Trust In The Trust: The Importance Of Having An Estate Plan In Place


Trust In The Trust: The Importance Of Having An Estate Plan In Place



Written in collaboration with Beth Gilchrist from Norris Legal Atlanta Law Group, LLC.

Don’t Leave a Mess Behind

Death. Not a topic that typically comes up at the Fourth of July grill-out, right? In fact, humans don’t like to think about death; much less talk about it! According to Pew Research, only 37% of Americans have given a great deal of thought to the matter. It’s hard to blame anyone, though, because as Tyrion Lannister said, “Death is so terribly final, while life is full of possibilities.” These possibilities are hopefully wonderful, engaging, and what keep us from focusing too much on something that is inevitable but uncontrollable.

One thing you can control is what happens to your assets when the inevitable happens. However, this control takes planning and serious discussions around this most morbid of subjects to truly ensure your legacy is passed on the way you want. Frankly, it doesn’t appear as though most people under the age of 53 are interested in doing it! In recent years, AARP reported that 78% of Millennials and 64% of Generation Xers don’t have a will. Think about that! These two generations are having children, buying homes, building wealth and all that comes with these major milestones. For the vast majority of Americans not to have the proper documents in place – the documents that ensure a smooth and easy transition – seems troubling.

Folks seem to understand the need to stay out of debt, save for big purchases, invest for retirement, and obtain insurance coverage for health/disability/death. When meeting with clients to review their financial plan, the most common flaw is a lack of basic estate documents. The second most common flaw is improperly structured documents done by people who didn’t want to pay to have it done right the first time! These flaws can have serious implications and end up costing far more in both time and money in the long run. Let’s take a look at the “Smiths” for an example of how things can go wrong.

The Smith Story

Meet Mr. and Mrs. Smith. They are at the local summer block party talking with their friends. They mention their financial advisor suggested they meet with an attorney to prepare Wills, and they decide to call one on Monday. At the meeting, since they have two children (ages 2 and 4, to be exact), the attorney responsibly suggests they include trusts for their children in their Wills. The attorney explains that it costs a little more money, but that the benefits in the long run are worth it and necessary. Mr. and Mrs. Smith talk it over and decide to forgo on the trusts because they do not want “control from the grave.” They happily sign their Wills and go on their merry way.

Two summers go by, and Mr. Smith unexpectedly gets into a motorcycle accident on one of his cool, fall drives. He sadly does not make it. Unbeknownst to the surviving spouse, the attorney, and the financial advisor, Mr. Smith named his two children as the primary beneficiaries of his life insurance policy. Now, his 4 and 6-year-old children each possess $500,000.00.

Since each child inherited more than $15,000.00 and the money is not in trust, neither the children nor Mrs. Smith have unfettered control in how to spend and invest the money. Instead, through a “conservatorship,” the local court must oversee the use and investment of the children’s money until each child turns 18. Mrs. Smith’s financial advisor suggests using some of the money to open a 529 plan for their college expenses and tuition, but she discovers she cannot do that without first asking the court, through a very lengthy process, for permission. On top of that, Mrs. Smith must provide the court with receipts of how any of the children’s money was spent and an inventory of all the assets every year until the end of the conservatorship. The conservatorship is not what Mr. and Mrs. Smith intended.

Mr. and Mrs. Smith could have saved money by including trusts for their children in their Wills and subsequently naming those trusts as the beneficiary of the life insurance policy. However, not only did Mr. and Mrs. Smith succumb themselves and their family to annual court costs and attorney fees, Mrs. Smith cannot invest the money in avenues that would likely have yielded higher rates of return as her financial advisor suggested.

How Might This Situation Apply to You

Typically, couples name their spouse as the primary beneficiary, which enables the surviving spouse to have total control over the assets. A surviving spouse may use such funds, for example, to pay off a mortgage and student loans, save for their own retirement, or their children’s education. However, people may find themselves in a similar predicament as the Smiths when the situation involves:

  • A couple directly naming their children as contingent beneficiaries (instead of a trust) and something happens to both spouses.
  • A single parent.
  • A second marriage where one spouse has minor children from a previous relationship.

The Moral of the Story

Don’t grill your opportunity to better control how money for your children is spent after your passing. Be smart and include trusts for minor children in your Wills. Be sure to coordinate with your financial planner to ensure all assets are then properly named to the trusts. Then, go live your life and not worry about what will happen to your assets if the inevitable ever arises!

Read the original article here.

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Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. The information contained in this piece is not considered investment advice or recommendation or an endorsement of any particular security. Further, the mention of any specific security is solely provided as an example for informational purposes only and should not be construed as a recommendation to buy or sell. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.


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