My wife, Jo, handed me the phone. “It’s Mary Ann (our stockbroker). She wants to talk about the farm”. I recently wrote about how lucky we were to work with Mary Ann. She was a stockbroker with years of experience and put it to good use.
The farm has been in Jo’s family for over a century. Rightfully, Jo’s portion should be inherited by her daughter, Holly. Mary Ann said we need to call an attorney and set up a trust.
I pushed back, “Trusts are for rich people, we both have wills; that should be enough!” Mary Ann was emphatic, “No it’s NOT!” She started asking me questions I couldn’t answer. Reluctantly, I agreed to call my attorney. Mary Ann was right – we needed more protection. Thirty years later, the trust is still in force.
We’ve seen two situations where a couple was married for many years and the wife passed away. The husband soon remarried – and a few years later, he passed away. His second wife inherited everything. I believe a husband should take care of his spouse – children should wait their turn.
Shortly thereafter, the second wife died. While they agreed that when the second spouse died the inheritance was to be split among ALL their children, she changed her will and left everything to HER children. A friend remarked, “A good trust would prevent that from happening.”
Recently, David Holland published a short column titled, “You Might Consider a Trust When . . .”. It reminded me of Mary Ann, passing along words of wisdom based on many years of experience.
I contacted David and asked him for an interview.
DENNIS: David, on behalf of our readers, thanks for taking the time to educate us. Much like Mary Ann, I’m sure you have seen many situations and strongly suggested your clients contact an attorney and set up a trust. Can you explain to our readers the difference between a trust and a will?
DAVID: Always good to talk to you, Dennis. I’m not an attorney, but I am a Certified Trust Financial Adviser, as well as a CPA and CFP®. I’ve been asked many times by my clients to guide them in their estate planning. “Estate planning” is a general term used to describe the process of getting your assets to your heirs.
If you ask an attorney, a key step will involve the preparation of the proper legal documents such as a Will or Trust. Ask an accountant or financial planner, and the focus will be on strategies to minimize income and estate taxes. And, a bank or trust company might focus on investment management, bill-paying services, and trust administration.
Make sure to tell your readers, Dennis, that legal documents such as Wills, Trusts, Power of Attorney, etc. are state-specific. Many state statutes address these documents, those who prepare them, and those who serve under them.
Back to your question . . . Wills and Trusts have a lot in common. They both set forth the answers to an inter-related set of questions: Who do you want to get what and when?
A Personal Representative’s (Executor’s) job is to do what the Will says. The responsibilities include carrying out a deceased person’s final wishes for his or her probate assets (i.e., property that is not in a Trust, isn’t co-owned, or does not have a beneficiary designation).
A Personal Representative’s duties also include taking an inventory of the estate, following the legalities of the probate process, liquidating assets, satisfying debts, and distributing the remaining assets to designated beneficiaries.
Trustee responsibilities are similar to those of a Personal Representative. An individual’s (or couple’s) trust document also sets forth how, when, and under what conditions, distributions will be made to the beneficiaries of the trust. In most cases I’ve seen, whenever someone gets a trust, they also need a will. Some situations, however, only require a simple will.
DENNIS: I mentioned two cases where the surviving spouse changed her will after the husband died and left all the money to HER children – even though they promised each other they would not do that. Is that fairly common?
DAVID: This happens more than people realize. It is also a common fear among adult children of the blended families. It is not a hard thing to address and minimize from a legal standpoint, but it does require some difficult conversations. Once the conversations take place, then it’s time for the attorney to prepare the proper legal documentation to see to it that wishes are fulfilled.
DENNIS: In today’s world, it’s not uncommon for a married couple to have three sets of children – his, hers and ours. I would guess that setting up a trust to be fair to all concerned is fairly common. What are some other situations where you suggest clients consider a trust?
DAVID: There are many situations where a trust would be worth considering. Some easy examples include when there is acrimony among the children of prior marriages.
Another is when the deceased spouse wants the surviving spouse to be taken care of first, and have access to money that will ultimately go to the deceased spouse’s children from a prior marriage. Example: Wife gets income from deceased husband’s assets until she dies, then those assets go to his kids. ‘Danger, Will Robinson, Danger!!’ A trust would be absolutely critical in this situation.
The other ‘big one’ is when there is a child, adult or minor, who has a history of mental, substance abuse, or other problems that make it a bad idea for them to get a lot of money at once. Other children, like those with autism or Down’s syndrome, will need someone to look after their assets for them. Thus, it is especially important to make specialtrust arrangements for special needs children.
DENNIS: You mentioned “special needs” children, which hits close to home for Jo and me. We have grandchildren that have had some challenges since birth. Is there a typical way that most of these situations are written up in a trust?
DAVID: No pun intended, but ‘special needs trusts’ are ‘special’. Not all estate planning attorneys will prepare them. The language that goes into one of these trusts has to be carefully worded to avoid the loss of governmental benefits that the beneficiary may otherwise receive. In addition, the trusts also must do what they can to protect the children from financial predators.
DENNIS: When I researched annuities, I discovered there were cases where the financially savvy partner bought an annuity to protect the non-savvy partner from financial predators or leaning on financially uneducated children to manage the nest egg. Can a trust offer similar type protection without necessarily investing in an annuity?
DAVID: Candidly, Dennis, I think a trust is a much better solution for these situations. A trust can truly be tailored to the specific needs of the client and, thereby, allow the client to address how they want to invest their monies more precisely. If an annuity makes sense, that’s fine, but that decision should be based on the merits of the annuity, not on the annuity accomplishing an estate planning goal.
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DENNIS: One final question. Any last minute tips or suggestions you want to pass along to our readers?
DAVID: Always a pleasure, Dennis. I’ll leave you and your readers with one more thing that we haven’t talked about: the charitable uses of trusts.
A few years back, “Steve” asked me to help him arrange his estate plans. Steve wanted an impartial, non-family member he could trust to oversee his affairs. I agreed to serve as his Executor and Trustee.
Sadly, Steve died shortly after his estate plans were put in place. His final wishes called for a portion of his assets to go to his ex-wife and siblings, with the balance to be held in a charitable trust to provide special assistance to disadvantaged children. Steve authorized me to select and distribute 5% of the trust to a worthy organization each year that fit his parameters.
Since 2010, with the careful stewardship of Steve’s funds, a measurable difference has been made in the lives of hundreds of needy children! I tell you all of this, Dennis, to underline a very important point: many people die without feeling as though they have made a difference in this world. Many people don’t have heirs or someone whom they feel strongly about getting their money.
Can I tell you something? There are children who are alive and thriving today because of the plans that Steve and I prepared. If that’s not making a difference, I don’t know what is!
DENNIS: Wow! That is something I had not thought of – you make an excellent point. If I had no heirs, I would certainly believe a competent trustee could make better decisions on where and how my life savings could make a difference – as opposed to the government. David, on behalf of our readers, thank you for your time.
DAVID: My pleasure Dennis.
Dennis here. My daughter and I discussed a widow friend who recently remarried. She said it best when she said, “Dad, she fulfilled her obligation, till death do us part. She has a right to be happy.” No one can account for all potential issues in the future; however, a good trust can help insure the wishes of the deceased are fulfilled.
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