Wills and Trusts with Emily Sullivan

I was recently joined on?Upticks?by Emily Sullivan, an estate planning attorney at Heritage Law here in Kansas City. A longtime attorney, Emily has focused on estate planning for the past five years. We discussed the importance of wills and trusts and why virtually everyone needs an estate plan. A summary of our conversation is below.

Jake:?Thanks for joining me, Emily. Would you talk about the differences between a will and a trust?

Emily:?Sure, lots of people don’t understand the differences. A will is a document that gets filed in probate court after you pass away. It’s basically your voice for the probate process.

A trust is designed to help you avoid probate and it offers the capability for built-in clauses, which essentially allow you to develop a plan B or plan C for your assets. It’s more comprehensive than a will.

While it’s possible to avoid probate with a will by naming beneficiaries on your assets that have titles, generally speaking, it’s important to know a trust is designed to help you avoid probate but a will is not.

Jake:?That’s good information. I’ve seen some clients go through the probate process, and it can be expensive and time consuming. With that in mind, for what type of person does it make more sense to have a will than a trust?

Emily:?A will can work for an older person who has adult beneficiaries, assuming this older person is comfortable with those beneficiaries inheriting a lump sum of money after their passing.

But if you have children who are minors, or a beneficiary with disabilities, or a beneficiary you would prefer not to inherit a lump sum of money, a trust will likely be the better option.

And as I mentioned, it is possible to avoid probate if you have a will. The key to using a will and avoiding probate is to name a beneficiary on?all?of your assets that have a title. These include life insurance, all financial accounts, homes, vehicles and more.

Jake:?That’s why we review the beneficiaries listed on our clients’ accounts when we meet with them. It’s important to review the beneficiary designations on all of your assets and make sure everything is how you want it.

Speaking of assets, let’s say someone has elderly parents in their 90s and they have a valuable collection of art or antiques. Do beneficiaries need to be named on these?

Emily:?If you have a trust, you can spell out how you want anything and everything to be distributed. But if you have a will, it’s a matter of using a form called a personal property memorandum to detail which of your beneficiaries should receive what assets.

Of course, it’s hard to think of?everything?in your house. If you have a will and don’t complete one of these forms for a particular item, it falls to your beneficiaries to decide who should receive assets that weren’t accounted for in the will. If your beneficiaries get along, this may not be problematic. If they have complicated relationships, this could be more challenging.

Still, I’ve found items without titles—like art or any other collectible—rarely end up in probate, though.

Jake:?Let’s say you want to leave your house to your four children, but they don’t get along particularly well. What should you do?

Emily:?It depends on how you want to transfer the house to them. Most people would work with an attorney to set it up so that each of the four children own a fractional share of the house. But this can present challenges if the four children can’t agree on what to do with the house.

Another option is to look at all your assets, determine an estimated total value, and leave the house to two of the four kids and then leave other assets of similar value to the other two.

If you have a trust, however, after your passing you can transfer ownership of the house to the trust, rather than the beneficiaries. And then the trust can spell out exactly what you want to have happen to the house.

Jake:?That’s interesting, Emily. What about debt—are beneficiaries required to pay off the credit card bills of someone who passes?

Emily:?There’s no clear cut answer. If beneficiaries are able to avoid probate, it’s less likely a creditor will track them down—compared to if they went through probate, in which case creditors have to be placed on notice. These creditors can say they want a piece of the pie before it’s distributed to the beneficiaries.

If you have a trust, it really depends on the value of the debt and how persistent the creditor is. It’s easier for creditors to get a share if your estate is in probate. With all of that said, we should all aim to pay our debts.

Jake:?I know most trusts have a beneficiary, grantor and trustee. Can you define each of those?

Emily:?A grantor—usually an individual or a couple—are the people who create the trust to help guide how they want their assets distributed. They’re granting their property to the trust. And they’re also the trustees of the trust while they’re still living, meaning they have complete control over it.

The most common type of trust we develop is a revocable living trust, and it is called that for a reason. It can be amended any time while the grantors are alive. After they pass away, it becomes an irrevocable living trust, and beneficiaries receive assets, per the instructions of the grantor.

The grantor also specifies who should oversee the trust after the grantor passes away, or if they become incapacitated. This person or company is called the successor trustee. And I said company because you can name a trust company as your successor trustee. Using a trust company can sometimes be helpful if there is friction between your beneficiaries.

Jake:?I know a lot of effort is often required from the successor trustee. What percentage of your clients name a loved one as successor trustee versus hiring a trust company?

Emily:?I think it’s about half and half. I often recommend using a trust company, because it is indeed a burden to be a successor trustee. It’s not a gift or honor you’re bestowing on a loved one. It’s stressful, and you may be asking a loved one to take on this responsibility while they’re also mourning your passing.

Jake:?That’s well said. How often should someone review their trust?

Emily:?We generally recommend reviewing it every five years or so, unless there has been a significant life change. An example of a change many people make proactively is to give more responsibility to their children as they mature into adulthood, while removing responsibility from their own aging parents. And needless to say, if you get divorced, it’s vital to review your trust.

Jake:?And that leads into my next question. Do you have any quick tips for people as they think about estate planning?

Emily:?The first one is to not presume that if you don’t take action, what you want to happen is what will happen. Let’s say you’re in a relationship with someone but you’re not married, or you have a sibling you want to be your primary beneficiary. Unless you have in writing exactly what you want to happen, state laws take a “one size fits all” approach to your assets, and the law may not align with your wishes.

I also recommend that everyone work with a lawyer to develop power of attorney documents. These give someone the power to act on your behalf if you’re incapacitated. It’s important to develop these power of attorney documents while you’re healthy.

Don’t let imperfection stop you from doing an estate plan. Don’t sit on your hands because you aren’t 100% sure how you want things to be spelled out. Give it a good effort now, and we can make revisions in the future.

Jake:?That’s a good point, as I think a lot of people can be intimidated by the process.

A problem we have seen at?Falcon Wealth Advisors?is people failing to fund their trust after creating it. Can you talk about this?

Emily:?Yes, you have to make sure your assets are transferred to the trust—this is called funding the trust. For real estate, we do this through paperwork called a beneficiary deed. To ensure your other assets are funded in the trust, you have to use either a beneficiary designation or change ownership of an asset from you to the trust.

And then moving forward, when you buy a new car or open a new bank account, for example, you should list the trust as the owner. At Heritage Trust, we have a checklist form that helps our clients make sure all their assets are accounted for.

If you have a trust but haven’t properly funded it, it’s possible your assets will end up in probate, which defeats the purpose of why you created a trust in the first place.

I want to reiterate that if you’re unsure about how you want to set up everything in your trust, or if you’re nervous about some of the conversations that could arise from developing a trust, it’s still important to meet with an attorney to explore your estate planning options.

Jake:?I’ve heard couples who don’t have kids but plan to have them can write their future children into the trust. Is that the case?

Emily:?That is indeed the case. In estate planning, the term children encompasses future children. I think this is an example of how versatile estate planning can be.

And if you don’t have children and don’t plan to, that’s all the more reason to establish an estate plan. If you were to pass away, it’s possible the laws of your state won’t align with your wishes. So you shouldn’t assume that you?don’t?need an estate plan because you?don’t?have children.

Jake:?Thanks so much for joining me, Emily. I hope this was a helpful conversation for our readers. If you would like to learn more about estate planning, I would be happy to connect you with Emily. And just like Emily and her team at Heritage Law, at?Falcon Wealth Advisors?we are passionate about helping clients plan for the future. If you want to discuss your future, contact me directly at?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.