, are there any questions that I didn't ask that I should have around wills, trusts, and estate planning?
Bill Ellsworth (49:31):
No. I think it's really important to understand the reasons that you are doing the planning and the goals and objectives, like I said earlier. Number one, down the line, it's going to save money, and it's going to save hard feelings and save your loved ones' time and energy to do this correctly. And if you can save money, whether it be tax wise or administratively, I think it makes all the sense in the world to at least at some point... you don't have to think about it often, but every five to 10 years, you should be thinking about what you want to have survive you, and whether that's your own legacy in making sure that your ideas and thoughts are surviving you, which can be built into a plan, whether it's just monetary related... Everyone's here for a certain amount of time and you want to be sure that that time is well spent and meaningful, but you also want to leave what you can to the next generation and be able to continue that legacy.
Matt Feret (50:52):
Bill, thank you very much.
Bill Ellsworth (50:54):
Matt Feret (50:55):
Thanks, Bill. Make sure to hit The Matt Feret Show website for links and show notes. Until next time, to your wealth, wisdom, and wellness, I'm Matt Feret, and thanks for tuning in.
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