Key takeaways:
- Everyone can benefit from creating an estate plan regardless of the complexity of your financial situation. What makes a successful estate plan is different for each individual and is affected by many considerations.
- It is critical to enlist a competent estate planning attorney to create an appropriate legal structure and draft the necessary legal documents.
- If you ever find yourself unable to handle important matters in your life, it is fundamental that you have already designated the person of your choice to handle those matters for you. Having basic documents in place (examples include Durable General Power of Attorney and Durable Power of Attorney for Health Care) is essential regardless of your financial status or stage in life.
- Asset titling and beneficiary designations usually supersede a will or a trust. If you have any questions or concerns regarding how your assets are titled or your beneficiary designations, do not hesitate to reach out to your Advisor.
- As life circumstances and laws change, it is important to regularly update your estate plan and align assets as needed.
Whether you are considering incorporating an estate plan into your financial plan for the first time or if you feel it is time to consider an update to your existing estate plan, we are here to help you. If you would like to know more about our process, contact your Advisor.
Joanna Crangle: Why do people need an estate plan?
Katie Stephenson: I think sometimes there’s a misconception of people thinking they don’t have enough assets to have an estate plan. Or they might think their situation isn’t complicated— they’re married and don’t have children, so there’s really no need because they can just title everything jointly. But it really goes beyond that.
If someone passes away without documentations in place, it can get very complicated. The laws of Tennessee (or whatever state you’re residing in), are going to govern. For example, if someone is married and has children and passes away, a lot of times people might think the spouse is going to get everything since they’ve been married for 25 years. That’s not necessarily the case, at least in Tennessee. And that can be a little disconcerting if they have a situation where the surviving spouse needs some sort of assets, but the children are now going to get them. It can get complicated when money is involved.
So, we always encourage our clients to have something in place — even very basic. Obviously, we want an estate planning attorney to be drafting the documents, but Telarray or any financial advisor can come in and help them with the structure based on what kind of assets they have. It doesn’t matter if you have all the money in the world or what anyone would consider not a lot of assets — because at the end of the day, it’s money.
Another reason it’s important is that a lot of times, people don’t think about planning for their needs today. When you think of estate planning, you’re thinking you’ve passed away. But what if you become incapacitated? If you’re in a car accident and you can’t speak for yourself, you don’t want the court to decide who’s going to make your health care decisions or who’s going to pay your bills for you. What if your MLGW bill is due and you’re stuck in the hospital and can’t speak? So, you’d want basic documents like Powers of Attorney — which are very simple to get from an attorney or even online now — just make sure that your wishes are fulfilled, because something’s going to be managed and something’s going to happen. Why not have it be what you want versus what the courts decide they think is best for you? It doesn’t have to be elaborate; it can be very simple.
Rebecca Halvorson: When a family or individual has worked their entire life to accumulate assets, it’s very important that the individual or family decides what’s going to happen with those assets if they become incapacitated or when they pass away. Sometimes people get busy with life, and they just don’t think about what will happen or they don’t expect the unexpected, like incapacity. It can be a daunting topic, but selecting a qualified estate planning attorney and creating an estate plan can really put your mind at ease.
It’s important to not only think about the distribution of your assets but also who will ensure that your wishes are followed. For example, will a trustee be necessary? If you’re married, you often name your spouse to handle your affairs, but what if they aren’t able to do so or can’t do it alone? Would it be helpful to have a corporate or professional trustee involved?
Crangle: Who should be involved in estate planning?
Halvorson: You want to be sure that you have a qualified trust and estate attorney to draft the plan, and you want your financial advisor to be there to manage those assets. Usually, a family has a CPA involved, and then if needed, either an individual trustee or a corporate trustee. Those are the key professionals you want engaged. To lay out the plan, it’s the trust and estate attorney — and what they develop is the road map that the rest of us are charged with following.
Stephenson: The other players can help provide insight on what the structure would look like or what makes sense. For our clients, we know them on a deeper level, so we can guide them, but we’re not laying out the actual structure, we’re just making it happen. The estate planning attorney will draft it. You absolutely want a competent trust and estate attorney, because there’s a lot of pitfalls. If the draft language is hazy, then it can change everything that the client actually wanted.
Crangle: This is a hard conversation because people have to talk about unforeseen circumstances that nobody wants to think about it. How can you help with that?
Halvorson: I think it’s helpful if people think about the peace of mind that they will have once they have a plan in place.
Stephenson: I always hear that from clients after they’re done. We go through a long process to make sure this all gets taken care of, and afterwards they feel so comfortable. What I’ve seen is that if something happens to someone and they pass away — their heirs or whomever is going take over these assets — they don’t have to worry about what the person wanted, and they don’t have to worry about a disagreement over money. It’s set in stone. And you can structure it, especially with trusts, to avoid probate. The court doesn’t have to get involved. It can just be your professionals making sure everything went according to the plan you put in place.
Halvorson: That’s really important—that the grantor’s intent is laid out, and then we have direction, and we know how to proceed.
Crangle: What is the formal estate planning process like?
Stephenson: Estate planning is a three-step process. If the client has an attorney that they prefer, the first step is for us to sit and talk together. If they don’t have their own attorney, we work with attorneys we can refer them to. We’ll all meet, the client will talk with the attorney, and as their advisor, we’ll guide them through the structures that are available. Sometimes, a CPA is there because of the tax implications. We talk about whether to do a simple Last Will and Testament or if should they pursue the trust structure. At that point, the attorney will have a great idea of what the client wants to do and can draft the documents. A couple weeks later, we meet again to walk through the structure, make sure the client is on board, and then they sign the documents. From that point, our firm takes over. We’ll get the original documents from the attorney — we put together binders of originals for the clients and then copies for us.
And then we do our most important role—what we call an asset listing. We line out every single asset that the client has. All the way from real property to whatever brokerage account they have or even a checking account. We sit down with them and make sure it’s taking into account everything they have, and we make sure that the assets are titled properly and/or beneficiaries are titled according to whatever plan they put in place. That’s the biggest message — people don’t realize that the titling of your assets or the beneficiary designations are going to supersede whatever you put in your trust or will. That can be a little disconcerting. It’s a little tedious and it must be exact, but we can make it seamless. So, we go through asset by asset and look at what we must do on our end, what the client has to do and how we title correctly. Then, everything is going to flow according to the structure that they just worked on with the attorney.
Cumberland Trust is great for us to work with. A lot of times we have people who are creating a trust and it might be a living trust that will become an irrevocable trust later when they pass. Sometimes, people struggle, especially if they have young kids. Questions like, who’s going to oversee the money (as the trustee) to manage for their children. Then, what about when the children pass? Sometimes, they don’t have someone in their family that they feel comfortable with or they don’t want that emotional or psychological burden or rift between family member and their child. So, a corporate trustee, like Cumberland, is fantastic in that regard.
Halvorson: While a family primarily works with the attorney and investment advisor for the planning process, we are frequently involved as well. Once we’re brought into the equation, sometimes the planning has already been completed. In those cases, our legal team would review the plan, the documents, and the assets so we can begin to serve.
My role is to be sure that families and advisors in the community are aware of Cumberland Trust, our directed trustee platform, and our broad array of services. If families are planning for a future event, we often meet with the client to give them a face to put with the corporate trustee name. There are also current trust situations where a client needs a trustee for the first time or wants to change trustees for various reasons. They might want to move a trust from a traditional corporate trustee and place it with a directed trustee like Cumberland Trust so their financial advisor can manage the assets. We are unique in that we focus solely on administration and client service, not investment management. Most clients are excited to hear that we partner with the investment advisor of their choice.
There are a variety of reasons why someone might need a corporate trustee. Sometimes, there’s a family member qualified to serve, but often there are dynamics within a family that make that tricky, especially if someone has died. We often say their work needs to be grieving, not worrying about tax returns being filed, etc. With a corporate trustee, we administer the trust. We can also handle the estate administration with input and guidance from the family’s attorney so that burden doesn’t fall on a loved one. We can serve alongside a family member, so they can have input — we often serve as co-trustee, which allows them to give us some guidance. No one knows the family as well as other family members or longtime trusted friends, but we know how to navigate next steps. We can be an option to help maintain family harmony.
Frequently, when it’s time for an individual to step in and serve as trustee, they have issues of their own (e.g., raising children or aging), and it might not be a convenient time for them to serve. For this reason, as part of the plan, a corporate trustee is often named in a successor role. You may have a plan where you’ve named individuals, and if a corporate trustee has been named behind them, it’s a lot easier for that person to defer and decline the role. The estate plan had already outlined other options, making it easy to follow the line of succession.
One challenge when naming an individual trustee is that they may not have the expertise to address complex family dynamics, and this may lead to litigation. It’s not that they’ve intended to do anything wrong, it’s just that they may not be equipped to navigate these unforeseen challenges. When there are assets as risk, tensions can flare, and many times attorneys will be asked to get involved.
Stephenson: It’s scary because there’s a legal liability that comes with being a trustee. If we’re dealing with assets like millions and millions of dollars and you’re caring for someone’s child or teenager who wants to buy a Lamborghini because they have the money now, why put a family member in that position? You just don’t know how the dynamics are going to play out. It would be tragic to have people start getting lawyers involved when it’s a family, when they could have just put a corporate trustee in place: That’s what mom and dad wanted, there’s nothing we can do about it. That’s why I prefer a corporate trustee, but the client is in charge at the end of the day. A lot of times they’ll choose someone who works in finance or a good friend.
Halvorson: There are definitely times that individual trustees make sense, and we recognize that. And, if there’s a situation where we’ve been named and, for whatever reason it doesn’t make sense for us to serve, we are willing to find a solution.
And, a client can write a letter of instruction to the corporate trustee. It’s not legally binding like the estate documents, but it’s helpful for spelling out wishes and understanding family dynamics. This can give the trustee and beneficiaries a better sense of the intent behind the estate plan.
Crangle: Thinking about how family dynamics are constantly evolving — divorce, children, extended families — what are some trends you’re seeing around family dynamics?
Halvorson: Katie has alluded to some common needs within families, and we have a group that provides trust administration for senior clients where we offer specialty services. One trend we see now is families who have grown children scattered all over the country. Often, the children would be willing to help their aging parents, but it’s difficult because they’re not physically present.
In these situations, we often begin the relationship by serving as cotrustee with the aging parents while they can still help us get to know them. We then understand how they do things, and as time goes on and as life changes, we may begin to pay their bills for them. We might arrange for caregivers to come into their home and might even help them move from their home to assisted living or senior care. Sometimes these clients don’t have children, so they really do need to look to someone like Cumberland Trust to help with some of these tasks.
What also happens sometimes is as we work with the older generation, and as life changes occur, we’ve already developed a relationship with their children too. That eases the transition as we begin to work with the next generation.
Stephenson: We’ve had a lot more activity lately with clients in their 50s and 60s whose parents are passing away. Their parents didn’t have anything in place, so they’re picking up the pieces. And now they’re realizing that they want to take care of their kids and not have them go through that hassle that they’re dealing with. They’re thinking about their children more so than themselves, and they want it to be seamless for their children.
Halvorson: In addition to the senior care piece, another area that we are seeing frequently is families with special needs situations. We have a group dedicated to administering special needs trusts. If you are leaving assets for a family member who has special needs, those assets may need to go to a special needs trust, or you might disqualify them for government benefits. Some corporate trustees won’t administer a special needs trust, but because Cumberland Trust focuses solely on trust administration, we’re able to have a deep service offering. Some of these families are the ones who need us the most, and we really can make a difference in their lives.
Another trend that we’re seeing is substance abuse and addiction issues — beneficiaries who need a higher level of touch and assistance.
Crangle: Are there any other areas that people may not think about, like special needs?
Halvorson: Some are more typical, like beneficiaries who may have a challenge managing money. Maybe they haven’t been used to doing that or they’ve already shown that they tend to spend more than they should.
Stephenson: I have clients whose family is unaware of their wealth, and when it’s time for their kids to be taken care of or for their kids to take over, they don’t want anyone but their kids to know. This would be a situation where if you have young children and the parents pass away tragically, then they don’t want their other family members to realize how much is available now and mismanage it. It’s about privacy.
Crangle: What are some of the differences in dealing with business owners for estate and succession planning? How do you interact with that group?
Stephenson: We have clients who go through our process who do own business as well, and there are attorneys we like to work with, and we’ll blend that accordingly. That’s where you must have a really competent trust and estate attorney. While we may be able to answer questions, we’re not in the business of practicing law. We can do it from a consulting perspective or help with the titling in some way. For example, we have a client who’s an employee at a corporation, but he has a partnership in it. So, we consider: How do we want to retitle the partnership interest? Is that possible? What does that look like?
Halvorson: Also, ultra-high net worth clients usually have assets in addition to cash and marketable securities. They may own or may have sold businesses. A family that has a farm, for example, may want it to stay in the family or remain in a trust. And one of the things that the attorney can help with and that we look at in new relationships, is how that special or non-conforming asset is titled and held. And is it wrapped in an LLC, which can give it additional protection and protect the other assets in the trust as well?
Stephenson: Telarray and Cumberland have a lot of knowledge on consulting, but we’re not practicing CPAs. And I don’t practice law. So, I must have all these other professionals around me to act in their capacity. You really need a team if you have a complicated situation.
Halvorson: Definitely. With businesses or family-owned businesses, there’s succession planning, and there are always questions we ask, like: What will happen when the person who founded the business and has led it for 30 years is not in the picture? Does the business continue? Do they sell? Do they unwind it? What happens to those resulting assets? It’s critical that all of that planning is taking place.
Stephenson: Sometimes you have a client who wants to retire and quit the business. They could have a plan to simply sell the business, or they might have an heir who should take over the business. These are very difficult decisions. We can help the client determine what they can “afford” to give away. We will help them get their thoughts formulated clearly before meeting with the attorney.
Halvorson: You want to be sure that what you’ve laid out is also tax efficient. You don’t want to do something that inadvertently causes your estate to pay more in taxes. This is why it is important to involve your attorney and CPA.
Stephenson: From the financial planning side, we look at how your beneficiaries are designated on qualified accounts. Most people have a qualified account — a 401K, or 403B, or something they rolled over. If you name beneficiaries a certain way, sometimes you can get in a tax situation that isn’t as preferred as a different titling. That’s without even doing the estate planning altogether. So, that’s always important.
Crangle: Are there other challenges or misinformation that you hear from clients?
Stephenson: A living trust is nice because of what can happen after you pass — it makes it so seamless. If your goal by implementing the living trust is to avoid probate, when you pass away, it’ll never have to go to court. Most people think when they pass away, everyone must go to court — most of our clients don’t, and then the family is able to grieve. With a living trust, you have just as much control as if it was in your name, if it’s structured or drafted correctly. It makes perfect sense for a lot of the population.
Halvorson: Thinking about misconceptions — some people think they don’t have enough assets to justify a plan to bring in these professionals. Maybe they’ve heard stories about situations that have been difficult or where things didn’t go well. Once we can sit down together, they realize we have oneon- one relationships with our clients, and we’re here to serve our clients and establish deep relationships with the beneficiaries, they become comfortable with the idea of a corporate trustee. They begin to understand the comfort that comes with naming a professional entity.
Sometimes, clients also think they can’t afford the fees that come with hiring professionals. Once they understand the risks as sociated with the alternative, that it can be much more expensive if they do not have a plan, then they realize that it does make sense. And Tennessee has really strong trust legislation. There are a lot of planning tools that people can utilize in Tennessee. For example, trusts can often be moved from one trustee to another without going to court, and certain matters can be agreed upon by the remainder beneficiaries that don’t require a court’s involvement. If you’re going to have a trust, Tennessee is a great state for flexibility in trust administration.
Stephenson: We have what’s called a joint revocable trust where you can elect community property status. That’s a great unique feature that people can put into place. It’s a great tax benefit. But that’s why you have to sit down with someone and walk through it all, because it’s different for every person. You might have the same structure or fact pattern as someone else — and need something completely different.
Halvorson: And the Tennessee asset protection trust is another tool that is favorable for certain individuals.
Crangle: Final thoughts?
Stephenson: It’s just a matter of picking up the phone and doing it. Afterwards, you feel so much better and everything’s in place. And, it’s healthy to look at your estate plan at least every five to seven years. Most plans and Powers of Attorney you can change at any point. It’s always going to evolve — your kids get older, your wishes change, sometimes people get divorced, people pass away, your assets change, laws and regulations change.
Halvorson: Most people spend the majority of their adult life accumulating assets and building the value of their estate. Doesn’t it make sense to invest the time and effort to ensure your wishes are carried out when that time comes? Once you have a team of advisors you trust and a plan in place that reflects your wishes, you will feel confident that you’re protecting your family’s legacy.
