The COVID-19 pandemic has shone a white-hot spotlight on estate planning. Hundreds of thousands of individuals and families have faced serious challenges, and many realized—only too late—that they hadn’t properly prepared. The prospect of becoming seriously ill or even dying from coronavirus forced people to ask themselves, “Are my financial and legal affairs in order?”
When you add in the possibility of significant changes to estate, gift, and income taxes under the Biden administration and the fact that the median age for Baby Boomers is now 66, 2021 seems the perfect time to adopt a carpe diem attitude toward estate planning.
Trust Planning Choices
Trusts greatly expand an individual’s estate planning options. They give people the ability to control how, when, and to whom their assets transfer without going through the costly and public probate process.
For high-net-worth families, trusts also provide critical asset protection benefits, protect privacy, and mitigate estate and gift taxes.
A fundamental part of establishing a trust of any kind is selecting who will serve as the trustee. Since trustees have a number of logistical and administrative duties to carry out, it’s vital that you give due consideration to this aspect of trust planning.
For persons unprepared to step into this role, being selected as a trustee can feel burdensome. Not only that, but your choice of trustee could seriously impact the ongoing familial relationships. For example, an already strained relationship between siblings could become even rockier if one is made trustee instead of the other; or a rift might develop if an eldest daughter feels as though she’s been passed over.
As such, whomever you choose as a trustee must understand and agree to the sundry responsibilities of the role. The better the person understands what they are signing up for, the more smoothly the trust administration process will go.
Serving as a trustee is a serious commitment in both time and energy, and it comes with weighty fiduciary responsibilities, including:
- Calculating and paying bills,
- Tax filings,
- Fulfilling obligations to heirs and beneficiaries, and
- Complying with strict federal, state, and local requirements.
For someone lacking expertise in these various areas, these requirements can seem like a Herculean task.
Moreover, the larger the estate, the larger the potential liabilty to the trustee. As the number of beneficiaries grows and the trustee has to balance obligations to the various parties, they expose themselves to possible legal action by the different beneficiaries.
Especially for those with larger or complex estates, you can relieve this burden and reduce the likelihood of a son or daughter facing future legal liability by appointing a professional trustee. The professional trustee will handle the slew of administrative and logistical tasks and will assume the fiduciary and legal obligations as well.
With a professional trustee at the helm you gain peace of mind knowing that the trust’s assets will be managed and administered properly and that all necessary reporting and filing will be completed.
Pro Tip: Professional trustees can act as “co-trustees” as well. In this role, they can help guide and counsel your loved one on the various time-consuming trust administration issues.
Above all, if you opt to designate a family member or loved one (i.e. non-professional) as the trustee, it is absolutely critical that the person have a full understanding of the situation:
- What your wishes are,
- What duties they will need to complete, and
- What legal risk they are assuming.
The last thing you want is to throw someone you care about into the untenable position of simultaneously navigating the complexities of trust administration and intra-family dynamics.
More Careful Choices
Along with the choice of trustee, you need to carefully consider a few other issues regarding the beneficiaries, makeup, and distribution of your trust.
It may seem obvious, but it’s important to reflect on the relationships you have with your family and others who are close to you (or those who aren’t!). Beyond your direct nuclear family or close extended family members, consider other important people and organizations in your life to whom you wish to leave assets.
Perhaps there are schools, charities, or religious institutions that are essential to you. Maybe you have pets that you love and want to ensure are cared for. Once you have a list, we can work with you to enact a plan for distributing your assets to those you deem deserving.
Are your assets largely liquid? Are they in your name only? If not, who else is attached to them? If you are a business owner, do you have partners or investors? The type of assets and how they are titled affects how they will transfer and to whom.
"The When and How"
Once you have identified who and what you want to protect, you can consider how you would like your assets to be distributed and when.
What type of trust? Do you prefer an outright distribution? Should there be limitations? Should the distribution wait until after your death or do you want to put assets aside right now? There is much room for fine-tuning in this regard, and addressing these scenarios clarifies how you want your estate managed and property distributed.
If Not Now, When?
We know that thinking about all the things that could go wrong—death, disability, incapacitation—is scary and stressful, which is why many people avoid it at all costs. But ask yourself, “If not now, when?”
If the ongoing pandemic, the economic forecasts, and the impending changes to the tax code don’t convince you to examine your estate plan, nothing will. Given the insecurity and disruptions we’ve all experienced over the last year, now is the perfect time to stress-test your estate plan.
We urge you to take the necessary steps to protect yourself, your family, and your hard-earned assets and wealth. Whether you need to develop your first estate plan or update your existing plan, we can help take the fear and frustration out of the estate planning process. Call us today or fill out the confidential form below to schedule your free Financial Legacy Review now.