In the Money Insight: Estate Planning Myths with Bethany Shelton

I was recently joined on In The Money Insight by Bethany Shelton, a partner at Heritage Law, which is an estate planning law firm based here in Kansas City. Bethany and I discussed estate planning and some of the common myths around it.?

I should note Bethany practices in Missouri and Kansas, so when she talks about rules and laws, she’s usually referring to how things work in those two states. A summary of my conversation with Bethany is below.?

Cory:?Thanks for joining me, Bethany. Can you talk about the differences between will-based and trust-based estate plans??

Bethany:?If you have a trust, you are the grantor of that trust—you’re the person who creates it and you are its trustee if you are alive. Beneficiaries, meanwhile, are the people who would receive the trust’s assets after you, the grantor, pass away. And if you have a trust, you will name a successor trustee who will oversee the trust after you pass away.?

Meanwhile, if you have a will-based estate plan, we will likely also refer to you as a grantor—although you’re sometimes referred to as a decedent. And again, the people who will receive your assets are beneficiaries.?

Some documents that accompany both kinds of plans are called power of attorney documents. These are designed so the grantor can name someone to make decisions on their behalf if they’re unable. In this context, the grantor is the principal, and the people making their decisions are called agents.?

Cory:?Now that we have that context, let’s talk myths around estate planning. The first: “Estate planning is only for wealthy people.” Can you talk about this??

Bethany:?This is indeed a misconception. I think some of it pertains to the idea that only wealthy people have “estates.” That’s why I sometimes call it “legacy planning.” Everyone has a legacy to pass on.?

There are several reasons everyone needs an estate plan. The first is to avoid probate, which involves courts and attorneys overseeing the transfer of your assets. They often work to transfer them to your closest family members—and obviously this can cause issues if that was not your intention. Probate is a time-intensive process that can also be expensive. On top of that, your loved ones must go through the probate process while also grieving. These are just a few reasons most people should want avoid probate.?

I mentioned those power of attorney documents. Kansas and Missouri don’t have laws on the books that indicate who should make healthcare decisions for you if you’re incapacitated and unable to make decisions for yourself. This can cause conflict in families if, say, both a parent and spouse want to be the one making these critical decisions. This is why everyone should have a power of attorney.?

Cory:?Thanks Bethany. I think you did a nice job detailing why everyone with assets should have an estate plan. It doesn’t have to be incredibly elaborate. But you can save your loved one’s challenges tomorrow if you plan today.?

The next myth is, “I don’t need an attorney to construct an estate plan for me. I can do it myself.”

Bethany:?I’m biased, but I think everyone should work with an estate planning attorney. While there are templates you can download online, estate planning is quite specific between states. Each state has its own requirements for an estate plan to be valid. For example, if you live in the state of Kansas and want to leave the agent in your power of attorney documents with the ability to sell your house, you must include some?very?specific information about its address. A template downloaded off the Internet may not indicate that.?

Also, the laws around estate planning are regularly changing. For example, in 2019, the SECURE Act became law, and it impacts how we draft trusts for our clients. But if you download a template off the Internet, you may not know if it was created before or after this law went into effect.?

An estate planner like me stays up to date on these constantly changing laws. And speaking of changing, because life regularly changes, estate plans are generally amendable. Once you establish a relationship with an estate planning attorney, you’re able to contact them when life changes so your plan can change with it.?

Cory:?Yes, just as it’s important to have a stable relationship with a fiduciary wealth advisor, it’s important to have an established relationship with an estate planning attorney.?

So, if someone lives here in Missouri or Kansas and they retire and move to, say, Florida, what do they need to do if they already have an estate plan established??

Bethany:?That’s a great question. A general rule is that if your estate plan was valid in the state where you created it, other states will recognize it as valid. But what’s important is the substance of your estate plan may have different implications in your new state than it did in your previous state. Missouri and Kansas do not have estate taxes, but some states do. If you move to one of those states, you will want to adjust your estate plan to account for these taxes.?

That’s why I recommend anyone who moves to a new state to call an estate planning attorney from that new state and ask them to review your plan.?

Cory:?That’s good advice. Just as we work with clients to develop financial plans that can change when needed, attorneys like you do the same with estate plans. In either a financial plan or an estate plan, we shouldn’t assume the way it’s set up on day one is the way it should be forever.?

Bethany:?Yes, and I think people take comfort in knowing they can change the details in their estate plan as their life changes.?

Cory:?Indeed, well said. You mentioned a successor trustee in an estate plan—this is the person who has the fiduciary responsibility to oversee the trust after the grantor passes away. How should a person choose a successor trustee??A myth I’ve heard is that you should name your favorite child as your successor trustee.

Bethany:?This is a myth because so many people assume they?have?to name a family member as the successor trustee. It’s no secret that money can add challenges to even the closest of relationships. For example, if you have multiple children and one of them is the successor trustee and in charge of distributing assets to their siblings, who are all beneficiaries, it’s not difficult to imagine how potential conflicts could arise. This is especially true if you set up your trust to make ongoing distributions to a beneficiary(s) over a long period of time.?

That’s why it’s important to know you can also name a friend or corporate fiduciary, like a bank or trustee company. While you must pay for these services, they understand the ins and outs of estate planning before and after the grantor passes away.?

Cory:?If nothing else, I hope people take away from this blog that they shouldn’t simply name the ‘Golden Child’ as their successor trustee without giving it considerable thought. Of course, sometimes it does make sense to name that child as the successor trustee. It’s sad, but it’s a fact of life that death, grief, and money can change relationships.?

Bethany:?Indeed. Every estate plan we create is customized for that individual client. That’s why it’s important to know there are options available for a successor trustee.

Cory:?The next myth I want to highlight is that a trust is the only way to avoid your assets ending up in probate. You spoke about this earlier, but can you add more detail??

Bethany:?This is important. As we’ve discussed, a trust can help your loved ones avoid probate. In Kansas and Missouri, however, you don’t have to have a trust to avoid probate. If all your beneficiaries are adults, you can have a will-based estate plan and avoid probate. The way to do this is to name a beneficiary on every asset you have that has a title—bank accounts, life insurance, automobiles, houses, etc.?

This ties in with a related myth: if you simply have a will, you can avoid probate. Some people think they are all set if they have a will that says, for example, “I want two-thirds of my assets to go to my son and the other third to go to my favorite charity.” But if you don’t name specific beneficiaries on specific assets, the will is likely to end up in probate.?

It’s also worth noting that in some states, if you’re passing down real estate, you cannot avoid probate unless you have a trust. Thankfully, Missouri and Kansas have made it easy to avoid probate through a will-based plan. The key is not to forget about an asset and fail to name it.?

Cory:?This is complex but important information you’re sharing, Bethany. Estate planning can help you feel more at peace, but it’s also a kind thing to do for your beneficiaries.?

Bethany:?Unfortunately, estate planning is not intuitive. It doesn’t always feel logical. That’s why I think there are many benefits of working with an estate planning attorney. They will re-emphasize important points.?

Cory:?Do you often hear the myth that estate taxes are going to eat up any money left behind??

Bethany:?Indeed, I hear this myth often. The federal threshold for estate taxes is high. You don’t have to pay an estate tax to the federal government unless you are passing on a minimum of $12 million—or $24 million for married couples. If you are concerned you may meet this threshold, there are strategies you can pursue to try to reduce your estate tax liability. But obviously this is not a concern for most people.?

At the state level, there are no estate taxes in Missouri and Kansas. Some states, like Washington and Hawaii, do have estate taxes, however. I believe the threshold in Washington is $2 million.?And I should offer a caveat that like any law, these laws around estate taxes can change at any time.?

Cory:?Thanks, Bethany. Here’s another myth: “I don’t need a will or estate plan because my family knows how I want to split up things.”?

Bethany:?We call this the “ostrich method” of sticking your hand in the sand and hoping everything works out. There are laws that will govern where your assets will go if you don’t have an estate plan in place, but they may not align with your wishes. And as we’ve discussed, not having a will or trust can lead to expensive and time-consuming court procedures.?

And it can be a lot of pressure to simply name one person as a beneficiary and expect them to distribute your assets to other loved ones. This opens the door to conflict during an already difficult time—and there’s no guarantee that the sole person named a beneficiary will do everything just as you envision. Not to mention this strategy can potentially place a tax burden on that single beneficiary.?

Again, you can decrease the potential for conflict and increase efficiency for your loved ones at their most vulnerable time by creating a plan that’s in writing and legally binding.?

Cory:?I think that sums it up so well, Bethany. Thanks for joining me today. If you would like to speak with Bethany, I would be happy to connect you.?

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