scary jack-o-lantern

It’s the season for everything pumpkin, Hocus Pocus reruns, and “accidentally” eating all the trick-or-treat candy before the actual trick-or-treaters arrive. It’s the time when I’m reminded that the scariest notion of all is not Dracula, ghosts, or even the overpriced costumes, but rather the downright terrifying reality that nearly every six out of 10 Americans do not have estate planning documents in place. Yikes. Despite the numerous benefits, advantages, and financial savings that comes with a proper estate plan, it’s all too common to push the process off. It’s like the equivalent of the dusty, cobwebby attic of your to-do list. Here are five scary excuses I’ve heard as to why people procrastinate creating an estate plan:

I’ll be dead, so I won’t be around to care.

Downright hair-raising!

A friend’s mother said this when my friend brought up estate planning. The mother has a point…I guess. Yes, after she dies she won’t be able to “care” about where her assets go. However, most of us would like to have a set plan of where our hard-earned money and personal property will go and to whom. Why? Because we care while we’re living and like to think we’re taking care of the ones we love even after we’re gone. So, why wouldn’t she (even as an act of love) take a simple measure to save her loved ones money (and time) instead of dealing with the sluggish probate process that would occur if she were to die intestate (without a will)?

graveyard with gravestones

I don’t own enough assets to need an estate plan.

I hear this one all the time and it’s terrifying to think someone would sacrifice their right to pass along their estate (as small or as big as it may be) as they choose. The fact is that having a (small) bank account, minor children, owning a home (of any size), or even having a pet is enough to necessitate estate planning…if even just to be prepared. Of course, the larger and more complex the estate, the more tools and documents may be needed, but that’s why you need to have an experienced estate planner to help determine the tools you need.

I don’t have time right now to do estate planning.

Unnerving and chilling. Sure, estate planning doesn’t sound like the most fun thing to deal with on top of everything else you have going on in your life. But, the time it takes to create an estate plan will be significantly less than the time it will cost your family if your estate goes through probate. Additionally, most (good) estate planning attorneys will work around YOUR schedule. They are willing to make house calls and conduct conversations essential to crafting your individualized estate plan over the phone or email—whatever works best for you.

It’s too expensive to make an estate plan. 

Eerily wrong. It will almost certainly be more expensive for your family and loved ones if you die intestate (without a will). It will not only cost them monetarily, but also emotionally as the process can be shockingly slow, tedious, and can create unnecessary conflict. Part of living is loving, so show your family, children, friends, and favorite charities the love by taking the time to craft a quality estate plan.

I don’t even know where to start, so I’m not going to.

Getting started on your estate plan is actually incredibly easy, so continuing to make this excuse is alarmingly unnerving! Use my free (without obligation) Estate Plan Questionnaire. It’s an excellent tool for organizing all the essential information you (and your spouse, if applicable) and your estate planner need to have on hand in order to reach your estate planning goals.


Do any of these sound like you? Fear is for werewolves and zombies, not estate planning! Break the procrastination cycle and contact me via email or phone to discuss your situation.

person with sparkler spooky

Forget the scariest movies of all time, did you hear the unnerving tale about the will admitted to probate? Frightening stuff!

Some folks are surprised, even shocked, to learn that a will doesn’t avoid probate, but it doesn’t. Whether you die intestate (no will), or even with a will, your estate must pass through Iowa probate court. If you have an estate plan (including a will) this process is much more smooth and simple for your loved ones, because you’ve clearly told them, and the court, how you want your property dispersed. But, even with a basic estate plan, this is still a judicial process. (Plus your will becomes public record when it goes through probate.) The only practical way to avoid probate is through a revocable living trust. The “living”part of this means a trust that is established and funded by you during your lifetime.

Trust in the Trust

A trust can sound somewhat elusive. And you may think it’s reserved just for the very wealthy, like that strange couple that live in the huge, dark mansion on the hill. However, a trust can be an incredibly important tool in many situations and provide multiple advantages.

spooky haunted mansion

Save Time & Money

Time

One of the major benefit of a trust is that it enables your loved ones and your favorite charities—your beneficiaries—to avoid the time and financial costs of probating a will. This is because, upon death, the property and assets are already distributed to the trust. Otherwise the probate process can take anywhere from several months to a more than a year to complete.

Fees

Probate can also be expensive considering fees. Fees and costs can reduce your estate by 4%, or even more. Executor’s fees, and attorney’s fees, are both authorized by Iowa statute to be as high as 2% each, for a total of 4%, and that doesn’t include court costs. While that may not sound like a lot, it can actually equate to a good chunk of money that you would most certainly rather pass along to your heirs or to your favorite charity. Far more often than not, the cost of creating a trust is considerably less expensive than the cost of probate would be.

The Case of Frank E. Stein

bats in the sky

A simple example. Let’s suppose Frank E. Stein’s estate is worth $2 million. This may sound like a lot, and it is, but consider things like a large, expensive house, or a second home, or a vacation home, or a farm, or a family business, can rather easily push an estate into the multi-millions territory. Again, with Frank’s estate worth $2 million, a “shave” of 4% reduces the estate by $80,000. That’s $80,000 that could have gone to Frank’s favorite charity, The Home for Wayward Bats. A revocable living trust, completed by a qualified estate planner, would cost around $2,400.

Privacy

Revocable living trust offers an additional benefit: privacy. When a will is filed with the Iowa probate court upon death, the will becomes a public record. Trusts, on the other hand, remain private documents. You may not want your friends, neighbors, monsters, and others to know the contents of your will. Like all good mysteries, some things are better left a mystery.

Start a Conversation

scary forest path

Considering all the aspects of a trust doesn’t have to feel like a twisty path through a scary forest straight out of Grimm’s Fairy Tales. I’m more than happy and willing to be your guide. Don’t hesitate to reach out; email me at gordon@gordonfischerlawfirm.com or call at (515) 371-6077.

cloudy moon

DON’T DARE READ THIS ALONE!

Count Dracula needed a new estate plan. After all, the Count hadn’t updated his last will in 1,400 years. After he got over eerily common estate planning excuses, he went to his Iowa estate planner. 

The Iowa estate planner dutifully gathered information about all of Count Dracula’s many assets. While discussing real estate holdings, however, the Iowa estate planner inexplicably failed to inquire as to whether Drac owned real estate with his wife, in any other states.

[Blood-curdling screams]

Yes, that’s right: the Iowa estate planner simply forgot to ask about other States, including community property states. This could, unfortunately, impact the effectiveness of the Drac’s will and the dispersion of Drac’s property.

[Angry mob shouts in disbelief]

spooky castle

Iowa is NOT a Community Property State

The majority of states, including Iowa, are not community property states. There are about a dozen states which are community property states. As explained below, whether a state does or does not follow community property laws can have a huge impact on estate planning.

What are Community Property Laws?

Given our limited space I will only provide the most basic of oversimplifications. Simply put, states with community property follow a rule that all assets acquired during marriage are considered “community property.” While each community property state has its own unique and precise set of characterization rules, they all share the general rule that an asset acquired or given during marriage is presumed to be community property, until it is proven to be separate.

Bride and groom holding hands

Marital property in community property states is owned by both spouses equally (50/50). Marital property includes earnings, all property bought with those earnings, and all debts accrued during the marriage. Community property begins as soon as the couple is married and ends when the couple physically separates with the intention of not continuing the marriage.

Spouses may not transfer, alter, or eliminate any whole piece of community property without the other spouse’s permission. A spouse can manage his or her own half the way he or she wishes, but the whole piece includes the other spouse’s one-half interest. In other words, a spouse cannot be alienated from his or her one half.

Death or Divorce in Community Property States

When one spouse passes away, half of the community property passes to the surviving spouse. Their separate property can be devised to whomever they wish according to their will, or via intestacy statutes without a will. Many community property states offer an interest called “community property with the right of survivorship.” Under this doctrine, if a couple holds title or deed to a piece of property (usually a home), then upon a spouse’s death the title passes automatically to the surviving spouse and avoids probate court proceedings.

If the couple divorces or obtains a legal separation, all of the community property is divided evenly (50/50). The separate property of each spouse is distributed to the spouse who owns it and is not divided according to the 50/50 rule (but, again, there is a presumption that all property is community property, not separate property).

cert of divorce

Sometimes, economic circumstances warrant awarding certain assets wholly to one spouse, but each spouse still ends up with 50 percent of all community property in terms of total economic value. This is most common regarding marital homes. Since it is not a practical idea to try to divide a house in half, often the court will award one spouse the house, while the other spouse receives other assets with a value equal to half the value of the home.

There are exceptions to the equal division rule. The most common and well-known thanks to popular culture is a prenuptial agreement. Before the marriage, the couple may enter into such an agreement that lays out how the marital property shall be divided upon divorce.

Which States have Community Property Laws?

Eight states are considered to be the “traditional community property” states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. Wisconsin is the functional equivalent of a community property state when it adopted the Uniform Marital Property Act in the 1980s. Alaska and Tennessee are elective community property states, meaning spouses may create community property by entering into a community property trust or agreement. 

What About all the Other States?

The other states, the clear majority of states, are called “common law property” states. “ In this case, “common law” is simply a term used to determine the ownership of property acquired during the marriage. The common law system provides that property acquired by one member of a married couple is owned completely and solely by that person. Of course, if the title or deed to a piece of property is put in the names of both spouses, then that property would belong to both spouses. If both spouses’ names are on the title, each owns a one-half interest.

Death or Divorce in Common Law Property States

When one spouse passes away, his or her separate property is distributed according to his or her will, or according to intestacy laws without a will. The distribution of marital property depends on how the spouse’s share ownership—the type of ownership.

If spouses own property in “joint tenancy with the right of survivorship” or “tenancy by the entirety,” the property goes to the surviving spouse. This right is actually independent of what the deceased spouse’s will says. However, if the property was owned as “tenancy in common,” then the property can go to someone other than the surviving spouse, per the deceased spouse’s will. Of course, not all property has a title or deed. In such cases, generally, whoever paid for the property or received it as a gift owns it.

Man in street looking at house

If the couple divorces, or obtains a legal separation, the court will decide how the marital property will be divided. Of course, just as in community property states, the prenuptial agreement is an option. The couple can enter into agreement before marriage, providing how to divide marital property upon divorce.

Why did the Iowa Estate Planner Forget to Inquire About Real Estate Located in Other States?

Some say evil men were born that way, while others say monsters learn evil. We can only guess. All we can know for sure is that the Iowa  Estate Planner didn’t ask about real estate in other states. And that was terrible.

You Said Iowa Wasn’t a Community Property State. So, Why Does it Even Matter?

For at least three reasons a lawyer in a common-law state like Iowa needs to have a basic understanding of community property principles.

  1. A client may move to a community property state. Or perhaps there’s a divorce, one party stays in Iowa, the other moves to Washington).
  2. A client may buy property in a community property state. Perhaps the client buys a vacation home in Texas.
  3. The client’s beneficiaries (adult children, for example) may move to a community property state. For example, your daughter marries an Arizonian and they both move to Phoenix.

In all three cases, the distinction between community property and common law states needs to be carefully explained to the client. The estate plan may well need revisions, or even just an extra document or two.

 

Standing over yellow line in road- community property

Mob With Pitchforks Goes After Iowa Estate Planner

Ugly! Don’t let this happen to you. Seek an experienced estate planner, who knows the right questions to ask, and be sure to offer them as much information as you possibly can.

 Questions or Concerns About Community Property?

Do you have a vacation home in California? Did your son recently elope and the happy couple moved to New Mexico? It may be time to talk about community property and how it impacts YOUR estate plan. Always feel free to email me anytime at gordon@gordonfischerlawfirm.com. Or call my cell at 515-371-6077. I’d be happy to offer you a free one-hour consultation.

We the people close up

We’re headed “back to school” on the blog this month, and I couldn’t pass up today’s fantastic excuse for a short American history lesson!

Fourth of July gets all the attention for red, white, and blue pride, but Constitution Day is a lesser-known, but still important reason to celebrate America’s values of freedom, democracy, and liberty. Constitution Day commemorates the formation and signing of the U.S. Constitution on September 17, 1787. The Constitution was signed in Pennsylvania at the Constitutional Convention by 39 men including Alexander Hamilton, Benjamin Franklin, James Madison, and George Washington.

Mount Rushmore

There’s a wealth of American history I encourage you to explore to understand in full the lead-up of events that led to the execution of the Constitution. TIME wrote a great piece and the National Archives offers up some great information.

Constitution Day also stands to recognize everyone who has become an American citizen. According to USCIS, more than 260 naturalization ceremonies were held across the nation as part of this year’s Constitution Week. In fact, before 2004, the day was called Citizenship Day.

Statute of Liberty

For me, the Constitution represents one of the most important legal foundations, on which the world’s oldest constitutional republic is built. That said, we must never forget the privilege it grants us and the duty we all have as citizens to protect it through civic engagement and knowledge. What does Constitution Day mean to you?

“The strength of the Constitution lies entirely in the determination of each citizen to defend it. Only if every single citizen feels duty bound to do his share in this defense are the constitutional rights secure.”
― Albert Einstein

While it’s not the U.S. Constitution, your estate plan is similar in the way that it’s a guiding document that guides people in the future as to your goals and intentions for your property, body, charitable giving, and what you want to happen with the people and pets you care for. So, you can think of yourself as a “founding father” of the legacy you want to leave. Ready to put your “John Hancock” on an estate plan? Get started with my free Estate Plan Questionnaire or contact me.

keep estate plan up-to-date

At first, estate planning can seem a bit much. It can be hard to know where to start and what all you need to know. But once you enlist an experienced attorney to act as a guide through the process and go through executing your plan (making it official), you can breath easy. The great news? Once you have your estate plan in place, it never expires. But, it’s not enough just to have an estate plan—you need to keep it current so it reflects changes in your life, as well as changes in applicable laws. Just to take two examples, an outdated estate plan can more easily be challenged in probate court. or create tensions among family members, than one that reflects your current situation.

Ensuring your estate plan is up-to-date is especially important when major changes occur in your life. Here are a few of them:

  • Your marital status changes through marriage or divorce.
  • You might not want a former spouse to inherit any of your assets, but it could happen if your estate plan is not properly revised.
  • You have kids (or more grandkids) as this could change your distribution model.
  • Make sure that your children are represented by a trustworthy guardian in case something happens to you. You will also want to add any additional children as beneficiaries.
  • Your financial situation significantly changes.
  • Your estate plan and its distributions will need to be revised to take into consideration any changes in your income. Did you inherit money or valuable assets? Is your career is suddenly flourishing? Maybe you experienced something that’s called “a liquidity event”—that is, you’re flush with cash from winning the lottery or selling a successful business. Don’t let your good fortune evaporate by ignoring your estate plan.
  • A beneficiary or legal representative dies or becomes unable to fulfill his or her duties.
    • Keep the list of the beneficiaries, guardians, trustees, executors, and agents named in your estate current.
  • You relocate to a different state (or country) or you acquire property in another state.
    • Laws governing wills and probate vary from state to state. So, if you buy property in another state and/or set-up a secondary residence, this needs to be reflected in your estate plan. Are you a snowbird who heads to your house in southern Texas every cold Iowa winter? Make sure the Lone State property is in your estate plan. It can be a huge hassle if your will doesn’t address all of your real estate, not to mention expensive.

I advise clients to review their estate plans every year. If there are any updates or questions it’s recommended that folks meet with their lawyer and other professional advisors. Some clients like to do this around the first of the year, while others prefer picking a date that’s easy to remember, like a birthday or anniversary. Any date will work— the important thing is to do it. Don’t be late, keep your estate plan up-to-date!

Heirs at law on beach

Before I explain the concept of “heirs at law,” you might be thinking, why even bring this up? Of what relevance is this “Ye Olde Sounding Phraise” in today’s modern world?

It’s important for me to share the concept of “heirs at law” with you, dear GoFisch blog Reader, for three reasons.

  1. It helps explain why I, and other estate planners, ask so many darn questions. We need lots of info.
  2. The concept of “heirs at law” shows that you need to be open and honest and forthcoming with me, or any estate planner. Without complete transparency and truth, the estate plan runs the risk of being useless (the idea of “garbage in, garbage out” applies here).
  3. “Heirs at law” is yet another reason that a DIY will, or using an online service to produce your will, is just a terrible idea. You need an estate plan crafted by a trusted professional, unique to your special needs. Every family is different, so there can be no “one-size-fits-all” estate plan, and there are many moving parts to a comprehensive estate plan.

With that established, what does the term “heirs at law” actually mean?

Heirs at law are those folks who would inherit your property in the event you died without a will, which is called intestacy.1 It is critically important to determine who the heirs at law are, even for people not subject to the laws of intestacy (i.e., folks who have a will) for two big reasons.

  1. Heirs at law must be notified of the probate process.
  2. Heirs at law are allowed to challenge the will in probate court.

All in the (sometimes complicated) family

As I already stated, it’s a wise idea to work with your estate planner and provide all the information requested. As a practical matter, the extent of information you’ll need to provide your estate planner regarding heirs at law depends of the nature of your family and relatives. For instance, in the case of two people, married only to each other, with children only from that one marriage—then the spouse and children (and perhaps grandchildren) will be the obvious heirs at law.

In another example, a family could also constitute a remarriage with each spouse having children from previous relationships. In this case, the stepchildren would need to be adopted by the applicable stepparent to be considered an heir at law.

In other situations, the client relatives may be much more distant, requiring more fact investigation. For example, take the case of a client who is unmarried and without children. In such a situation, the estate planner will need to pay close attention to identifying other relatives.

Of course, with an estate plan you can bequeath your estate to whomever you choose. You don’t have to give anything to any of your obvious or non-obvious heirs at law or any other relative for that matter. (In colloquial terms we could call this “stiffing your relatives.”) Although with that said, you cannot choose to disinherit a spouse.

This point reiterates why the estate planner should know and have updated contact information of who are the heirs at law. Again, it’s required that heirs at law be notified of probate process and these heirs (unlike a non-relative work colleague or neighbor) also have the legal standing to contest the will in court.

Another reason the estate planner must have knowledge of the heirs at law is to ward off fraudulent claims if need be. This reason is particularly important if the heirs at law are distant relatives. (An unfortunate real-world example of this involves Prince and the complicated intestate process following the singer’s passing without an estate plan.)

Bottom line: heirs at law are important when it comes to the distribution of your estate (with or without a will). Of course, dying intestate is NOT optimal and you DO need a will for a number of important reasons. I’d love to discuss the topic over the phone (515-371-6077) or via email. Don’t hesitate to contact me at any time!


[1] Bonus word! If an Iowan dies without a valid will, they die “intestate” and the laws of “intestate” succession are used to determine who will inherit the estate.

woman with tattoos

A will is the bedrock of every estate plan. But, even though most people know they should have one, they don’t know what a will is, what goes in it, or how it works. In fact, only one in four adults in America (25%) has a will—that’s roughly the same number who have tattoos (23%). Look at it this way: you can take your tattoo to the grave, but your assets that stay above ground need to be administered properly.

Wills: the bottom line

A will is a legal document that provides for the orderly distribution of your personal property at death according to your wishes. It spells out your directions regarding other important matters such as the care of any minor children, the transition of business assets, and the naming of an executor who will oversee its directives are followed.

What if you DON’T have a will

Not having a will means the judicial system (the “court”) will end up administrating your estate through the lengthy process of probate in accordance with state intestate laws. There is no guarantee this process will result in dispersing your assets in the way you would have wanted. This process can cost your family not only a lot of time and money, but it can also lead to anxiety and heartache.

Will is NOT an estate plan, and vice versa

The will is the bedrock document of every estate plan, and it’s a little more complicated than other documents. With your will, you’ll be answering four basic but very important questions. I’ll list the questions, then discuss each separately.

a. Who do you want to have your stuff?

b. Who do you want to be in charge of carrying out your wishes as expressed in the will?

c. Who do you want to take care of your children? If you have minor children (i.e., children under age 18), you’ll want to designate a legal guardian(s) who will take care of your children until they are adults.

d. What charities do you want to benefit when you’re gone. A will is a great way to benefit your favorite nonprofits.

Who do you want to have your stuff?

A will provides orderly distribution of your property at death according to your wishes. Your property includes both tangible and intangible things. (An example of tangible items would be your coin collection. An example of an intangible asset would be stocks.)

A will provides the orderly distribution of your tangible and intangible property at death according to your wishes.

Tangible personal property is usually considered to be everything (other than land) that has physical substance and can be touched, held, and felt. Examples of tangible personal property include furniture, vehicles, baseball cards, jewelry, art, your Great-aunt Millie’s teaspoon collection, and pets. Intangible personal property doesn’t have a physical existence so it can’t be touched, but it nevertheless has value. Your intangible personal property might include bank accounts, stocks, bonds, insurance policies, and retirement benefit accounts.

Most people think “real estate” or “land” when they hear the word “property,” but “property” has a different meaning when it comes to estate planning.

There are generally considered two basic categories of property: real property and personal property. Real property is land and whatever is built on the land, attached to it, or natural to it such houses, barns, grain silos, tile drainage lines, and mineral rights. Personal property is essentially anything that is not real property. Two qualities of personal property to keep in mind: it is moveable and it can be hidden. Jewelry, cash, a pension, and antiques are kinds of personal property.

Example: The fenced acreage you own is real property because it is land that is immovable. But, the cattle on it are personal property because they can be moved—or hidden.

Who’s in charge?

Who do you want to be in charge of carrying out your wishes as expressed in the will?

An executor is a person who’s in charge of your estate plan. You entrust your executor with the authority to ensure that your wishes are carried out and that your affairs are in order.

Managing an estate plan is not an awful job, but it is an awful lot of responsibility. If you have never dealt with the execution of a will, you might not know how time-consuming, complicated, and demanding it can be. You may also be grieving at the deceased’s passing while trying to make sure all particulars are handled properly. It can be a stressful role, to say the least.

When picking an executor, you want to make sure it’s someone you trust, but also someone you know can handle the complexities and responsibilities of the job. We all have people in our lives whom we love, but recognize they’re not dependable when it comes to things like finances and managing paperwork. Choose someone in your life who is organized, detail-oriented, and can take on what is essentially the part-time job of administrating your estate.

If there’s no person in your life you believe trustworthy or capable enough to be your executor, or you don’t want to burden with the role, you have another option: appointing a corporate executor or trustee. You can find corporate executors and trustees at banks and private investment firms. They usually charge a fee based on the size of the estate. But corporate executors and trustees have the advantages of experience, a dedicated staff, and impartiality. The latter quality is particularly important if there are complicated family dynamics, such as blended families or bad blood.

Whether you choose someone you know or appoint a corporate executor or trustee, you need to sit down with that person for a formal discussion. For a friend or family member, make clear why you’ve assigned him or her the role. Avoid surprises: don’t keep the name of your executor a secret. If you chose one of your children to be your executor, make sure to tell the other(s) to avoid hurt feelings and strife after you’re gone.

Additionally, if you have a large or complicated estate, you would like to set up long-term trusts, or you worry about taxes, a corporate executor or trustee might be a good solution.

Who gets the kids?

For parents with minor children (those younger than 18 years old), it is critically important that you designate a guardian(s) who will be legally responsible for their education, health, and physical care until they reach adulthood. Like the executor’s, it is job that requires you choose someone you trust, but it encompasses so much more than the able administration of your estate—and it doesn’t end after the estate is closed.

In most cases, the surviving parent assumes guardianship of children without a Court intervening. However, there are still a number of factors to consider when choosing a guardian, including parenting style, financial situation, religious and personal values, age, and location. You need to have an in-depth conversation with any potential guardian or guardians to confirm everyone is comfortable with the arrangement and that he or she is prepared for this responsibility.

In Iowa, dying without establishing guardianship results in the Court choosing a child or children’s caregiver(s). It considers what is in the best interest of the child and makes a guess as to the person or people a parent would have wanted. The choice might be someone the deceased parent would never have selected—all the more reason to name a legal guardian in your will.

Tattoo estate planning on your to-do list

Go ahead get that tattoo and wear it proud all the way to the very end. But while you’re showing your ink off, also think about what you want to do with all of your assets. Talk to a qualified estate planner or get started with estate planning by filling out my free, no-obligation estate plan questionnaire. Any questions? Don’t hesitate to contact me at gordon@gordonfischerlawfirm.com or by phone 515-371-6077.

man writing on trust paper

If you’re unsure of what a trust is and how it works, you probably don’t have one. And, if you don’t have a trust, you’re not alone. About 57 percent of U.S. adults don’t have an estate planning document like a will or a trust even though they believe having one is important.

What Is a Trust? How Does It Work?

If you haven’t stopped to consider how a trust might help ensure that your wishes are followed and your assets are handled, you could be making a critical estate planning mistake.

A trust is simply a legal agreement among three parties—settlortrustee, and beneficiary—that provides instructions on how and when to pass assets to the trust’s beneficiaries. Let’s look at the role of each of these three parties, and then delve into how trusts work.

Settlor

A settlor—sometimes called the “donor, “grantor,” or “trustor”—is the person who creates the trust and has the legal authority to transfer assets into it.  

Trustee

The trustee is the person who agrees to accept, manage, and protect the assets delivered by the settlor. The trustee has a fiduciary duty to administer the assets according to the trust’s instructions and distribute the trust income and principal according to the rules outlined in the trust document and in the best interests of the beneficiary.

A trustee can be one, two, or more people. A trustee can also be what is known as a “corporate trustee,” such as a financial institution (like a bank) or a law firm that performs trustee duties and charge fees for their services. There are no formal requirements for being a trustee and nonprofessionals frequently serve as a trustee for family members and friends.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person or entity or multiple parties. Also, trust beneficiaries don’t even have to exist at the time the trust is created (such as in the case of a future grandchild or charitable foundation that has not yet been established).

Trust Property

A trust can be either funded or unfunded. “Funded” mean that the settlor’s assets—sometimes called the “principal” or the “corpus”—have been placed into the trust. A trust is unfunded until the assets are in it (failing to fund a trust is a common estate planning mistake). 

Trust Assets

Trusts can hold just about any kind of asset: real estate, intangible property (like patents), business interests, and personal property. Common trust properties include farms, buildings, vacation homes, stocks, bonds, savings and checking accounts, collections, personal possessions, and vehicles.

“Imaginary Container”

Think of a trust as an “imaginary container” that holds and protects your assets. After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your artwork on the wall, your money in the bank, your comic book collection in the den. The only difference is the asset will have a different owner: “The Jane Jones Trust,” rather than Jane Jones.

Transfer of Ownership

Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has what is called “legal title” to the trust property and, in most instances, the law treats trust property as if it were now owned by the trustee. Each trust has its own taxpayer identification number, just like an individual.

But trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as directed in the trust agreement and as allowed by law. The beneficiaries retain what is known as “equitable title”—the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The settlor provides terms in a trust agreement directing how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way that is not against the law or against public policy. The near-limitless flexibility of trusts is a primary advantage for setting one up.

Types of trusts

A joke among estate planners says that the only limit to trusts is the imagination of the lawyers involved.  It’s true, though, that the number and kind of trusts are virtually unlimited.

Let’s start by taking a look at the four primary categories of trusts:

Inter vivos and Testamentary Trusts

Trusts that are set up during the settlor’s lifetime are called “inter vivos” trusts. Those that arise upon the death of the settlor, generally by operation of a will, are called “testamentary” trusts. There are advantages and disadvantages to both types of trusts, and how one decides depends upon the goals and purposes of the settlor.

Revocable and Irrevocable Trusts

Inter vivos and testamentary trusts can be broken down into two more categories: revocable trusts and irrevocable trusts. A revocable trust can be changed at any time during the settlor’s lifetime. Second thoughts about a provision in the trust or about who should be a beneficiary might prompt modification of the trust’s terms. The settlor can alter parts of the trust or revoke the entire thing.

Irrevocable Trust

An irrevocable trust is a type of trust that can’t be changed by the settlor after the agreement has been signed and the trust has been formed and funded. The terms of an irrevocable trust can’t be modified, amended, or terminated without the permission of the settlor’s beneficiary or beneficiaries.

A revocable living trust becomes irrevocable when the settlor dies because he or she is no longer available to make changes to it. But a revocable trust can be designed to break into separate irrevocable trusts at the time of the grantor’s death for the benefit of children or other beneficiaries.

You might wonder, “Why make a trust irrevocable? Wouldn’t you want to maintain the ability to change your mind about the trust or its terms?”

Not necessarily.

Irrevocable trusts, such as irrevocable life insurance trusts, are commonly used to remove assets from a person’s estate and thus avoid them being taxed. Transferring assets into an irrevocable trust gives those assets to the trustee and the trust beneficiaries forever. If a person no longer owns the assets, they don’t comprise or contribute to the value of his or her estate and so they aren’t subject to estate taxes upon death.

Revocable living trusts

There is no “one size fits all” trust—different kinds of trusts offer different benefits (and drawbacks) depending on a person’s circumstances. Age, number of children, health, and relative wealth are just a few of the factors to be considered. The most common trust my clients use is a revocable living trust, sometimes referred to by its abbreviation, “RLT.”

A revocable living trust—created while you’re alive and that can be revoked or amended by you—has three advantages over other kinds of trusts:

 1. Money-Saving

Establishing a revocable living trust helps avoid costly probate—the legal process required to determine that a will is valid. Probate generally eats up about two percent (2%) of an estate, which can add up to a chunk of change you’d probably rather see go to your beneficiaries.

Avoiding probate also means avoiding other fees, such as court costs, that go along with it.

2. Time-Saving

A revocable living trust not only eliminates the costs of probate, but the time-consuming process of probate as well. Here in Iowa, probate can take several months to a year, or sometimes even longer, leaving beneficiaries without their inheritances until the very end of the probate process. The transfer of assets in a trust is much faster.

3. Flexibility

Don’t want your 16-year-old niece to inherit a half-million dollars in one big lump sum? I agree it’s probably not a good idea.

A revocable living trust offers flexibility for the payout of an inheritance because you set the ground rules for when and how distributions are made. For example, you might decide your beneficiaries can receive certain distributions at specific ages (21, 25, 30, etc.), or for reaching certain milestones, such as marriage, the birth of a child, or graduation from college.

last will and testament

Drawbacks

Despite the significant advantages of establishing a revocable living trust, there are drawbacks people should be aware of

For starters, trusts are more expensive to prepare than basic estate plan documents such as wills. However, the costs associated with sitting down with a lawyer and carefully putting in place a trust is, in my opinion, greatly outweighed by the money your estate will save in the end.

Creating a trust can also be an administrative bother at the start of the process because assets (farm, business, stock funds, etc.) must be retitled in the name of the trust. But, all things considered, this is a small inconvenience that is greatly outweighed by the smooth operation of a trust when you pass away.

You Can Trust me to Talk About the Best Trust(s) for You

Interested in learning more about trusts or questioning if you need one? Feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077. If you want to simply get started on an estate plan (everyone needs at least the basic documents in place!) check out my estate plan questionnaire, provided to you free, without any obligation.

letter of instruction

When I prepare estate plans for my clients, they typically include six key documents. For more complex estates, the plan may also involve trust and/or business succession documents. However, to make estate planning as simple and the least chaotic for your loved ones tasked with fulfilling your wishes, I also recommend drafting another document: a letter of instruction.

What Exactly is a Letter of Instruction?

Think of a letter of instruction like an easy-to-read-and-understand summary shortcut for your estate plan’s executors and representatives. Its main purpose is to help guide the person(s) settling an estate through the process, step-by-step, in plain, clear language.  The letter can serve as a cheat sheet of sorts. It’s not legally required and certainly doesn’t take the place of a valid will, but it’s a meaningful nod to those you have tasked with handling your affairs.

Your letter of intent doesn’t have to go by any specific form or outline, so some people tend to use it as a way of giving personal instructions and giving details beyond what is articulated in your estate planning documents. A useful letter of intent can include the following information:

  • Location(s) of:
    • Important papers such as birth certificates, any divorce/marriage certificates, citizenship papers, etc.
    • Estate plan.
    • Titles and/or deeds to real estate and rental property.
    • Recent copies of all financial statements like tax returns and other potentially important legal documents.
    • Safety deposit boxes and the respective keys.
    • Tangible property that may not be readily accessible
  • Names, passwords, account numbers, and PIN numbers for financial accounts.
  • Social security number.
  • Contact information for:
  • Instructions for the care of any pets. (You may also want to establish an animal care trust.)

Regular Updates & Safe Storage

Like your other estate planning documents, the letter of instruction should be reviewed annually and updated as needed. Because the letter of intent includes confidential personal information it should be stored in a secure place that can also be accessible by your estate plan’s executor.

But First, an Estate Plan!

Before you go about drafting a letter of intent, it’s important to place a priority on executing an estate plan that helps you meet your goals and define your legacy. My free, no-obligation Estate Plan Questionnaire (the first of the six key estate planning documents) is a great place to get started. Otherwise, contact me by phone or email with any questions and to discuss which estate planning strategies may be best for you and your family.

cash and checkbook

When estate planning you’re answering many of the unknowns for the future by deciding to whom you want your stuff—your cash assets, real estate, personal property, physical body, to name just a few—to pass to and when. You also have to consider some tough topics about your own mortality and imagine a future for your loved ones that doesn’t involve you in it. Estate planning also has a little bit of a learning curve—figuring out what strategies and documents you may need to help you meet your tax, financial, charitable giving, and estate goals and why. (Just one of the many reasons a qualified estate planner is a must.)

The one thing that shouldn’t be a mystery or an unknown cost is the cost of an estate plan. If you’re going to invest in a quality set of legal documents that never expire, tailored to your personal situation and intentions, you should know what you’re getting yourself into. Click the image below to see a cost breakdown by packageRate Sheet Checklist

That’s why Gordon Fischer Law Firm is always transparent with estate planning package rates. You can find them at the end of my Estate Plan Questionnaire (the first of many important documents a part of your plan) and you can also find them on this (super shareable!) estate plan package rate sheet.

Don’t have an estate plan? Don’t let any questions about costs hold you back. Get in touch with Gordon at gordon@gordonfischerlawfirm.com or by phone at (515) 371-6077.