One For The Money

• What is an estate plan? [01:01]
• Creating an effective plan [03:19]
• The purpose of a trust [05:05]
• Power of attorney [07:12]
• The 30-year estate battle [09:04]

Many people don’t understand estate plans or why they would want one. As a culture, we don’t talk about these things a lot. And fortunately, many of us haven’t encountered situations where one was necessary or wasn’t already in place. Those who have experienced what it is like when someone passes without an estate plan know how vital a plan truly is. An estate plan is the sum of everything someone owns that has value. That would include land, real estate, stocks, bonds, annuities, cash, jewelry, vehicles, and any other asset someone owns or has a controlling interest in, less liabilities such as mortgage and consumer debts.

An estate plan is simply a plan for how to distribute someone’s net worth after death. In the last episode, I explained how expensive and time-consuming the process is without a plan. Some may wonder why they can’t just distribute assets to the spouse and next of kin, but life and families aren’t that simple. Family members have had far too many disputes about who would receive what. A trust or estate plan may seem complicated, but it is way better than the alternative.

Most people are familiar with a will. A will provides the details on how assets are to be distributed at death, names the estate executor and beneficiaries, how and when said beneficiaries will receive assets, and who would be guardians for any minor children. A will is vitally important because it is where a beneficiary is named for certain assets that don’t allow a beneficiary to be named directly. A retirement account, for example, requires at least one beneficiary to be named. Certain assets don’t allow listing a beneficiary, such as a house or real estate. 

Wills can be as simple as a handwritten note. However, wills alone are not legally binding and can therefore be contested in court. While the will can guide the court in how assets should be distributed, beneficiaries will still have to go to court. As I mentioned in the previous episode, this legal process is called probate, which is expensive and open to the public. 

If a will doesn’t avoid probate, what does? That’s where a trust comes into play. A trust is an arrangement that allows a third party or trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets will be passed to the beneficiaries. Trusts usually avoid probate, so beneficiaries can gain access to these assets much more quickly than if there were only a will. There are many types of trusts, but a significant distinction is whether they are revocable or irrevocable. My wife and I have a revocable, living trust we established in 2016. The trust allows us to proceed with our lives as usual, and we can change it anytime. It essentially serves as a safety net for our family if something happens to my wife and me. 

Revocable estates are subject to estate taxes, but only if the value is greater than $23.4 million, according to 2022 tax law. An irrevocable trust would help mitigate taxes. However, all assets transferred to the trust would be beyond further control, the terms could not be changed, and the trust could not be dissolved. These types of trusts work if the primary aim is to reduce the amount subject to estate taxes by effectively removing certain assets from the taxable estate. 

Too many people make the mistake of not making an estate plan, thinking they’ll set one up later. I understand why many want to avoid the thought of their passing, but these things need to be addressed to ensure the best possible impact on the family. If you have any questions about estate planning, it’s best to discuss them with a legal professional.

Capital Investment Advisers and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.

• Congratulations, You Already Have an Estate Plan - BUT YOU DON'T WANT IT!, Ep #21
• 10 Famous People Who Died Without a Will | LegalZoom