The family trust has been a powerful estate planning tool for a long time. The need for what trusts do came about in the 12th century, and family trusts have been used for a long time as well.
Over a century ago, Frank Mars (candy bars) created a trust which had the modern-day equivalent of just under $3 Billion and today that value is over $94 Billion. Sam Walton (WalMart) started a trust in 1983 with around $6 Billion that’s worth over $250 Billion today.
These trusts essentially provide money to heirs of the person who created it into perpetuity. Some benefits are the minimization of taxes when the money moves from one generation to the next, and the protection from creditors. I’ll get into both later.
One of the key takeaways is this; you don’t need to be Frank Mars or Sam Walton to set up a family trust. All you need to be is someone who wants to provide for people you love and care for, even if you’re not around.
I’m going to talk about what trusts and estate planning are, why people do it, who does it, how it fits into your financial life, who and what’s involved in the process, and how to actually get it done.
Because here’s the thing; estate planning, like life insurance, is one of those things we procrastinate on. For me, I avoided doing my estate plan because it’s weird to think about dying.
An estate plan also seemed like a super-complicated, confusing and expensive thing. If you put those two things together, it’s no wonder people drag their feet getting theirs done.
It’s my intention to demystify and simplify estate planning for you. At the end, I’m confident you’ll know whether you need one and you’ll know where you can get it done.
Let’s get started.
What is estate planning?
Estate planning is the process of making it known how you want your estate, meaning all of your possessions and assets to be handled after you pass or what you want to happen should you become incapacitated and unable to handle things on your own.
The most common estate planning definition is “the process of making plans for the management and transfer of your estate after your death, using a will, trust, insurance policies and/or other devices.”
As I mentioned at the beginning, it’s been around for many years, but it’s becoming increasingly more and more common because there are new companies making it more accessible (more to come on this).
Why do it?
Estate planning is important for many reasons. One of the biggest reasons is because it makes sense to decide about what you want to happen when you’re gone, while you’re healthy. Waiting until you’re dying to make these decisions can lead to confusion and suboptimal results.
Simply put, planning today ensures your tomorrow turns out just as you want it to.
A properly prepared Estate Plan will lay out your wishes exactly, in the most tax-advantage manner, so you’ll know there won’t be any questions, misunderstandings or misconceptions about what you want. We’ve all seen the movie about heirs fighting over money once someone dies.
Who should do it?
If you own a home, are married or have children, you should 100% have an estate plan.
That being said, most everyone should as well. There’s a lot more that goes into an estate plan than just money. If you are over 18, you should start thinking about your plan. Even if you don’t have a lot of money or possessions, an estate plan is a guarantee that everyone will know what your wishes are. Health directives and long-term healthcare wishes are perfect examples of this. If you were ever to become incapacitated and unable to make your health care priorities known, your Estate Plan will speak for you.
The alternative is putting your loved ones in a position to make potentially life-saving or life-ending decisions on your behalf, and that’s a rough position to be in.
How does it fit into my overall financial situation?
We all go through the same three stages of our financial lives; protection, accumulation and distribution.
Before going any further, I highly encourage you to get clarity on your goals, priorities and values. Doing this will benefit you greatly as you embark on the estate planning process. You can access our Goals Course as well as our Values Course at no cost.
During the protection phase, we’re thinking about our cash flow, budgeting, emergency fund, insurances and this is when we’re getting started with our estate planning.
The accumulation phase is when we’re saving money for our financial goals and priorities; think planning for annual vacations, saving for the down payment on a home or a kid’s college, and long-term retirement planning.
The distribution phase is when we’re getting ready to retire and designing our retirement income. We once again start thinking about our estate planning needs and what we want to happen when we’re no longer here.
What are the different parts of an estate plan?
Guardianship deals with what you want to have happen and who you want to care for your children should something happen to you and you’re no longer able to care for them.
A Will is a legal document that expresses your last wishes for what will happen to your stuff (your money and your property) when you die.
A Trust is a legal three-party agreement that allows the first party (the settlor, also may be referenced as trustor or grantor) to give the second party (the trustee) rights to hold assets and property on behalf of and for the benefit of the third party (the Beneficiary). So, you’re the settlor, you select the trustee (often a bank or company) to hold onto your assets and distribute them to your beneficiaries (your loved ones).
A Financial power of attorney A legal document that gives someone the power to handle your financial affairs.
A Durable power of attorney is a document similar to a financial power of attorney that gives legal rights to another person so they can handle any of your non-medical affairs. “Durable” means that even if you become incapacitated, the document remains in effect.
An Advance healthcare directive, commonly known as a living will or a medical power of attorney directly states what, if any, medical actions should be taken should you become incapacitated and unable to make your own decisions.
A HIPAA authorization is a document that allows your medical records or information to be shared with a third party.
How do I get it done?
Get started by taking an inventory of all of your assets and writing all of them down. A pen and paper works, an Excel document is even better.
Next, think back to the protection stage of your financial life and do all the things in order to protect your family. Create a budget, manage your cash flow, set up an emergency fund and make sure you’ve got life, health, disability and property and casualty insurance (we have Partners who can help).
Next, decide on which aspects of an estate plan you need. If you’re single and just getting started, your needs will be different from an 80-year-old worth $100 million.
If you have children, name a guardian. You should speak with the person you decide on to make sure they’re willing and able to perform this important role.
Think about and set your directives. Who will handle your financial matters? How do you want your medical care handled and what are your end-of-life desires?
Next, name the beneficiaries of your estate.
All that’s left to do at this point is to find a provider (which I’ll get into in just a moment), create your estate plan, get it signed and notarized, decide on and notify the person who will be the executor, decide a safe location to store your documents (fire safe or safe deposit box) and make sure you review them once a year, updating them as necessary.
Finding the right provider
There are a lot of ways to get your estate plan done. Certain parts of it can be DIY’d online by companies like USLegal Forms. I also encourage you to reach out to your human resources department at your work to see if there are any estate planning employee benefits available to you.
Traditionally, estate planning has been done through an attorney. Should you decide to go with this option, I encourage you to ask upfront how much the cost of the process will be. Many attorneys do estate planning for a flat fee.
Finally, I recommend one of our Partners Trust & Will. They are a new breed of company that has risen to fill the increased need for easy to understand, low-cost estate planning. Check them out, I think you’ll find they’re easy to use.
In Summary
If you’re like me, you’ve been procrastinating on getting your estate plan done. Whichever method you decide on, decide and take action. You and your loved ones are far too important to leave these important decisions to chance.
As always I encourage you to talk with someone about what you’re working to get better at. Talk to a friend, coworker or your favorite cousin. Don’t feel like doing that? You can always connect with one of our financial coaches for a no-cost consultation.
As always, ask us anything. Enter your question here, we answer all of them.
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Resources mentioned
Money Alignment Academy’s Academy Partners
Podcast episodes
- Trust and Will with Cody Barbo
- Understanding Trusts with Geoff Madsen
- Deferred Sales Trusts with Brett Swarts
- Family Trusts with Amanda Peck
- Trust and Will with Cody Barbo
- Estate Planning with Liza Hanks
- The Estate Planning Process with Dave Lenok
- Taxes and Real Estate with Nick Aiola
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