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ArticleEstate Planning is About the People

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By Keven DuComb, JD, MBA
Senior Financial Planning & Estate Specialist
Altfest Personal Wealth Management

Estate planning isn’t always an easy topic to discuss, but as the senior estate specialist at Altfest Personal Wealth Management, I’d like to suggest some key considerations that you should keep in mind about administering an estate plan.

As we advise our clients, it makes these preparations more meaningful when you realize you’re not planning for your death but rather organizing someone else’s future, usually people you very much love and care about. But one fact that’s often overlooked in this process is the importance of the roles and responsibilities of carrying out your wishes after you’re gone. The truth is, people — not paperwork — control that, so we should aim to make it as easy, or at least as organized, as possible.

First, let’s review some fundamentals of estate planning.


Basics of Estate Planning

Estate planning involves the mechanics of contributing assets to your beneficiaries through either your will or your trust. All estate plans are built off these two main foundations. You can either build a will-based estate plan or you can set up a trust-based estate plan. What that really means is that the will or the trust is the main document telling everyone what happens to your assets.

One point of confusion that we see all the time with clients is that if you do opt for a trust-based estate plan, you still must have a will. Everyone gets a will one way or another. It’s just that if you have a trust-based estate plan, your will is a form of backup. In fact, it will be a sort of specialized form of will, often called a pour-over will. Essentially, it is a will that ensures everything ends up back in your trust so that your trustee can carry out your wishes as intended.


Will-Based Vs. Trust-Based Estate Planning

The main difference between a will-based and a trust-based estate plan is that the will-based plan is going to rely on a court probate proceeding. The court is going to review and approve all the final transfers of assets. With a trust-based plan, you’re essentially allowing your trustee to take on this distribution process without any direct oversight.

There can be pros and cons to each, but, largely, if you have confidence in the person you chose as your trustee, then the trust administration process is going to be a little bit more efficient. It also turns out that trust-based planning is more flexible in accommodating any unique aspects of your plan or for developing legally acceptable contingencies, such as optimizing your plan based on the estate and income tax rules in effect at the time of your death.

The critical thing is understanding how the administration of something after you pass away can really influence how you should be organizing or creating your estate plan during your lifetime.


Four Primary Roles for Your Fiduciaries

In choosing fiduciaries to administer aspects of your estate plan, there are always going to be four primary roles. We’ll take them one by one here, then consider how to apply them to your situation.

It may not make sense for one person to serve in every single capacity that exists for estate fiduciaries; the people you’re thinking of naming may have different availability and skills. Let’s look at whether that model really makes sense.


Executor

If a probate estate is necessary, your will need to file a will with the probate court where you live. They’ll need to file a variety of other paperwork to inform the court of your assets and the identities of the beneficiaries, then keep the court updated with all the necessary records. More and more of this work is becoming digitized, but it is still likely that your executor is going to have to go to some court hearings on at least a few occasions through the process.

Because of this, make sure your executor choice would be able to do that. They will work closely with an attorney and certainly the attorney will do some of this work, but keep in mind it’s really the executor’s job to double-check all the attorney’s work and filings and ensure all tasks are completed in a timely manner. This oversight can become a big, time-consuming job.


Trustee

Moving to the next role, if you do have a trust as part of your estate plan, the trustee will be the person who administers that. When you have a trust and you pass away, there’s no inherent need for court filings. There are no specific timelines, but there are some general guidelines. You’re going to want to accomplish certain things in the first month, the second month, then the third month, etc. But typically the trustee can mostly work on their own schedule. That person has a lot more flexibility.

So, if you have children in other states and they agree to be your trustee, they probably can do more remote work than an executor might be able to do. However, they will likely need to be in your home state the first couple weeks after you pass away to handle minor personal effects in the house, and things like closing checking and savings accounts in person.

In many cases, the goal of a trust-based estate plan is to ensure that you don’t have a probate estate.  Because this would mean there would be no need to administer your will with the court, you might have the same person named for both the executor and trustee roles.

However, there could be cases in which you want different people to serve in different roles in your trust-based plan. In one instance, you may elect to make certain distributions through a will, while allowing your trust to manage different assets and distributions. Another case may be having one trustee serve as the initial “administrative” trustee (almost akin to an executor), while nominating a different trustee or trustees to manage trusts created for long periods of time, such as a beneficiary’s lifetime. Knowing that long-term trust planning can be complicated, we are always available to help our clients think through those scenarios.


Agent Roles

The other main roles in any typical estate plan are the agents under your financial power of attorney and then the agents under your health-care power of attorney (sometimes called a health-care proxy). The former allows a person to manage your investments and other financial accounts and engage in activities such as moving money and paying bills, while the latter may be quite familiar to doctors like you, as it empowers one’s agent to make medical decisions on your behalf when you’re unable to do so.

Critically important is that these two roles are activated during one’s lifetime: The powers of attorney are only effective while you are alive. You could be incapacitated, but still living. This is a very different role from executor and trustee, which entail post-death estate management. A trustee can have some gray area in which he or she may take over while someone is still living to succeed a trustee who can no longer serve, but for planning purposes, most clients think of those roles as administering their estate.

Thus, a very significant difference between the agent roles and the executor/trustee roles is that the agents need to be readily available – oftentimes urgently or unexpectedly. For example, an agent may get a call out of the blue while at work informing them that a parent has had a significant injury and the medical provider needs a quick decision on proposed care. That’s not really going to happen to the executor or trustee, as they’ll have a plan and a schedule that they can work through over time. This difference makes it important to think carefully about your choices for agents to ensure they have some flexibility to help on short notice.


Family Fiduciary Role Choices: An Example

I find that considering the decisions about your estate from the perspective of your beneficiaries and the plan’s administrators ultimately leads to better overall estate plans.

Here’s an example of estate administration role-assigning. We’ve got two clients, both busy, working doctors. They raised three intelligent, hard-working children, but the children all took different paths as adults. We see that all three are named, in birth order, to all the fiduciary roles in the doctor couple’s estate plan. Does that really make sense?

Let’s examine some additional facts about the couple’s children to find out.

We learn that the oldest son, working in finance and a successful business owner, frequently is traveling in Asia and effectively has no free time. The clients live in New York, but the daughter, the middle child, is a teacher living in Oregon. Their younger son is a struggling musician who hasn’t found the right orchestra. He has a bachelor’s degree and is very intelligent and capable but happens to be living at home with the parents for the time being.

So here, maybe the choice is the reverse of the normal intuition. The son who lives at home is probably the best choice for the hands-on agency roles, whereas maybe the older son is still willing to do something like a trustee role, if that were to come about. He might have the ability to carve out some time to handle the tasks. But maybe it’s actually their daughter who’s better for that role.

My point is, I think the assumption by many parents doing estate planning that they have to use oldest to youngest, or even “the child who works with money,” can be misguided once you apply the role and its responsibility to the facts of somebody’s life.

Most important of all, we encourage clients to take the time to communicate their wishes, to sit down with family, friends and loved ones, and talk through the details. Let somebody know that you have named them as your executor or agent – or that you’re thinking of doing so to discover what they think about that. Talk through the impacts of estate administration on your beneficiaries, viewing it from their perspective, now and in the future.

We find many clients are surprised at the level of agreement that their family has regarding what the clients thought of as “unique” choices. Additionally, this preparation ensures that nobody is caught off-guard by that call in the middle of the day asking them to make a medical decision on your behalf. Hopefully, after this discussion they also will know exactly what you would wish to be done.


Tax Planning for Your Estate

Last, understanding what happens to your assets when you pass away, not only from an estate tax perspective, but also in terms of income tax, is quite important. When you have a trust-based plan and you have potential trusts created from that down the road, for example, you may want to build in some income tax planning contingencies as well.

The complexities of estate planning and administration for doctors are many, so it pays to work with a tax professional as you establish your own plan to arrive at the most advantageous structure. At Altfest, we offer suggestions meant to steer your decisions, and we are able to refer clients to trusted legal and tax professionals with the right expertise to optimize your estate plan from a tax perspective, especially taking into consideration the tax brackets and wishes of your heirs.


Find Out More

At Altfest, we strive from the first consultation to understand who you are and what matters to you. We want to learn about your concerns or preferred strategies for setting up your estate, among other financial frameworks. Then we’ll put together a road map to help you get to where you want to go.

If you’re not yet an Altfest client, I recommend reaching out for a complimentary consultation with one of our experts.

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.
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