A Quick Start on Simple Estate Planning: Your will

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Your last will and testament is probably what you thought of first when you thought of estate planning. It contains your directions for who gets your property after you die. But it does some other important things as well:

  • It names a personal representative (other states call this person an executor).
  • If you have minor children, it can nominate guardians for them.
  • It determines who gets your tangible personal property (the stuff around the house).
  • It makes any specific gifts you want to make, such as leaving $5,000 to a charitable organization.
  • It distributes your remaining property. This is everything you own that wasn’t distributed as tangible personal property or a specific gift.
  • Finally, it can create a trust after your death to:
    • Hold distributions for your young children until they reach a responsible age; or
    • Hold distributions to incompetent or disabled beneficiaries (of any age) in a way that allows someone else to manage the assets and doesn’t endanger eligibility for government benefits.

 

Decision: Personal representative

This is the person who will do all the administrative and legal work required to carry out the directions in your will. This person will be in charge of your estate until your final expenses are paid and your final affairs are finished.

A good personal representative is:

  • Trustworthy
  • Responsible
  • Organized
  • Reliable
  • Good at making decisions
  • Good at following directions
  • Good at following through and getting things done
  • A peacemaker who prevents conflict
  • Steadfast if conflict is unavoidable

Few personal representatives have all these qualities. Make the best choice from among the people you trust.

A few more things you should know about your personal representative:

  • This person will most likely hire a lawyer to help with the final affairs. Your personal representative doesn’t have to be a legal or financial expert.
  • This person can always resign. Nominating them does not force them to do the job.
  • The job will probably be easier for someone who lives nearby, or at least in the same state.
  • You can have more than one personal representative at the same time. Two or more people can share the job as co-personal representatives.

You should also name at least one successor personal representative. You never know if the primary person will be available, so you need a backup.

If you are married, it’s common to name your spouse as your primary personal representative. A trusted adult child or sibling also often serves as personal representative. But you can name any adult you trust, no matter their relationship to you.

Consider:

Who might be a good primary personal representative for you?

Who might be a good backup?

 

Decision: Tangible personal property

Your tangible personal property is what I like to call “the stuff around the house.” This includes movable personal property like jewelry, heirlooms, paintings, tools, sports equipment, electronics, furniture, cars, and hobby collections.

For the few sentimental items and heirlooms you want to go to specific people, your will incorporates a memorandum of personal property. This is a list of specific items and who will receive them, signed and dated by you after you execute your will. For now, focus on deciding what should happen to the rest of your stuff.

If you are married, you should leave most or all of your tangible personal property to your spouse first. If you are not married or if your spouse dies before you, this property is commonly left to the children in equal shares, with the provision that they can work out how to divide everything among themselves.

Consider:

Who do you want to receive your tangible personal property?

Your spouse?

Your children? In equal shares?

Someone else?

 

Decision: Specific gifts

Specific gifts are usually small gifts of money or specific assets that happen before the big distribution of everything else. For example, “I give $5,000 to my church” and “I give my cabin up north to my daughter Emily” are specific gifts.

Remember, these gifts happen before the general “I leave everything to my spouse and children” kind of distribution. So if you only had $5,000 left in your estate after paying expenses, taxes, and debts, the church would get everything and your spouse and kids would get nothing. That’s an unusual situation, but something to keep in mind.

Most of my clients do not make specific gifts in their wills. They prefer to make these kinds of gifts during their lifetimes and let everything at death go to their spouse or children. But it is certainly an option, especially if you feel strongly about making a charitable donation at your death or want to ensure a particular asset goes to a particular person.

Consider:

Do you want to make any specific gifts?

 

Decision: Remaining property

Called the remainder in legal parlance, this is the big distribution of “everything else” in your estate after expenses, taxes, debts, and specific gifts. This is what most people think of when they think of making a will.

My clients usually want to leave all their remaining property to their spouse first (if they have one), and then to their children equally (and, if a child happens to die before them, to grandchildren, etc.). Sometimes clients want to disinherit a child or, if childless, distribute their property to someone other than close family.

Consider:

Who do you want to receive your property first?

Your spouse?

Your children? In equal shares?

Someone else?

Who do you want to receive your property second, if your primary beneficiary has died?

Your children? In equal shares?

Someone else?

 

Decision: Guardians for young children

If you have young children, this is the most important reason to make a will. Who do you want to take care of them if you can’t? You’ve probably put a lot of thought into this already. For some this is an easy decision; for others it is the most difficult.

Here are a few things to consider in making this very personal decision:

  • Close family—those most involved in your children’s lives—usually make the best guardians.
  • If you are married, you and your spouse should nominate the same people. If you don’t nominate anyone or nominate different people, you might be setting your two families up for a fight.
  • Make a list of what is most important to you in raising your children. Consider religion, parenting philosophy, values, relationships, location, and lifestyle.
  • Consider the resources of the people you might nominate. Keep in mind that your own resources and life insurance will be available to provide for your children, too.
  • Think about whether you want your children to be raised by a couple, or if you’re okay with a single person caring for them. What do you want to happen if the couple gets divorced, or if one of them dies? What do you want to happen if that single person gets married?

Wisconsin has two types of guardianships: a guardianship of the person and a guardianship of the estate. The guardian of the person will have custody of your children and fill the parental role. The guardian of the estate will hold and manage your child’s property (what he or she inherits from you, potentially) until your child turns 18. For a young child, the guardian of the person and the guardian of the estate are usually the same person. If you want, though, you can nominate different people. I would only recommend this if you feel strongly that one person or couple should have custody of your children but someone else would be better able to manage their inheritance.

If you’re having trouble making this decision, know that you’re not alone.

Consider:

Who would you trust first to have custody of your children?

Who would you trust to manage your children’s inheritances and provide for them financially?

Who might serve as backups?

 

Decision: Trust for young children

If you have a young child, think about what will happen to your property if both you and your spouse die. Even if you nominate a guardian of the estate, whatever you own (including the life insurance benefit) will become your child’s as soon as they turn 18. The way to avoid this is to have your will create a trust to hold the property until an age you choose.

Do you think your child will be able to make responsible and wise decisions with a large amount of money when they are 18? What about when they are 21? When they are 25? When they are 30?

Some of my clients are comfortable giving their child full control of the inheritance at age 18. But if you think it best to have an older, more responsible person control the money until a certain age, you need to have your will create a trust.

If you create such a trust, you also need to decide who that older, more responsible person will be. This person is the trustee. This person is most commonly a family member, and often the same person you’ve nominated as guardian or personal representative. The same qualities that make a good personal representative make a good trustee.

The trustee simply holds the inheritance until your child reaches an age you choose. Most of my clients choose either age 25 or 30 for their child to gain full control of an inheritance. Until then, the trustee invests the property and can spend it for your child’s benefit—it’s just that the trustee makes the final decision to spend or not to spend, rather than your child. You can even direct how you want your trustee to spend the money. For example, you could state that you want the trustee to use the money to pay for your child’s college education.

Consider:

Do you want to create a trust to hold your property for your young children if you die?

At what age are you comfortable with your children receiving full control of their inheritance?

21?

25?

30?

Some other age?

Who should be the trustee managing this property for your children?

The person who is also your personal representative?

The person who is also the children’s guardian?

Someone else?

Who should be the trustee if the person above can’t do it?

The person who is also your personal representative?

The person who is also the children’s guardian?

Someone else?

 

Next: Your power of attorney for finances (coming soon) >

< Previous: Start with your goals

Is estate planning a lot of work?

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“It feels like so much work so I’m dragging my feet.” It’s a very common feeling when it comes to getting started on estate planning.

On the one hand, a will seems simple enough. You already know who you would want to get your property, so, um, just write that up and let’s be done with it, thank you very much. But once you start learning about estate planning, you quickly realize that a will should name a person to manage your estate, and perhaps a guardian for your young children, and maybe a trust if you don’t want them to get everything at age 18, and also a will only covers non-probate property (whatever that means), and oh you’ll need to name people to serve as backups as well, and by the way you should really have a power of attorney for finances and a power of attorney for health care too, at the least, each with more decisions to make.

In my experience, most people walk into a consultation with only one or two questions about estate planning. My answers beget a couple more questions. My answers to those questions beget even more questions. And so on. Usually by the end we’ve come full circle and the clients or potential clients walk out with a lot to think over.

The point is that even simple estate planning is more work than it might seem at first. After all, you don’t want it to be too simple (that’s what I call “basic”); you want it to be as simple as it can be while accomplishing your goals and helping your family. A big part of the value I provide is identifying for each client this line between too basic and too complicated. I can tell you exactly how simple your estate plan can be without hurting you or your family—or, put another way, I can tell you exactly how complicated your estate plan needs to be to accomplish your goals.

It’s my mission to make estate planning short, simple, human, and correct. I’m constantly working on making this process shorter and simpler for my clients. I’ve still got a lot of work to do, but I’ve made progress by focusing on a few things that make estate planning more work than it needs to be:

  • Long intake forms. Lawyers like lots of detailed information—especially estate planning lawyers, and I’m no different. We’re trained to analyze facts and find legal issues. The more facts we have, the more potential issues we can address. So you can understand why an intake form for a wills and trusts lawyer would stretch on for a good many pages of densely-packed questions. But gathering all this information can be a big barrier for clients, who will have to hunt for it in online accounts with long-forgotten passwords, or file cabinets stuffed with unorganized papers, or by making phone calls after hours. That’s why I try to keep my intake form as short as possible (the paper form I use is just over two and a half pages, though I’m moving to an online form now). Do you really need to give me your social security number? Do you really need to list account numbers for every financial asset? My approach is to ask only for the essential information up front and ask for more if and when it’s needed.

  • Multiple in-person meetings. Nobody thinks going to a lawyer’s office is a walk in the park. (Mine is more of a plain conference room than the stereotypical lawyer’s office, but still.) Especially if you (and perhaps your spouse) work normal hours, taking time off to sit in an office for an hour or two is not convenient. The more you have to do this, the more work estate planning becomes. I’ve found that, for many clients, meeting in person at least once is important to establish trust. Beyond that, though, the fewer the better. Ideally, you’d have one meeting at the start and a short meeting at the end to properly execute everything (too bad Wisconsin law doesn’t allow for electronically signing your will, yet). That’s how it worked out with the clients I wrote about last week. I’m working on making that a more common occurrence.

  • Making lots of decision all at once. I used to work at a firm where we had a meeting with every client just to make all kinds of estate planning decisions. They were expected to make all the decisions right then and there (with our guidance). We didn’t give them a guide to explain the basics or give them time to let it simmer in the back of their minds. And there were a lot of decisions: we gave our clients options to create sub-trusts, grant powers of appointment, limit trustee powers, name a trust protector, and so on, and so on. The thing is, estate planning gives your words legal power, and your words can be almost whatever you want. The number of decisions you could make is immense. I’ve come to believe it’s my job as the lawyer to guide you to the really important decisions, give you what you need to make them well, and protect you from overwhelm and decision fatigue. I’ll admit that’s an art, and I’m still a novice at it. But I’m working on it. That’s why I’m starting to send clients my Quick Start on Simple Estate Planning guide first thing, so they can already be thinking about the biggest decisions ahead of time, at their own pace. I’m also paring down the initial questions I ask of estate planning clients.

  • Trusts and asset protection. Nothing complicates an estate plan and makes more work like a trust. Especially an asset protection trust. Everyone gets what a will is. A trust, on the other hand, is less straightforward. It’s also yet another legal document with its own set of decisions to make. Sometimes it’s worth the complication. A typical revocable living trust that I draft (not an asset protection trust) does make my client’s estate plan a bit more complicated, adds expense, and adds work; but it makes their family’s job later in estate administration simpler, less expensive, and easier. It’s a worthwhile tradeoff for some clients, and I keep that trust as simple as I can. But very few of my clients need a trust; a simpler estate plan of a will and powers of attorney can accomplish what most people truly need.

A Quick Start on Simple Estate Planning: Start with your goals

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Estate planning starts with identifying your goals. What do you want to accomplish? Why get an estate plan in the first place?

Here are some common goals my clients have for their estate plans:

  • Distribute property at death according to their wishes
  • Make things as simple as possible for their families
  • Avoid probate
  • Name guardians for their young children
  • Delay big distributions to young children or grandchildren until they reach a responsible age (often 25 or 30)
  • Provide for disabled beneficiaries without endangering government benefits
  • Prevent family conflicts over property and health care
  • Give spouses legal authority to manage singly owned assets like life insurance and retirement accounts
  • Put someone trusted in charge of the final affairs
  • Ensure someone trusted can manage health care decisions and finances if they can’t

Estate planning is not planning for good times and normal life. It’s planning for crises. It’s planning for the things that change your life and the lives of those who love you forever. It’s a lot like life insurance—you don’t get it because it’s going to benefit you. You get it because your family might need it, if the worst were to happen.

Consider:

What are your goals? Which is the most important?

Is it more important to keep things simple or control what happens in the future?

Your goals are accomplished by executing estate planning documents. For each document, you’ll need to know what it is and make several decisions about what you want it to say. An estate plan always includes a will, a power of attorney for finances, and a power of attorney for health care; it sometimes includes a trust as well. The decisions you’ll need to make in these documents are generally either who decisions (who will be in charge, who will get the property) or what decisions (what powers they will have, what property they will get).

The rest of this guide gives brief explanations of the basic estate planning documents and the major decisions you’ll need to make in each. By the end you will know what to expect when enacting your own simple estate plan, and you’ll have a head start on making all the important decisions.

Next: Your will >

< Previous: Introduction

A Quick Start on Simple Estate Planning: Introduction

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You need to get your will done. But getting started is hard. Researching lawyers, scheduling consultations, attending consultations, comparing prices, asking the right questions, making big decisions—it’s a lot of work. Too much, I think.

“I just want to keep things simple.” I hear that from clients over and over. It’s not just about price. It’s about avoiding complications, expenses, and bureaucracy. Most of my clients just want their final affairs to be as straightforward as possible for their families. They want working with their lawyer to be straightforward, too.

This guide is a straightforward way to get started on your estate planning. All you need is a little education on the basics: what each estate planning document does and the major decisions you’ll need to make. That way, when you do meet with me (or another lawyer), you’ll already be off to a quick start.

Estate planning isn’t fun or exciting. But it is important. By creating your will and powers of attorney (and trust, in some cases), you are caring for your loved ones and giving them tools they might need to care for you. I hope this guide gives you a quick start on that good work.

BSW

 

Next: Start with your goals >

Estate planning—it’s not about the money

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Few people inherit anything, very few inherit much, and half the average inheritance is spent immediately. That’s what this study from 2012 says.

I ran across the study through this New York Times article, which talks about a middle-aged woman who inherited $1 million. The article includes sensible advice for heirs from financial professionals: pay off debt, put aside an emergency fund, and invest. But the examples in the article are of people inheriting hundreds of thousands of dollars.

The study, on the other hand, found that only 1 in 5 U.S. families inherit anything. Only 25% considered it “very important” to leave an inheritance. The average inheritance was only $50,000, half of which was spent right away. These numbers lead to a stark conclusion. For most people, estate planning is not about the money.

That might seem odd. Most people, when they think about getting a will, think about who is going to get their property. But I wasn’t surprised at all. Although my clients are usually leaving somewhat more than $50,000 to each beneficiary (but less than $1 million!), they aren’t all that concerned with the amount of money or what their beneficiaries are going to do with it. Instead, they say things like:

  • “I just want to make it as simple as possible.”
  • “What my kids do with the money is their business.”
  • “I don’t want to control or limit anything.”
  • “I want everything to be even.”
  • “I don’t want to leave anyone out.”
  • “I’m okay if there ends up being nothing left.”
  • “I don’t want to put my kids through a lot of trouble.”
  • “I want to make things as easy as possible for my kids.”

The fact is that most of my clients are not all that concerned about the money. What they worry about is accidentally causing trouble, putting their children through burdensome legal and financial processes, and sparking family conflicts. Their largest goal is not to preserve assets or control property, but to make everything after their death as simple, easy, and fast as possible.

It’s tempting to look at the sum total of a person’s estate and focus on what that amount of money can accomplish. Think of all the good it could do! Think of the debts paid off, the dreams given a chance, the charities supported and causes advanced. These are, certainly, good things to think about. Yet most of my clients are content to simply leave these decisions to their heirs. Given that most inheritances are not all that large, I have to admit their approach is a sensible one.

When estate planning is no longer about preserving or controlling money, what is it about? It’s about family. It’s about making the unpleasant but necessary business of final affairs as simple, easy, and fast as possible. It’s about minimizing stress and avoiding potential conflict. To sum it all up, it’s about avoiding the negative things about money and administering it after death: the stress, the bureaucracy, the management, the emotions, the taxes, the complications. For most people, these are their most important goals.

That’s why my mission is to make estate planning simple. That’s why my values are being short, simple, human, and correct. I think these things are more important than money, because these are the things my clients talk about. Enough ink has been spilled over the money that’s inherited—how to spend it, how to invest it, how to avoid making mistakes with it. This study shows that those are problems for a minority. The bigger problems are about the complexity and bureaucracy of settling a person’s final affairs.

Thankfully, estate planning can address those problems—if we make that, rather than money, the primary focus.

How do I provide for a disabled family member in my estate plan?

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If you have a family member who is disabled, you’ll need to take that into account in your estate planning. It’s a common situation, but it’s important to provide for your disabled beneficiaries in a different way.

Why do I need to plan differently for disabled family members?

There are two main problems with giving property to a disabled family member.

First, it might disqualify them from government benefits. Programs like SSI (Supplemental Security Income) and long-term care Medicaid are based partly on disability and partly on falling below a certain financial threshold. If a disabled person suddenly gets a big lump-sum inheritance, their benefits will end. What happens then? They’ll have to use that inheritance on things the benefits would have paid for until it’s all used up, at which point they’ll have to go through all the red tape of applying again to get their benefits back. It’s a waste of money and a major headache.

Second, they might not be the best person to manage the property. This is often (but not always) true if they have a significant intellectual disability. But severe physical disabilities or chronic pain can also affect the amount of energy a person can put into managing finances, especially if they are also vulnerable to depression. Of course, many people with disabilities are fully capable of managing their own affairs. You’ll have to decide for yourself whether your particular family member needs this kind of help.

Ultimately, the goal of estate planning for a disabled family member is the same as for any other: provide for them in the way that’s best for them. Estate planning is an opportunity to do good! It can make a huge difference in the lives of your loved ones—doubly so if they have a disability.

How should I plan for disabled family members in my estate plan?

If you want to provide for a disabled beneficiary while avoiding the problems mentioned above, you will need to create a trust for them. This trust will hold the property and allow it to be used and managed for them, without them owning it directly. Because they don’t own the money, it doesn’t count against their government benefits. And because it’s in a trust, someone else (the trustee) is in control of how the money is invested and spent.

There are many different kinds of trusts. The most common type of trust for a disabled person is called a Supplemental Needs Trust or Special Needs Trust (SNT for short). These trusts contain the disabled person’s own money and are designed to supplement government benefits. Their primary drawback is that any money remaining in the trust after the disabled person’s death gets paid back to the State. But since you are planning with your money—not your disabled family member’s money—you don’t need to create an SNT with this drawback. (If you don’t plan your estate and your disabled family member receives an inheritance outright, they will have to scramble and jump through legal hoops and pay legal fees to set up their own SNT—if they even know it’s an option.)

Instead, you can create your own trust designed to provide for your disabled family member. There are several ways to do this.

Option 1: Use your will

Your will can create a trust to provide for your family member after you die. You can put the terms of the trust in the will itself (creating what’s called a testamentary trust), or you can simply give your personal representative the power to create an appropriate trust when the time comes.

For example, I include a provision in every will I draft that kicks in whenever a disabled beneficiary is about to receive property. Instead of receiving it directly and facing the problems mentioned above, this provision allows the property to be placed in a trust for that person’s benefit. You never know if a family member who is currently healthy will become disabled in the future. Accidents, injuries, and illnesses happen. That’s why I always include this as an option.

Note: You’ll probably need to hire an attorney to get a will that includes this kind of provision. Do-it-yourself options are often too basic to include planning for disabled beneficiaries.

So one option is to rely on your will. This is often the cheapest and easiest approach to take in the short term—but it will involve more work and incur more costs later on. Because this provision is contained in your will, only property that goes through your probate estate can be put into the trust that will be created. But most of your property is probably non-probate property—life insurance, retirement accounts, anything with a beneficiary designation. If you want that property to go into a special trust for your disabled family member, you’ll have to change beneficiary designations to your estate or testamentary trust. That will force the property to go through probate and end up in the trust, but it also means you’ll have a lengthier and more expensive probate process.

To sum it all up, if you rely on your will to create the trust to provide for your disabled family member, it will be cheaper and easier in the short term, but more expensive and more complicated for your family in the long term.

Pros Cons
* Simple in the short term
* Easy to put in place
* Inexpensive
* Far better than nothing!		 * Requires going through probate
* Requires complicated coordination of beneficiary designations
* More work for your family after you die
* More expenses after you die

Option 2: Create a separate trust now

Rather than waiting until you die and relying on your will, you can set up a trust for your disabled family member right now. This gives you full control and the reassurance that everything is taken care of.

This separate trust will provide that the trust property be used only to supplement any government benefits or other sources of income for your beneficiary. Your beneficiary won’t have any ability to demand or control the trust property or how it is spent—somebody else, the trustee, will make all final decisions. Who that trustee should be is the most important decision you’ll have to make.

You can serve as the trustee while you’re alive. Other family members, especially ones who are reliable and organized, might naturally serve as trustees. Finally, you can have a bank or non-profit serve as trustee (in which case they’ll be paid from the trust property).

Even though you’ll be creating the trust now, you don’t have to put your property into it (“fund” it) until after you die. That’s up to you. You might put property into it immediately if you:

  1. Want your disabled family member to be able to use the trust right away;
  2. Choose to have a bank or non-profit serve as trustee; and
  3. Want to “set it and forget it,” letting the professional trustee take care of distributions, investment decisions, and administrative tasks.

The more common approach is to set up the trust but wait to fund it. In that case, the trust is ready and waiting to receive property after you die. Because it already exists, no probate is required to set it up and you can name it as a beneficiary of your life insurance and retirement accounts. Because it isn’t currently funded, there are no ongoing costs or administrative tasks to maintain it (apart from having an attorney review it every once in a while in case the law has changed).

Pros Cons
* You have full control over terms of the trust and who is in charge
* Reassurance that everything is taken care of
* Option to fund immediately and have managed professionally		 * More legal fees up front to set up
* Requires coordination of beneficiary designations to avoid probate
* If unfunded, little immediate benefit

Option 3: Create a living trust for yourself that turns into a trust for your disabled family member after you die

This option has the greatest flexibility and immediate benefit. It’s sort of a combination of Options 1 and 2. A living trust is a common way to avoid probate and make estate administration simpler for your family after you die, but it can also, just like a will, create another trust for your disabled family member. It can provide for your other beneficiaries, too, and simplify your estate administration by bringing all your property under one roof. So you get to avoid the expense and complication of probate, make things simpler for your family, and maintain a lot of flexibility while you’re living.

The main drawback of this option is that it is more expensive than a will-based plan (though less expensive than Option 2) and requires some retitling of accounts and changing of beneficiary designations after you create the living trust.

Pros Cons
* Less expensive than Option 2
* You get all the advantages of a living trust for yourself
* Completely avoids probate
* Consolidates all your estate planning in one document
* Allows simpler and faster estate administration after you die
* You have full control over terms of the trust; custom		 * More expensive than Option 1
* More work up front to set up
* No option to have a professional trustee manage while you’re alive

A final option: Rely on an informal plan

Last of all, you might have the idea of leaving everything to a healthy family member, trusting him or her to use the money for the disabled family member as needed. For example, a client who has one healthy adult daughter and one disabled adult son might leave everything to the daughter, knowing she will take care of her sibling.

This is an informal arrangement. The daughter legally owns the property and can do whatever she wants with it. It’s vulnerable to her creditors (imagine a lawsuit) and to the property shenanigans of marriage and divorce. It’s also affected by the daughter’s own estate planning—or lack thereof. And then who provides for the disabled son after the daughter’s death?

These risks are hard to anticipate or control, even if you think they aren’t likely to happen to your own family. Even if everything goes well, it’s likely some of the money meant for your disabled family member will be lost, intermingled, or invested inappropriately.

An informal arrangement carries the most risk that your money will ultimately not provide for your disabled family member as planned, for one reason or another. But an informal arrangement certainly can work. If you are comfortable taking those risks, have a family member who is not only trustworthy but also reliable and organized, and can’t afford more formal estate planning, an informal arrangement might work for you. If you can afford even simple estate planning, I think it’s worth it to eliminate the risks of an informal plan.

Pros Cons
* Cheapest, easiest option
* Flexible; family have complete control because they own the money		 * Greatest risk that money will be taken or wasted
* Family who receives money has to figure out everything for themselves; no direction
* Not that much cheaper than Option 1

What is a trust, exactly?

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“Do I need a trust?” It’s about the most common question I get. Trusts are one of the most complicated, confusing, and misunderstood pieces of estate planning. In this and following articles, I’m going to break them down and make trusts simple. First up: taking a step back to talk about what a trust is.

A simple trust

Most people think a trust is essentially a bank account. It holds property; you can put property in and take it out. That’s true in some ways, but a trust is much more than a box that holds property. Legally speaking, a trust is a set of relationships between property and people.

To illustrate, imagine:

  • You’ve taken your family to the county fair.
  • Your 8-year-old son is about to go play some games, supervised by your teenage daughter.
  • You’ve budgeted $20 for each child to spend during the outing.

You probably wouldn’t hand your 8-year-old $20 and trust he’ll spend it well. You’d probably hand it to your daughter with instructions to make sure it isn’t spent all in one place or too quickly, and to make sure there’s enough left over to buy lunch. You would say you’ve trusted your daughter with that money. You might tell her, quite naturally, “I’m trusting you with this.” It’s only for her little brother, but she is in control of how and when it is spent. She holds that $20 in trust for her brother.

That’s a simple trust. The trust is not just the $20—it’s also the special relationship between that $20, your daughter, and your son.

There’s a legal term for each person involved. You are the grantor, because the money was originally yours and you are the one entrusting it to someone else and giving them instructions. Your teenage daughter is the trustee, because she’s the one who possesses the money and must follow your instructions about how and when and for whom it is spent. Your young son is the beneficiary, because this whole arrangement is for his benefit.

diagram of a simple trust
A simple trust.

You have more power over your property than you think

It helps to understand that when you create a trust, you are exercising your legal rights as owner of your property in a different way than normal.

Most of the time, we think that owning property means one thing: it’s mine and I can do what I want with it. You can go a little deeper, though, and think about all the things you can do with it. For example, let’s say you are the proud and fortunate owner of an apple. You own it, sure, but what does that mean? What can you do with that ownership? Well, you can:

  • Control where the apple is, physically (in your hands, for example, or in your cupboard)
  • Eat the apple
  • Feed the apple to your child
  • Plant the apple seeds
  • Throw the apple in the garbage
  • Give the apple to someone else

Think of each of these things as a different legal right you have as owner. The thing is, owning the apple is not an all-or-nothing game. You can divvy up these rights and uses and give them to different people. You can just hand the entire apple to someone else, sure. But you could also cut it in half and keep some for yourself. You could take the seeds out first and give them to a different person. You could hand the apple to your friend to keep safe for you while you go take a swim.

Think of ownership as a bunch of separate rights over the property. These rights, such as the right to possess and the right to use, can be separated by creating a trust.

In the same way, when you create a trust, you’re dividing the different rights to your property and giving them to different people. You’re giving the right to possess and manage the property to your trustee, and you’re giving the right to use and enjoy the property to your beneficiary.

Of course, it gets a little more complicated than that. When you give these different rights to different people, you also have to create some rules about what each person can and cannot do with the property. Does the trustee get paid for the job? Can your beneficiary use the trust money to buy a luxury car? You might want to answer these questions.

Trusts are about the future

In fact, the great benefit of a trust is it allows you to set the rules and control how your property is going to be used and managed far into the future. Most of us only think about our property in the here and now, making decisions about how to invest it or manage it or spend it as they come. In fact, we all have the creative power to set legally enforceable rules and relationships between our property and the people we love.

Why would you want to do that? I’ll answer that question in future articles. In short, though, you create a trust because you want to set your own rules for who is going to control your property and how it is going to be used in the future. You want to do that because it will protect or help your family. Because, as with our example of the county fair, sometimes handing over a wad of cash is not the best way to do it.

How virtual meetings make estate planning simple

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Traditional estate planning is not simple, and a big reason for that is meetings.

Traditional meetings are on the lawyer’s terms

Traditional estate planning involves three to four meetings (usually), over the course of six to eight weeks. All of these meetings are:

  • In person,
  • At the lawyer’s office, and
  • During business hours.

Some people make it work. If you’re retired, for example, you probably have more freedom during regular business hours. If you’re not retired, though, it’s hard to take that much time off work—especially if your spouse has to take off as well, or has to find someone to watch the kids. That’s a big reason why only 20% of millennials and 36% of Generation X have wills.

Even if you can attend these meetings, going to a law firm is no one’s idea of fun (even if you like your lawyer). Law firms tend to be intimidating and uncomfortable. You often have to deal with a receptionist and wait. A good law firm will make this a pleasant experience. Many firms, though, haven’t put much thought into customer service, even if they are full of good lawyers.

I once hired my own lawyer for a small matter. When I showed up for the initial meeting, I checked in with a dour receptionist. She told me, in no uncertain terms, that I could not meet with my lawyer until I had completely filled out a long questionnaire with lots of (I knew) pointless questions. That was my first experience walking into the law firm as a client. Even though my lawyer ultimately did a fine job, do you think I’ve ever recommended the firm to anyone else? This kind of experience is, sadly, still common in the legal world. It’s expected that clients will meet with the lawyer on the lawyer’s terms.

That’s also why traditional estate planning meetings often have to be scheduled weeks in advance. They have to fit into the lawyer’s schedule, and lawyers are busy. Although estate planning isn’t usually an urgent matter, it’s frustrating as the client to finally decide to get it done and then find out it’ll take several weeks and multiple meetings.

Of course, for a long time in-person meetings were the only option. You want to see your lawyer so you can get a good impression and decide if he or she is trustworthy; phone calls and emails won’t suffice. But now video technology and the internet have given us another option: virtual meetings.

Virtual meetings are on your terms

Virtual meetings solve the problems with traditional, in-person meetings. Their key virtue is flexibility, which is a virtue indeed in today’s busy world.

Because virtual meetings can be done from anywhere and at any time, they can work around your schedule. You can have a virtual meeting in the early morning, on a lunch hour, or in the evening after the kids go to bed. You can have a virtual meeting at work, or at home, or while visiting relatives. You won’t have to take time off work. You won’t have to find childcare. You won’t even have to put on shoes.

Virtual meetings are easy to attend—you only need a computer or smartphone and an internet connection. They avoid the expense and annoyance of traveling to a professional office. Best of all, you don’t have to wait in a waiting room or deal with a receptionist.

And think about this: you don’t have to live near the lawyer to have a virtual meeting. That means you have more options when it comes to choosing an attorney. I, for instance, can serve anyone in the entire state of Wisconsin.

All this flexibility and convenience saves the lawyer time and expense as well. It’s a win–win. That’s why virtual estate planning often costs less than traditional estate planning.

Lawyers are still catching on to virtual meetings, which is a shame. For estate planning, I think they are a no-brainer. They make it easier, cheaper, and, well, simpler. That’s why I offer virtual meetings, and hope they will become the primary way I meet with clients in the future.

The real reasons you need a will

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Why don’t most adults have a will? The no. 1 explanation they give is “I just haven’t gotten around to it.” But the no. 2 reason is “I don’t have enough assets to leave to anyone.”

If that’s the second biggest reason people don’t have a will, lawyers are dropping the ball. We’re the ones who know it’s a misconception that estate planning is only about who gets your assets. That’s just one part—and often not the most important.

Let’s start, though, with that misconception. If you think to yourself, I don’t really have anything, then why pay some lawyer for a will?

For starters, you might have more than you think to pass on. Have you considered your life insurance? (Don’t forget about employer-provided group plans.) Have you considered your house and your cars? Even if you have a mortgage or other debt, and even if you think what you have isn’t valuable compared to other people, these assets probably add up to something significant for your beneficiaries. Enough to do some real good; enough to squabble over.

Speaking of debt, you might be assuming it will wipe out anything you have left at your death. That might be true of some types of debt—in general, all debts, taxes, and final expenses are paid before any beneficiaries—but there are exceptions. A big one is federal student loans, which are discharged entirely at death. That means that even if you have a big outstanding balance on student loans, it’s possible you’ll have something to pass on. Other types of debt might be settled for smaller amounts or excluded entirely as part of the probate process. Don’t assume debt will prevent you from leaving property to your family.

But in any case, a will does more than just distribute property. Probably the most important thing a will does is put someone in charge of your final affairs. Somebody will have to pay your debts, file your final taxes, and actually distribute the property. This is an important job, not just because it involves handling money and legal matters but also because these things can have a big impact on your family. Dealing with final affairs can easily lead to conflict, no matter how much property you have. So it’s important to have someone in charge who is trustworthy and wise enough to navigate relationships and conflicts. You name that person in your will. If you don’t, you’ll end up with no say in who ultimately does this important job. And somebody will do it, one way or another.

Another important part of a will, if you have a young family, is naming guardians for your minor children. These are the people you want to raise your children if the worst were to happen. At the same time, you’ll need to decide who will be in charge of your children’s inheritances until they reach a responsible age. These decisions are some of the hardest in any kind of estate planning—and the most important.

You’ll need to make similar decisions for a child of any age who is severely disabled, or for a child who has a severe illness, addiction, or debt. These situations are a huge opportunity to do good, as well as a big risk of they aren’t planned for.

But this is all just about the will and what it can do besides divvy up your assets. What most people don’t realize is there’s more to good, simple estate planning than just drafting a will. Often more important are the documents that give your family the tools they might need to take care of you while you are still alive. These are called powers of attorney.

In Wisconsin there is a power of attorney for finances and a power of attorney for health care. These documents delegate your legal rights to make your own decisions and manage everything about your life to other people. Why would you do that? In case you come to a time when you can’t make your own decisions or manage your own finances and health care.

In those times, somebody else must take on those responsibilities (and, by the way, your spouse doesn’t automatically get them). If you haven’t chosen that person by executing powers of attorney, your family will have to go to court and get a judge to choose—an expensive and lawyer-heavy process called guardianship. Better to choose your own trusted agent and save your family the pain and expense of trudging through court just to take care of you.

For most people, estate planning is as much or more about letting their families care for them as it is about leaving money for their families. We’ve all seen friends and family surprised by tragedy, grief, and hard times. In those situations, your family just wants to know your wishes and have the ability to carry them out. Without a good estate plan—a will and powers of attorney, at least—they might have neither.

Fortunately, a good estate plan doesn’t have to be complicated or expensive. It can be simple.

What “simple estate planning” really means

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Most people, when you ask them, want their estate planning to be one thing: simple. Seasoned lawyers will tell you that “simple” really means “cheap.” Don’t bother with people who worry about your fee is their advice. But that advice is, in part, why so many people don’t have an estate plan.

When people want their estate planning to be simple, they are talking about what they don’t want. They don’t want it to be complicated. They don’t want it to be a lot of work. They don’t want it to take forever to get done. They don’t want it to be expensive, yes. And they don’t want it to be something they can’t understand.

Those are the defining features of an estate plan that is simple. It is:

  1. Easy
  2. Streamlined
  3. Affordable
  4. Understandable

Unfortunately, traditional estate planning is not any of these things. Traditional estate planning results in high-quality documents, but the process to get them is often difficult, lengthy, expensive, and confusing. Nothing about it is simple. I’d like to change that.

Easy

Estate planning can be difficult in many different ways:

  • It’s hard to get started.
  • It’s hard to find a lawyer you trust and can afford.
  • It’s hard to gather all the financial and legal information the lawyer asks for.
  • It’s hard to take time off work to meet in a lawyer’s office several times.
  • It’s hard and intimidating to work with a lawyer in the first place.
  • It’s hard to understand everything the lawyer says and take in all the information at once.
  • It’s hard to make so many important decisions, all in one or two meetings.
  • It’s hard to think so much about your own death or disability (I think this difficulty is overblown, but it is a difficulty for some people).
  • It’s hard to understand your legal documents without the lawyer explaining them to you.

In short, it tends to be hard to work with a lawyer. Attorneys aren’t known for making things easy, after all—and they definitely haven’t made them easy in the realm of estate planning.

To make estate planning easier, we have to rethink the process. It has to be clear how to get started and easy to take the first step. It shouldn’t leave clients to constantly worry about how much it will cost or if they’ve found a good lawyer. The lawyer shouldn’t ask for more information than is necessary or make the client feel intimidated. There should be options for meeting by video and after business hours, and meetings should be kept to a minimum. Rather, clients should be able to learn and make decisions at their own pace—whether that pace is quick or slow.

Streamlined

The typical first-time estate planner knows only that he or she needs a will to name an executor and divide the property. But even the simplest estate plan should include multiple legal documents, each with at least a handful of important decisions to make. So traditional estate planning almost always takes 6-8 weeks—sometimes longer. That’s an unexpected commitment to many first-time clients.

It took you a long time to finally decide to get your estate planning done. Now you’re ready to cross this off your to-do list, and the first thing your lawyer tells you is … not so fast?

I’m as guilty of this as any lawyer. It’s because I want my clients to have all the information they need to make good, informed decisions. I want my clients to know their options, and in estate planning there are many options. Few clients realize at the beginning how many options they’ll have and how many decisions they’ll need to make. I don’t want those decisions to be made hastily.

But there has to be a better, more streamlined way to do estate planning. It’s not necessarily about getting the documents executed in as little time as possible, but about removing barriers to clients getting to the finish line at their own pace, whatever that is. Some clients don’t need or want to learn all about a will and what they can do with one; they just want to have one that meets their needs, and they’re comfortable making decisions quickly. Other clients need to ask lots of questions and take time to discuss it all with their family. Both types should have a lawyer who adjusts to their needs, not vice versa.

Affordable

Seasoned lawyers will tell you that “simple” really means “cheap.” Don’t bother with people who worry about your fee is their advice. But that advice is, in part, why so many people don’t have an estate plan.

Any normal person is going to be worried about cost as they walk into a lawyer’s office. And with good reason, when many lawyers still bill by the hour and charge for phone calls and postage. Normal people—who have to worry about whether a thing will cost them $50 or $500 or $5,000—need good estate planning too. They just need that good estate planning to be simple. And, yes, that does mean it should cost less.

Traditional estate planning is expensive because it involves a lawyer doing all the work with each client one-on-one, and because lawyers tend to make things complex. Like I said, there are many options when designing an estate plan, and that lawyer is trying to think through all of them, and his time is expensive. This sort of service is good if you need a complex estate plan. If what you need is something simple, however, it’s not necessary. A simple estate plan can be designed to meet most people’s needs with a few standard options plus customization as needed, rather than trying to consider every option. That cuts down on the lawyer-work required and helps streamline the process as well.

One side of affordable estate planning is making the process itself less work; the other side is making it easy to pay for. This is why I always use flat fees in my practice. I don’t want my clients to wonder how high the bill will climb, worry about how long a meeting is taking, or hesitate to make a phone call. So I don’t bill for my time; I bill for the good advice and legal documents my clients receive. That way, I can tell them up front exactly how much it will cost.

How much that is will be less, too, if the process is easy and streamlined. It all works together. The more we make estate planning easy and streamlined, the more affordable and accessible it can be. We might even be able to make it more affordable than ever if we can change the fundamental process away from being 100% one-on-one with a lawyer towards being 80% in a group and DIY plus 20% one-on-one with a lawyer.

Understandable

Finally, a simple estate plan should be something anyone can understand. Traditional estate planning documents are long and confusing. They use legal jargon and talk in legalese. They’re organized to make sense to lawyers, not normal people. They use long paragraphs where headings and lists would be much easier to read. They use several words where one will do better (as in “give, devise, and bequeath”). In short, they are things that require a lawyer to read and understand.

I think most lawyers resist making legal documents simpler for a number of reasons. There’s something impressive about a lengthy legal document. That thick estate planning binder represents the work the lawyer did for you. If your legal documents were only a few pages and could fit in a small folder, wouldn’t that mean they’re inferior?

The truth is that, as in any kind of writing, making a legal document simple is more work. It’s easy to be verbose, to throw in every legal provision under the sun because why not. But it doesn’t make the document better. It makes the document worse, in fact, because it takes more time to cut through all the cruft and figure out what really matters. And there’s no reason why legal documents can’t be written in plain English. Some legal terms will be used, of course. But a simple estate planning document can and should be understandable by anyone.

I think estate planning can and should be all these things. That’s my current work: to make estate planning simple. I’ve still got a lot work to do to accomplish that. If you’d like to follow my work and see how I’m trying to improve, sign up for my professional newsletter below.