[Editor's Note: Today's WCI Network post about estate planning comes from Passive Income, MD, and is a topic we frequently discuss on this blog. Many doctors, including me, have at least a few holes in their estate plan needing attention. This is a great reminder of ways to get your estate plan in order “just in case”. The hardest issues for me with estate planning are the decisions you must make–how much do you really want to leave your kids and how, for instance. Drafting up the documents is much easier than deciding what to do IMHO. Enjoy the post! ]
Thinking about your own mortality is no fun. Personally, it’s not something I often consider. I'm usually too busy trying to figure out how to live the most extraordinary life possible.
However, estate planning has been on my mind. Honestly, I’ve been thinking about it a lot more these past few weeks.
Of course, even before everything that has happened with the coronavirus, one of my big goals for this year was to get all of my estate planning in order. Still, it’s safe to say that recent world events have maybe bumped the priority up a couple of notches.
Now, don’t get me wrong – I expect to live a long life. I’ve taken certain steps to improve my own health. I exercise and have begun to eat better so that I’m around for my family as long as possible. I can’t control everything, but the things I can control, I’m making the best of.
My efforts at living a longer, healthier life, however, have brought to light the inevitability of death. I’m in my 40s now, and sadly, I’m starting to see friends from school starting to deal with major health issues or involved in serious accidents. I don’t know if that feels like it’s happening more and more to you, but I’ve certainly noticed it.
The old adage holds true, though: death is simply a part of life. Having fear or anxiety about death may not be healthy, but I’ve certainly seen what happens when families aren’t prepared for that moment.
So, I vowed not to let those same things happen to my family.
My goal is to get everything in order just in case something happens to me. That way, I can rest assured that even if the worst happens, I know my family will be taken care of. If you share that goal, you might be interested in some of the major considerations I’ve been tackling.
Living Trust
A living trust is simply a set of instructions for what happens to your assets after you pass.
I always thought that a living trust and will were synonymous but, as it turns out, they’re pretty different.
A trust allows you to assign a trustee, or someone who will handle your assets on behalf of your beneficiaries. You do still give instructions for how those assets are distributed, though, much like a will.
However, a trust has three main advantages:
First, it allows you to avoid probate court. With a will, the court still needs to go through the process of transferring your assets to your beneficiaries. However, with a trust, even though you’ve passed, your trustee can facilitate the distribution of assets. Probate court can take a while and is notoriously expensive (sometimes up to 2-3% of your assets are paid in fees!).
Second, with a living trust, your assets can be transferred privately after your death. Contrast this to a will, which is a public document, and all transactions are public as well.
Third, a trust can take effect in situations other than death. For example, if you’re mentally incapacitated, your trustee can be the one to take over, rather than someone the court appoints.
A will, however, is useful for assigning guardianship of your children in case something happens to you. Without a will, guardianship would have to be court-appointed.
Ultimately, of course, choosing to go with a trust or a will (or both) should be decided with the help of an estate lawyer.
I had a revocable living trust created a few years back but, in reviewing things, I realized that I hadn't moved all of my assets into the trust. I've since bought some rental properties and made some investments.
So I'm currently working on cleaning things up and making sure everything is housed properly under the trust.
Advance Directives & Medical Power of Attorney
As physicians, we know this area all too well. I’m sure all of us have had to address this issue with a patient at some point in our journey, whether it was back in medical school or residency.
It turns out that completing one for myself was pretty easy; I simply filled out a form that expressed my wishes. Did it once and, since nothing's changed in terms of my marriage, it's all still the same.
Organization of Documents
Do you know the location of all of your important documents? Things like deeds, certificates, forms, titles… If you’re like me, I knew where maybe one or two of those were in my home.
I realized that this wasn’t ideal, so, lately, I’ve been working on organizing my important documents and making sure they’re stored in a secure location. I don’t know about you, but I often have a hard time finding everything when I need them, so this has been very beneficial.
One thing that has really helped me organize things is the In Case of Emergency (ICE) Binder. It's a simple set of documents that makes sure my loved ones know have all the information they need if something happens to me. Super easy to fill out and has a checklist of things so I know I'm not forgetting anything.
But then I decided to take it a step further and began looking for an online vault that allows me to store all this information. If you have a financial advisor, they will often have that sort of thing available to you.
For some extra peace of mind, it’s certainly worth asking for.
Passwords
In the event of your passing, have you considered how your family is supposed to get access to all of your files and documents? After all, most of us don’t share our passwords with anyone (and rightly so).
This could make it difficult for your family to have access to important documents, cloud storage, and accounts.
I like to use a password keeper like LastPass and One Password. Software like these help you to create secure, unique passwords. All of your passwords are locked behind one master password. If you share this single password with a trusted family member (or a trustee), they’ll be able to gain access to all of your stored usernames and passwords.
Of course, there’s always the fear that someone can crack that one password and have access to everything. On the other hand, if you’re like me, the only other option is to make all your passwords so similar (read: easy to remember) that they provide little-to-no security anyway.
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Organization of Investments
I like to invest in multiple different types of investments. I have stock accounts, retirement accounts, 529s, crowdfunded investments, syndications, funds, and angel investments. It can be a lot to track. So how do I keep all these documents in order?
Well, that can be a job in and of itself.
Those go in the ICE Binder, as well, but I also have a simple Excel spreadsheet that outlines what the different investments are, and I update this list every time I make an investment. It’s kind of like a treasure map in case something happens to me.
Life Insurance
One of the best ways to ensure your family’s well-being in the event of your death is, of course, life insurance.
I bought my first policy ($2 million, 20-year term) when my wife and I bought our first home, and then I purchased more term life insurance ($2 million, 20-year term) the moment I had my first child.
I simply called my agent to review the terms of my policies and to make sure I was adequately covered. He said I was.
Disability Insurance
Of course, there are other things to consider besides death. If I were in an accident and permanently or temporarily disabled, for example, my family could still be in a bad situation. I made sure to plan for that contingency.
Fortunately, even if something happened and I could no longer put an epidural in, I could still (hopefully) run some of my businesses, which would provide most, if not all, of the income we would need.
Still, I consider it a very good idea to have specialty-specific disability insurance. It could make all the difference in this event. Make sure to contact an independent agent who can shop multiple policies on your behalf.
Thoughts on Estate Planning
Making a plan for what happens after you die is, admittedly, an unpleasant undertaking. However, it’s also extremely important – not just for your family’s well-being in a worst-case scenario, but also for your peace of mind.
Since I began taking these steps, I can say that, if I were to pass on, my family would be taken care of financially because I made estate planning a priority, and I hope to have made their difficult time just a little bit easier.
It's funny, making sure that all my bases are covered helps relieve the worry of dying so I can actually enjoy life a lot more.
Anything else I’m missing that I should be thinking about when it comes to estate planning? Have you made estate planning a priority?
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Great article, but you did miss a big one. We all need to ‘read in’ our spouse and adult children into our plans, as much as it is unpleasant to do. (You might have younger kids and haven’t dealt with this) One problem that comes up again and again is disputes among survivors for any sort of inheritance–absolutely crazy. The sense of entitlement is very common. Add in orders of magnitude of wealth and potentially an issue. I am trying to plan now on charitable giving and investing with our family so we share the same values and so that our intentions as parents are crystal clear. I think it’s a good exercise for everyone when teens /adults are ready.
I would add that a trust removes that issue of any beneficiaries challenging or fighting over inheritance. They contain a clause that any beneficiary that challenges the trust is immediately removed as a beneficiary and receives nothing. I am the trustee for my mother’s trust who recently passed away and this was very clear in the documentation. The trust made everything immensely easier although she had one account not in the trust that I had to go through probate to access. That was simply an oversight. Make sure you have a bank account within the trust with the trustee on the account. I did and it was easy to pay bills and take care of any money matters right away. Definitely a trust is the way to go.
Thank you for the great post.
We went through estate planning about five years ago. I would add the following comments:
1. Make sure your estate plan addresses long-term health care. Don’t assume that all can self-insure, even if high income physicians. When kids graduated from college, we realized that long-term care was a higher priority than all the term life insurance we had purchased when they were younger.
2. Keep up with the current tax laws as parts of your document may have to be updated.
3. Have at least one bank account (checking or savings) that is titled in the trust. It just makes it easier when you sell something and have money transferred from your trust. Have any other bank accounts as POD.
4. Have beneficiaries and contingent beneficiaries listed on every account.
5. Retitle your home and any other property into the trust.
6. Look at how your vehicles are titled. Some states (Virginia) allow beneficiaries for vehicles.
7. Placing assets/retitling assets into a trust takes time and can be frustrating. You wasted your money (and time) on a trust if all of your assets are not placed in the trust. It’s not hard, but just takes time.
8. We opted (at this juncture) to not have a meeting with the attorney involving our adult children to talk about the trust. We may change our minds on this as we get older. We have left a very thorough and organized roadmap (binder system) that spells out what they should do and where documents are located.
9. We realized (a blinding flash of the obvious) that our single adult children also need documents in place in case of hospitalization or a catastrophic event. Optimally, documents should be drawn up in the state of their residence. This should also include any kids in college as they are over 18.
10. Make sure children from a previous marriage are protected with the trust. It can get sticky with blended families unless the trust is clear and specific.
Estate Planning is heavily influenced by state law. This is especially true when it comes to the usefulness of trusts. Trusts may not save any costs or provide any additional privacy in some states. And it can add difficulty or expense to one’s financial life. I would not embark on estate planning by going to a lawyer and asking for a trust. You may get one that way even if it is not the best option. I would instead include the possibility of a trust as part of the discussion with the lawyer.
Excellent post. I’m surprised when I buy things in the name of a Trust agencies are always surprised. Makes me think this is uncommon. When we refinanced our home for example they acted like they never do them in the name of a Trust. Same with vehicles or even investment purchases.
Just going through a review of all our estate planning. Really should be done every 5 years or so I think because things change. One thing our new lawyer pointed out is that we had my retirement accounts listed with my Trust as beneficiary. Apparently you lose some tax benefited doing that and it’s better to list your spouse as beneficiary on those so the accounts can grow tax protected for 10 years typically.
You can be very specific with the Trust which is nice. In ours the Trustee helps our kids in the manner that we would until age 35. They each get a certain amount at that time and the rest goes to charity.
I like that last idea and am leaning toward something similar.
2020 is when I made a will. I am 40. Here is what I’ve learned (I am not a lawyer and this is not legal advice):
1. Living trusts are complicated and expensive ($3k+). You need to re title ALL your assets that have ownership document to the living trust (houses, cars, bank accounts, investment accounts, etc.)
2. Anything that has a named beneficiary does NOT go through probate. If you have an investment account that has a named beneficiary and the the beneficiary does not die at the exact same time as you, the account does not go through probate. Same with retirements accounts, etc.
3. Assets that are jointly titled do not go through probate. If the title to a house is “joined” (or something like that), the house does not go through probate. Joint bank accounts do not go through probate is the the joined owner is still alive.
4. Term life insurance does not go through probate.
5. My situation is very simple. Everything goes to the surviving spouse, if we both die at the same time, it goes into a trust fund for the kids. To me, a living trust seemed like more work that it is worth for such a simple situation.
6. The 2-3% fees of assets that are quoted by lawyers are a worst case situation, i.e. they are the maximum a court appointed lawyer can charge if the beneficiary does not want to hire a lawyer on her own (or maybe no lawyer is needed at all, as the situation may be simple and the beneficiary can handle the situation by herself). Where I live, with no lawyer appointed by the court, probate fees are mostly just court fees, i.e. a couple of hundred dollars. Probate takes between 3 and 6 months, maybe 12.
7. if you forget to put a single asset in the living trust, your “estate” goes through probate. You buy a car, or move an investment account and you forget to make it to Smith Living Trust, you will not avoid probate.
8. So, for complicated inheritances, or if you do not want your asserts to be publicly disclosed, or if you leave behind you more than 5mil, or other very specific situations, then a living trust sounds like the way to go. I am a simple man so for me, it did not make sense.
9. I had a “legal plan” at work that covered living trusts, wills, etc, for both me and my spouse. First lawyer insisted we needed a living trust (but did not told us all our current assets would not go through probate if only one spouse dies because they all are jointly titled or have named beneficiaries). I felt he was pushing hard for it, but I did not mind, since it was covered by my legal plan. Turn out, the lawyer wanted $2.5k on top of what the legal plan was paying him, for stuff I truly did not understand (all I understood was that he wanted $350 to register the new deed to my house with the county for the living trust, a process that costs $20 and consists of taking a standard piece of paper to the county and dropping it off there). Anyway, the lawyer quickly lost our trust. We found 2 other layers that both told us a living trust was too much for our situation, and make a standard will and power of attorney and advanced medical directive and some other stuff I do not remember.
Great article, well done in putting this together. When it comes to estate planning, there are almost countless issues and strategies that can be used, just like everyone’s lives differ. I want to stress finding a good estate planner to help you see what is best for you, and even consider second opinions (I sympathize with those who have had bad experiences with lawyers, including bad pricing plans) to make sure you have a good plan. At a minimum, an additional consultation or two is pretty cheap compared with what’s usually at stake. For the same reason, I never recommend people go it alone and fill out their own forms without even a consultation because mistakes are so easy to make. I’ve had to charge clients thousands to tens of thousands to clean up messes (when they can be cleaned up) all because of do-it-yourself work or incompetent attorney work (not all attorneys who sell estate planning are good estate planners). I will just also mention I didn’t agree with all the comments posted above, but still, I don’t want to nitpick and there’s a lot of great information here to get people thinking. Also, getting a consult or two from a good planner will take care of misconceptions people have.
A few thoughts that struck me while reading, as general information, not legal advice for your specific situation, are, first, in case it’s helpful for some people reading this, a living trust is totally different from a living will, and a living will is totally different from a Last Will and Testament (or “Last Will”). I like using the more specific technical term “inter vivos trust” for a trust established while the person funding it is living, as opposed to a testamentary trust that is written into a Last Will and comes to life only when the person dies. Inter vivos trusts have many advantages over Wills, including, if for no other reason, that they are better for disability planning than relying only on a financial power of attorney, although people still need both. I prefer drafting a financial power of attorney separate from a medical power of attorney. The medical power of attorney may or may not be combined with the health care directive/living will (same thing).
Also, some assets, mainly retirement accounts, often should not be put in trust (although a trust may still be the way to go for the other assets), but rather held outright. I want to also encourage, as noted above, training those who would take over managing one’s personal affairs and businesses in case of disability or death. Especially with the businesses, get others involved, often the earlier the better. Long term care insurance was mentioned. Long term care planning is often the elephant in the room. If you can self-insure or find an affordable policy, those are the best options.
Regarding the Will vs. trust debate, I’m sorry some of you have had bad experiences or been overcharged. In many states, the costs end up being about the same. In Utah and Washington, the costs are about the same, it’s more a matter of “property management costs,” and other factors control whether I strongly recommend a trust vs. just a Will. Often most importantly, a good estate planner will help you come up with the best distribution scheme for your family, including how to best make specific gifts. On that note, for families with young children or those making gifts to grandkids, I usually recommend staggered distributions when they’re older (which requires a trust) so they have multiple chances not to waste their inheritance (potentially the life insurance money if both parents are killed in a car wreck etc.). Last, be very careful with property jointly titled with anyone other than a spouse. Generally don’t do it for tax and creditor protection reasons.
One last thought I meant to include, a guardianship appointment in a Will doesn’t normally prevent a guardianship (perhaps this would depend on the state, but I don’t think so), and the same appointment can be made in a trust. You’re just telling the judge in a proceeding what your preference is, and the formalities associated with the document give it more credibility. He or she will still vet the person you nominate. They’ll weigh your judgment heavily though before appointing someone.
We have had revocable living trusts for many years. No extra cost or complexity. They are valuable in case of incapacity. That alone is reason enough to have them.
Make sure your financial institutions will accept your durable power of attorney. If not, then complete their own forms. If someone needs to act on your behalf, make it easy.
Same for the ability to manage and disburse funds in your retirement accounts. These cannot be in trust while you are alive. If you are unable to manage them yourself, you need someone else. Your spouse only has this power if you give it to them.
Make plans for retirement plan beneficiary after your spouse. Your heirs may be better off with the money in trust, rather than inheriting them outright.
Whether you want the house in a trust while you are both alive depends on your state law. If your state permits tenants by the entirety for a married couple, then you gain asset protection by holding the house that way, rather than in a trust.