Hi, I’m Cathy Curtis. And this is Season Two, Episode Three of the Financial Finesse podcast. In this series, I’m talking about what keeps you up at night when it comes to your finances. And today, I’m going to discuss what estate planning documents every single woman needs.
This year has highlighted to all of us how precious and fragile life is, and also how important it is to have financial plans. Just as important as a financial plan for your life now is to have a plan for when you’re no longer here. This is called an estate plan.
If you don’t have an estate plan, the people you leave behind will have a much bigger job on their hands. First off, how will they know how to find all your different accounts,
who you want your things to go to, and things as simple as how do they get into your house? In addition, your assets, property and belongings that make up your estate may not go to who you want them to. Because if you die intestate, which means without a will, your state’s laws will designate beneficiaries for you in an order that you may or may not want.
Usually, first is children, then siblings, parents, grandparents, aunts, uncles, great uncles or aunts, nieces, nephews, cousins, etc.
If you don’t have any family at all, your property will go to the state. This doesn’t happen very often because the state will do all they can to find even distant relatives.
But the key point to remember is if you want a significant other, close friends, or charitable organizations as your beneficiaries instead of those before-named relatives, it won’t happen unless you execute a few documents. In addition, with no plan, the court will appoint an executor to manage your affairs after death. And this may not be a person you would have chosen.
So there’s two key documents that will transfer assets to your designated heirs—a will and a revocable trust, sometimes referred to as a living trust. I believe that everyone needs a will, while others will need both a will and a trust. You can do some things with the will that you can’t with the trust, such as name a guardian if you have minor children or forgive personal debts. A will can also have a pour-over provision so that things you forget to transfer to your trust will pour into the trust after your death.
In a will, you name your personal representative called an executor, who will manage all your financial affairs after your death.
So there’s two key differences between a will and a trust that may help you decide which is the right choice for you. One is that wills are always probated, meaning that a court of law is involved in supervising the transfer of your assets and payment of your debts and taxes. Revocable trusts, on the other hand, do not go through probate. The assets you have placed inside the trust while your living will go to who you want them to with the help of your successor trustee. This is another individual who you appoint. Probate takes time, requires many steps, and be and can be more expensive.
Secondly, the probate process is public, while trusts are private. If you have an interest in keeping your affairs, your estate content, and your inheritors private, a will isn’t your best option. Every legal will is made into a public record after it is accepted by the probate court. And this means that everything you own, pass on, and who you leave things to also becomes public record.
And if you have private sentiments or last wishes, these two will be made public.
As far as cost, wills are cheaper to get prepared, but trusts will save money later and make things much simpler for your chosen representative and heirs.
Okay, so hopefully, all of those points will help you to decide whether a will and/or a will and trust are best for you.
If you have a more complicated estate, many beneficiaries, you own a home, I would say a will and a trust are better for you. You may be able to get away with just a will if you have a much simpler situation.
Alright, so next I’m going to talk about assets that are not transferred by the will and trust. Not to complicate things, but there are several assets that are not transferred that way because you name a beneficiary, when you open the account, or you buy life insurance, or sometimes when you buy property. And the assets that aren’t transferred by will or trust are the following: life insurance proceeds, any asset or account that you hold in joint tenancy or tenancy by the entirety with somebody else. Like, let’s say you own a property with a friend in tenancy by the entirety, that’s already predetermined how it’s going to go after you die. All IRA accounts, your 401k or other company retirement accounts, funds in a pay-on-death bank account that you’ve set up, stocks held in a transfer-on-death account, or real estate or vehicles held with the transfer-on-death deed or title document. Just for example, you could go down to the DMV and add a transfer-on-death document to your vehicle. It’ll go to wherever you want it to after death, if they just present that certificate and their ID.
So, you need to coordinate all these things that aren’t transferred by will and trust with the things that are to make sure that your estate plan is how you want it.
So the most critical advice I can give for these assets I just mentioned, that aren’t transferred by will or trust, are to be sure and review your beneficiaries
at least every other year or when your life circumstances change. For example, there are many horror stories about ex-spouses getting assets that they weren’t meant to, because someone forgot to update the beneficiaries on these accounts after a divorce. So you want to make sure you look at those on a regular basis.
Okay, so the assets that do get transferred to your heirs by will or trust include just about everything else, your residence, second homes, other real estate that you own as a single person, business interests, bank accounts, investment accounts, stocks, personal property, pets, all these things transfer by will or trust.
In the will or trust, you’ll list who will receive each asset or the percentage of each asset. If you decide to create both the will and trust, your will can be very simple because most of the instructions will be in the trust. With your trust, you can dictate that your estate be distributed as soon as possible and closed out, or it can last for years if you decide you want to distribute your assets over time. This is where the term trust funders come in. Trust funders are people where trusts have been set up for them by parents or relatives, and they are able to get money out of them but not all at once. That’s what a trust fund is.
When you have a will created, you will need to appoint an executor. And when you have a trust created, you will need to appoint a successor trustee. This person can be the same person. And you could name more than one for each case, the will or the trust. In the case of wills, the executor takes over when you die. With a trust, if you aren’t able to take care of your own affairs, your successor trustee can take over while you are still living with your permission, and then manage your estate when you die. For example, I was the executor and successor trustee for my mother. And she was getting elderly and really didn’t feel like handling all her financial affairs anymore, paying her bills and managing her accounts. So she signed over
to me to be her successor trustee while she was living and then I was able to manage them while she was alive. And then when she died, I just continued to do that until I closed her estate.
I have found for many single people that trying to decide on who their executor and successor trustees are going to be, can be more difficult than a married couple or domestic partnership who just name each other, which is what most people do. So here’s some smart guidelines to follow when you’re trying to decide who these individuals will be.
It goes without saying, choose someone you trust. And you want someone who you know to be organized and detail-oriented because it’s a lot of paperwork. It’s helpful if they live near you, not completely necessary, but someone who lives in another state might have to travel to execute documents and things.
Try and think of someone who has the time to devote to the job because it can be time consuming.
And consider putting in writing in your will or trust that your executor or successor trustee can hire professional help if needed. It’s pretty much assumed that in a trust that they might need to hire professional help, but not necessarily in a will.
If you have a large, complicated estate with lots of beneficiaries, like I mentioned before, you may want to hire a corporate trustee, especially if you want to set up a trust account that your beneficiaries will get in future years.
So with less complicated estates, most people choose relatives or friends. But you can also find estate attorneys or accountants who are willing to do this job for hourly rates. There’s also professional trustees that are individuals with smaller firms. Hiring a professional trustee may be the way to go if you’re worried that your personal acquaintances or relatives won’t be up to the job, or you’re worried about conflicts of interest.
Both executors and successor trustees are bound to act as fiduciaries, which means they’re to carry out your wishes, and keep the beneficiary’s best interests in mind at all times, not theirs. But while the probate process pretty much supervises executors in handling the will portion, a successor trustee is not supervised. And so that’s something to keep in mind.
Revocable trusts are pretty much private affairs.
Another thing is, it’s really important to be kind and helpful to your chosen representatives, your executor and successor trustee, because it really is a big job, and you want to be organized and not leave them to have to figure out a lot of things. So here’s some tips on what you want to do once you get this all set up, is that you keep an updated list of your assets and debts including bank and investment accounts, insurance policies, real estate, everything, you let your executor know where your original will is in the asset list and how to access them or give them copies.
You let these people know the name and contact details of your attorney, attorneys, agents, financial advisors, etc. in case they need help.
Let them know your wishes for funeral or memorial service. Because yes, they do get involved in handling that, and give them copies of all your important documents.
Another question that many people have is, do you pay your executor and
successor trustee? And it becomes kind of complicated when these people are family members and also beneficiaries because a lot of people do appoint their beneficiaries as their representatives. Now, I feel like people should get paid because it’s a tough job. And it takes time, it’s a lot of responsibility. Some people who are beneficiaries decide not to take pay because they’re going to benefit from getting something from the estate. And also, these fees are taxable to the person receiving them. So the executor and successor trustee would have to report them on their tax return. But some people may want to get paid. So just to give you an idea, and I live in California, so the executor compensation is pretty much set by the state. And in California, under California’s probate code, the person is entitled to—it’s very complicated—but 4% of the first 100,000 of the estate’s value, so $4,000, 3% of the next 100, so that’s another $3,000, 2% of the next 800,000, 1% of the next 9 million, 5% of the next 15 million, and if the total value exceeds 50 million, the court decides on a reasonable amount.
So that’s just an example of what an executor could be paid.
Now, if you designate in your will that there should be no fees, which some people do, and it ends up that this job is exceptionally difficult or time consuming, the executor can request compensation for extraordinary services from the court. Because remember, wills go through probate, and they may be able to get some form of compensation, if it ends up that they’re taking a lot of time.
So that’s for the executor of your will. For the successor trustee, it kind of depends on what type of trustee. Corporate trustees are paid, usually on a percent of assets under management. And that could be 1-2% of the trust assets. So that’s if you have a complicated estate where the trust assets need to be managed over time and you don’t have a personal acquaintance or relative that you want to have to do that job.
Professional trustees that aren’t necessarily corporate trustees, they may be an individual or a small firm, usually charge by the hour, and that would really depend on where you live.
I read things like $100 an hour, but in California, I don’t know anyone that charges $100 an hour. So I think it would be a couple hundred or $300 an hour at least. And then there’s the private trustees, which are your relatives, friends that do it. And
I would say that unless they decide not to take a fee at all, they would take an hourly rate. And it’s really important that that person keep track of their hours and everything that they’re doing, because they have to do a complete reporting to the beneficiaries to show what work they did. So that’s, that’s how the fees work.
And again, like I said, I, I really believe, because I actually have administered three different family estates, people in my family, and I can tell you that it does take a lot of time, you need to be super organized, detail-oriented. And,
you know, time is valuable. So I would consider letting people know that it’s okay to take a fee. And also, if you’re worried about assigning one person, because they won’t be supervised anyway, you can appoint more than one successor trustee.
It does make it a little more difficult, because both people have to sign everything. So you have to keep that in mind. Also, keep in mind that a person does not have to accept this responsibility. So I would not just appoint them in your documents and not tell them. I would talk to them about it and find out if they want to do it. I would also appoint more than one, so you’d have a contingent person or even two contingent people in case the first person passes away or doesn’t want to do it. So this takes a lot of thinking. And I know sometimes it can make people not execute their documents. And I really want to, I want to just make it clear, do not let the choice of your executors or successor trustee stop you from getting these documents in place.
You could always appoint a professional or that could be the end result. If whoever you choose doesn’t want to do it, they can appoint a professional. And it’s just more important that you get these types of affairs in order. Okay. Then there’s two last documents that usually go in a group with an estate plan. And that is your healthcare proxy, or durable medical power of attorney. They’re both the same thing. So this document deals strictly with your healthcare decisions and medical treatments. And with your healthcare proxy document, you will appoint an agent to make healthcare decisions on your behalf if you’re incapable of making them on your own. So this is a while you’re living document. So again, this is someone that you trust and also that you’re really honest with about the specifics of your wishes. Then there’s one last document, it’s called the financial power of attorney. And while the medical power of attorney deals with healthcare, the financial power of attorney deals with your financial matters. This is when you are living. So your financial power of attorney document grants another individual the power to make financial decisions for you while you are alive but not
capable of handling things yourself. So if you get very ill, this, this would spring into power, this person would help you with your finances.
It’s if you get hospitalized or incapacitated in any way, they do things like manage your bank accounts, pay your bills.
And you can also designate a power of attorney that’s effective immediately or kicks in after a specific event like Alzheimer’s, mental disability, things like that.
You can, while you’re living if you don’t want to handle a certain financial matter, appoint a power of attorney,
let’s say for one transaction. This is not if you can’t do things yourself because you’re incapacitated, and this power of attorney ends at death. And that’s when your other representatives take over, your successor trustee or your executor.
So that’s a lot of complicated information. There were so many that I tried to consolidate it so that it was understandable. There’s lots of things to think about here. But the main point that I want to get across is that it’s really important to get these things done.
And all you have to do is think about if this happened to you, if a friend or relative passed away, and they did not have an estate plan in place at all, it’d be so hard to know where to even begin. And the person is grieving already, and then to have to deal with this can be a real burden.
So I hope you found this podcast helpful. And again, if you want to hear more from me, please subscribe to my podcast on iTunes and other places where podcasts are housed. And also I’m on Twitter, and my Twitter handle is @CathyCurtis. And I have a Facebook business page called Women and Money. Thank you for listening.