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.

coffee-book-table-word-nerd

In the past I’ve written about specific “legal words of the day” where we take a deep dive into terms that can be confusing, misleading, or unknown. A few of the favorites? Breach of contract, subpoena, and inclusion rider. But, if you’re a word nerd like me, one word or phrase per blog post is not enough! Read on for nine important words related to a key estate planning tool you should know about—trusts.

Trust

To begin, what’s a “trust” itself? No, a trust is not like “I trust you to care for my dog while I’m on summer vacation.” Think more “trust fund kid,” except know that trusts are definitely not just for the wealthy. Trusts can be key to helping you achieve your estate planning (and charitable giving) goals.  At its most basic, a trust is a legal agreement between three parties: the settlor (or grantor), the trustee, and beneficiary. Let’s look at the meaning of these three parties, and then delve more into words which explain how a trust works.

Grantor

All trusts have a grantor, sometimes referred to as the “settlor” or “trustor.” The grantor creates the trust and has legal authority to transfer property to the trust.

Trustee

The trustee is the person who receives the property and accepts the obligation to hold the property for the benefit of the beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document and must do so in the best interests of the beneficiary. A trustee can be one, two, or many persons.

Corporate Trustee

There is a specific type of trustee called the corporate trustee. Many banks, other financial institutions, and even a few law firms have trust departments to manage trusts and carry out duties of trustees. These are professional trustees (so they should be very good at their roles) and charge fees for services rendered.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person/entity or multiple parties (true also of grantor and trustee). Multiple trust beneficiaries do not have to have the same interests in the trust property. Also, trust beneficiaries do not have to even exist at the time the trust is created (such as a future grandchild, or charitable foundation that has been set up yet).

Concurrent Interests or Successive Interests

In cases of multiple beneficiaries, the beneficiaries may hold concurrent interests or successive interests. An example of concurrent interests is a group of beneficiaries identified as grandchildren of the grantors, who all receive distributions after their grandparents’ deaths. An example of successive interests is a trust in which one beneficiary has an interest for a term of years, and the other beneficiary holds a future interest, to become possessory only after the present interest terminates.

Principal, or Corpus, or Res

A trust can be either funded or unfunded. By funded, I mean that trust property has been placed “inside” the trust. This property is called the “principal,”  “corpus,” or “res.”  A trust is unfunded until property is transferred into the name of the trustee of the trust.

Inter Vivos Trusts and Testamentary Trusts

One common way to describe trusts is by their relationship to the life of their grantor. Those created while the grantor is alive are referred to as inter vivos trusts or living trusts. Trusts created after the grantor has died are called testamentary trusts.

Probate

A major benefit of trusts is avoiding “probate.” Probate is a court process that involves filing the will and a petition in probate court, followed by an inventory, property appraisal, totaling of owed debts and taxes, and payments of court costs and attorney’s and executor’s fees. After all of that is finished what’s left goes to the grantor’s beneficiaries. The estate of any decedent, whether s/he had a will or did not have a will, has to go through probate. A funded living trust can be a smart way to have your estate avoid the probate process. How does this work? Upon death the trustee simply distributes the assets within the trust as directed by the grantor. The caveat is that the property must be transferred to the trust.

Language lesson done for the day!

Beyond these important words, you should also know that trusts can have great utility in estate planning.

Among many other benefits, trusts have the advantages of:

  • saving money, including probate costs and other taxes and fees;
  • being extremely flexible;
  • efficiently moving assets to your heirs and beneficiaries; and
  • privacy.

Do you have an estate plan? Have you thought about a trust? I offer a free one-hour consultation,  please always feel free to email me at gordon@gordonfischerlafirm.com or call me at 515-371-6077.

What’s the most interesting estate planning-related word you’ve learned? Share it in the comments below!

Settlor (or Donor or Grantor)

The person who creates a trust is called the settlor (sometimes called the donor or grantor). It is the settlor’s intent which is of paramount importance. It is the intent of the settlor that determines whether a trust has been created.

Here’s a great read with a rundown on the basics of what a trust is:

Intent Is Everything

If a settlor transfers property to a recipient with the intent that the recipient hold the property for someone else, then a trust has indeed been created. If the settlor transfers property with the intent that the recipient use the property for her own benefit, then NO trust has been created.

BONUS WORD! Precatory Trust

What if a settlor transfers property to a recipient with just a wish that the recipient use the property for the benefit of someone else, but does not impose any legal obligation? In such a situation, no legal trust is created. Instead, this is called a precatory trust, but is not a trust at all, because the settlor placed no legal responsibilities on the recipient. A precatory trust is, again, not a trust and is not governed by the law of trusts.

Three Easy Hypotheticals

  • Let’s look at three quick examples to make this clear. Mack gives stock to Julie. Mack intends that the stock be for Julie’s own use. Mack is NOT the settlor of a trust, because no trust has been created.

Stock market sheet

  • Grace gives a vacation house to Maddie, intending that Maddie hold the house for the benefit of Zach. Grace is the settlor of a trust. If a settlor transfers property to a recipient with the intent the recipient holds the property for the benefit of someone else, then a trust is created.

vacation home on lake

  • Thomas gives a coin collection to Parker, just wishing that Parker would hold the coins for Danna. This is a mere precatory trust, not a trust at all because the settlor is not imposing any legal responsibilities on the recipient.

coin collection

Questions? Let’s Talk.

When it comes to estate planning, I’m all about breaking down the legalese barriers. This hopefully clarified the definition of settlor, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and decisions regarding your trust. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.

I KEEP six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.– Rudyard Kipling

I’ll use all six “serving men”—what, why, when, how, where, and who, albeit sometimes in slightly different order—to explain three broad topics: (1) estate planning; (2) trusts; and (3) business succession planning. If you’re unsure of any of the three topics listed, this is the blog post for you.

man taking notes in notebook

WHAT is an Estate Plan, Anyway?

What do we talk about when we talk about estate planning? There are six documents that should be part of everyone’s estate plan. Additionally, you should also keep these six documents updated and current. It’s also important you take note of assets with beneficiary designations (such as those on IRAs and bank accounts).

WHO Needs an Estate Plan? Everyone!

Everyone needs an estate plan. If you’re young, healthy, unmarried, have no children, and have no significant or unusual assets, perhaps you could talk me into the idea that you don’t entirely need an estate plan. Even in such exceedingly rare cases, I strongly recommend making sure your beneficiary designations are completed and up-to-date.

For example, beneficiary designations can be found on your checking and savings accounts and on your retirement benefit plan. But, if you’re married, and/or have kids, and/or have significant or unusual assets, and/or own part or all of a business, you most definitely need an estate plan.

WHY Do You Need an Estate Plan?

Estate planning is not exactly material for scintillating conversation. In fact, I’d bet most of us like to avoid this topic because it can be confusing, and requires lots of decision-making. And, yes, it forces one to think about the mortality of loved ones and the self. Estate planning, after all, is a roadmap about what you want to happen after you move on from this life. While it may not be a fun topic, it is indeed a necessary one. If you die without an estate plan, there are several negative consequences.

Without an estate plan, you cannot choose who receives your estate assets.

If you die without a will, you leave the decision of who will receive your property, in what amount, and when up to the Iowa legislature and/or Iowa courts. With this situation, there is always the very real possibility that the distribution of your estate will be greatly different than if you had chosen it through an estate plan.

Without an estate plan, you cannot choose a guardian for your minor children.

If you die without an estate plan, Iowa courts will choose guardians for your children. One of the most important aspects of a will is that it allows you to designate who will be the guardian for your children. This can ensure that your children are cared for by the person that you want, not who the court chooses for you.

Without an estate plan, Iowa courts will choose your estate’s executor.

If you die without an estate plan, the probate court is forced to name an executor. The executor of your estate handles tasks like paying your creditors and distributing the rest of your assets to your heirs. If the probate court has to pick who will be your estate’s executor, there is always a chance that you would not have approved of that person if you had been alive. If you have an estate plan, your will names a trusted executor who will carry out all of your final wishes, pay your bills, and distribute your assets as you intended.

Without an estate plan, you can’t help your favorite nonprofits.

If you die without an estate plan, all your assets— house, savings, retirement plans, and so on—will pass to your heirs at law as specified under Iowa’s statutes. If you have an estate plan, you can include gifts to your favorite nonprofits and see that they are helped for many years to come.

HOW Do You Structure Your Estate Plan?

light bulb on post-it note

Again, there are six basic documents that should be part of everyone’s estate plan:

  1. Estate Planning Questionnaire
  2. Last will and testament
  3. Power of attorney for health care
  4. Power of attorney for finance
  5. Disposition of personal property
  6. Disposition of final remains

We’ll go through each document briefly, so you have a sense of what each entails.

Estate Planning Questionnaire

Estate planning involves facing heavy questions, and depending on the number of assets and beneficiaries you have, may take quite a bit of time and thought. I recommend clients (and even those who aren’t my clients) complete an Estate Plan Questionnaire. An Estate Plan Questionnaire is a simple way to get all of your information in one place and makes it easier for your attorney to build your estate plan.

As with any project, it helps “to begin with the end in mind.” A questionnaire can help get you there.

hand holding orb

Last Will and Testament

Now let’s discuss your last will and testament. In sum, you’ll be answering three major questions:

Q1. Who do you want to have your stuff?

This includes both tangible and intangible things. An example of a tangible item would be your coin collection. An example of an intangible asset would be stocks.

Q2. Who do you want to be in charge of carrying out your wishes as expressed in the will?

The “executor” is the person who will be responsible for making sure the will is carried out as written.

Q.3. If you have kids under age 18: who do you want to take care of your minor children?

You’ll want to designate a legal guardian(s) who will take care of your minor children until they are adults.

Power of Attorney for Health Care

A power of attorney (POA) for health care designates someone to handle your healthcare decisions for you if you become unable to make those decisions for yourself. A healthcare POA can govern any kind of decision that is related to your health that you want to address. A healthcare POA may include decisions related to organ donation, hospitalization, treatment in a nursing home, home health care, psychiatric treatment, and more.

For example, if you don’t want to be kept alive with machines, you can make this clear in your POA for healthcare. But, keep in mind your POA for health care isn’t just about end-of-life decisions, again, it can cover any medical situation.

Power of Attorney for Finance

The power of attorney for financial matters is similar to the health care document just discussed, only your designated agent has the power to make decisions and act on your behalf when it comes to your finances. This gives them the authority to pay bills, settle debts, sell property, or anything else that needs to be done if you become incapacitated and unable to do this yourself.

It might be obvious by now, but I’ll state it just in case: choosing an agent for a power of attorney requires that you think long and hard about who would be best suited for the job and who can be trusted.

woman on laptop on patio

Disposition of Personal Property

Now, let’s get to the disposition of the personal property. This is where you get specific about items you want particular people to have. If you’re leaving everything to one or two people, then you may not need to fill this out. But, if you know you want your niece Beth to have a specific piece of jewelry, and your cousin Karl to have that bookshelf he loved, then you’d say so in this document.

Disposition of Final Remains

The disposition of final remains document is where you get to tell your loved ones exactly how you want your body to be treated after you pass away. It can be as general as simply saying “I want to be cremated and scattered in my garden,” or it can be specific and include details of plots you’ve already purchased or arrangements you’ve already made.

Beneficiary Designations

Along with the six basic estate planning documents, don’t forget about your assets with beneficiary designations.

Common accounts with beneficiary designations include savings and checking accounts, life insurance, annuities, 401(k)s, pensions, and IRAs are all transferred via beneficiary designations. These beneficiary designations actually trump your will!

Regarding assets with beneficiary designations, you must make sure that designations are correctly filled out and supplied to the appropriate institution. Remember to keep these beneficiary designations updated and current.

WHEN Do You Update Your Estate Plan?

Let’s say you’ve gone to an estate planning lawyer, and these six basic estate planning documents have been drafted and signed. What else? You need to keep these documents updated and current. If you undergo a major life event, you may well want to revisit with your estate planning lawyer, to see if this life event requires changing your estate planning documents.

What do I mean by a major life event? Some common events would include:

  • Selling or buying land
  • Birth or adoption of a child or grandchild
  • Marriage or divorce
  • Illness or disability of your spouse
  • Purchasing a home or other large asset
  • Moving to another state
  • Large increases or decreases in the value of assets, such as investments
  • If you or your spouse receives a large inheritance or gift
  • If any family member, or another heir, dies, becomes ill, or is incapacitated

This is just a short list of life events that should cause you to reconsider your estate plan. There are many others; if you think you might have undergone a major life event, check with your estate planning lawyer.

WHERE Do You Keep Your Estate Plan?

You should store your estate planning documents in a safe place, such as a fireproof safe at home, or a safety-deposit box. Another option in our digital era is storage on the “cloud.” Just make sure the important agents under your estate plan—say, for example, the executor of your will, or power of attorney representative—can access the documents if and when the need arises. For most folks, that’s enough: the six documents, keeping the documents current and remembering about those assets with beneficiary designations.

Don’t Forget About Benefiting Charities!

Perhaps most importantly, through proper estate planning, you can help your favorite charities in ways large and small. One common way grantors elect to support the causes and organizations they care about is by naming them as a beneficiary of a certain amount or percentage of the estate’s assets.

Time for a Trust?

Wait a second…what do you mean by “for most folks, that’s enough?” Indeed, for most Iowans what I’ve outlined here is enough. There may be folks who have a high net worth, or who have complex assets (for example, more than one piece of real estate), or own part or all of a robust business, or otherwise have unusual situations. In such cases, a trust may be helpful. That’s considered more “advanced” estate planning and will mean additional conversations and collaboration on what estate planning tools work best for the situation.

See? That wasn’t so bad!

Whether it’s complicated or simple, it does require some thought and time. But, it’s worth the investment. A proper estate plan can save you and your estate costs and fees, help your family and friends, and provide you peace of mind.

Do you have an estate plan? Why or why not? I’d love to hear from you in the comments below. You can reach me at any time at 515-371-6077 or gordon@gordonfischerlawfirm.com.

Everyone has unique needs and thus every estate plan needs to be personalized. Online templates for estate plans won’t cover the nuances of your life, wishes, and assets. The best place to start on your personalized estate plan is with my Estate Planning Questionnaire.

wealthy dollar bills

There is a rumor that has been floating around that only the rich need estate planning. That is extremely false. Everyone needs an estate plan, but the wealthy don’t need estate planning as much as the middle-class and working-class folks. If this contradicts everything you’ve ever thought about estate planning allow me to explain.

The Case of Kingston Lear

Suppose Kingston Lear (get it?!), a wealthy Iowan, decides he doesn’t need a qualified and experienced estate planner, he can do it himself, or use an online, one-size-fits-all service. Hey, Lear figures, this way he’s saving both time and money. Also, nothing is going to happen to him for a while, he can get around to doing a proper estate plan with a proper estate planning professional “someday.”

Of course, “someday” never comes, but Lear’s death does. His three daughters are aghast that Lear has no real estate plan. The template resembling an estate plan is completely inadequate for the size and complexity of Lear’s assets.

A Matter of Trusts

Lear could have easily, with the help of a professional advisor, set up a trust (even a plain, “vanilla” revocable living trust would have worked) to avoid probate. But, the online service he used didn’t even explain the difference between wills and trusts. So, Lear’s assets all must go through probate. This means that the time and money Lear though he was saving is gone in a flash.

Probate Costs and Fees, If You Please

Probate fees are going to equate to at least 2% cut of Lear’s estate. Remember, Lear’s estate is large and complex and valued at $10 million, so the actual figure is probably going to be more like four percent.

Using 4% as the figure for probate fees means a loss of $40,000 ($10 million X .04 = $400,000). This is $400,000 that could have been passed down to his daughters through a trust, or split generously between his heirs and charitable organizations near and dear to Lear’s heart.

Also, court costs may amount to another 1%, or loss of $10,000 more ($10 million X .01 = $100,000).

Loss of Privacy

Another major benefit of a trust—again, not explained to Lear because didn’t seek any individualized advice—is privacy. A will (or most any document that goes through probate, absent very special circumstances) is simply a public document. Anyone can read, copy, share, and write about it.

Consider one of Lear’s major assets was an ongoing business—a Shakespearean-themed jousting complex, where families could have fun practicing jousting.

horses at fence

Unfortunately, in some of the probate papers, it was disclosed that there had been numerous complaints by the Iowa Horse Association about the treatment of horses. It isn’t long until this hits the blogs, and some of the more sensational aspects of the report (though hotly disputed) goes viral. The jousting park, which had been quite profitable, is now eschewed by all the good people of the area. The daughters are forced to sell the business asset to preserve the family’s good name (or what’s left of it) and sell at a loss. While the jousting park had been worth as much as $1 million, the daughters have to sell, so there’s a “paper loss,” but nonetheless less a loss, of another $900,000.

Loss of Future Profits

The $900,000 is a conservative figure; it doesn’t include lost future profits. If not for the scandal becoming public, who knows how long the jousting park could have remained really popular and this profitable. Years? Decades? It’s quite difficult to quantify, but it’s certainly probable that there are some lost profits. The question is: how much?

Costs of Cases

Because Lear’s will wasn’t drafted by professional, there are many ambiguities and loopholes. It’s not long before the three daughters begin fighting and, with unclear direction from their father, they wind up suing each other.

Taking a court case all the way to trial can easily mean $50,000 in attorney’s fees, plus each daughter will want and need her own attorney. So, another $150,000 is lost to attorney’s fees!

Total Losses Equal?

Lear could have had his estate plan done by an Iowa professional for a few thousand dollars. Instead, he lost a total far greater than that:

  • Probate Fees: $400,000
  • Probate Court Costs: $100,000
  • Loss on Sale of Jousting Park: $900,000
  • Loss of Future Profits of Jousting Park: Incalculable?
  • Attorney’s Fees for Daughters’ Litigation $150,000

This is a hit for the inheritance of $1.55 million, leaving $8.5 million (rounded up), or a little less than $3 million per daughter. But you know what? That still leaves an inheritance of $8.5 million to be split amongst three sisters.

The Rich Can Afford Bad Estate Planning

crown silver

Lear acted unwisely, arguably recklessly! A great deal of his money was wasted that could have been used for great charitable work in Iowa through local nonprofit organizations. But, for all his foolishness, Lear’s daughters still end up with $3 million each. Will the daughters incur much suffering with “only” $3 million? No.

That’s the rub; the rich can afford to make big (and small) estate planning mistakes.

You Can’t Afford Poor Quality Estate Planning

Let’s look at this from a normal Iowan perspective. At least 2% in probate costs and fees, a huge drop in value in a key asset, attorney’s fees for litigation…can a middle-class estate merely shrug these kinds of losses off? Not a chance.

The rich aren’t like you and me. They can badly botch estate planning. You and I can’t afford to make mistakes with our estates; there’s no room (and not enough money!) for error.

Need an estate plan but aren’t sure where to start? It’s easy from start to finish. Fill out my obligation-free Estate Plan Questionnaire or contact me.

Gordon Fischer at desk with client

I’ve previously written about the six “must have” documents of everyone’s estate plan. These documents include some key people that are essential. But, the terms for some of these roles can be confusing. Let’s review the main ones today.

Who/What is a Beneficiary?

Let’s talk first about beneficiaries. This is a basic term you’ve probably heard before or seen while filling out documents. Your beneficiary is the person to whom you leave your belongings, assets, money, land, etc. Of course you can leave your stuff to more than one person, in which case there would be multiple beneficiaries. With multiple beneficiaries, you’ll have to clearly designate who gets what. This can be done in a number of ways; for example, percentages of total value of the estate, or it can be done with specifics.

An example of percentages:  “I want Beth to inherit 20% of my estate.”

An example of a specific bequest:  “I want my son John to inherit the country house and I want my daughter Suzie Q to inherit the lake house.”

You don’t have to be related to your beneficiaries, and you’re under no obligation to leave anything to family members whom you wish not to receive your assets (no matter how hard that may be or how guilty you might feel). You could elect to leave part or your entire estate to charities. It truly is your choice as to who should benefit under your estate plan.

There’s a lot more to say about beneficiaries, but for now, just remember to make sure all documents are up-to-date. Keeping your estate plan up-to-date ensures you avoid nightmares like your ex-husband from years ago cashing in on your retirement funds.

How about an Executor?

Let’s talk about the executor of the will. An executor is the person who is in charge of your estate plan. They make sure the will is carried out as it is written. It’s not an awful job, but it is an awful lot of responsibility. Most folks, having never had to deal with the execution of a will, might not know how arduous it can actually be. Additionally, your executor might be close to you and grieving your passing while trying to make sure everything is taken care of properly. It can be stressful, to say the least.

When picking an executor, you want to make sure it’s someone you trust. Obvious, right? But, it’s so much more than that. We all have people in our lives we love and trust on a personal level, but we know they’re not responsible with things like finances and details. Those people would not a good executor choice, generally speaking. Look for someone in your life who is detail-oriented and can handle the part-time job of dispensing an estate.

If there’s no such person in your life, or even if there is and you simply don’t want to burden them with the task, there’s another great option: corporate executors or trustees–which can be found at a bank or a credit union. The corporate executor offers the bonus of being completely neutral in all things, which can be helpful if you have sticky family dynamics that might make life difficult for the executor. The corporate executor does come at a cost, which is usually based on the size of the estate. I tend to think you get what you pay for, and this could be an excellent option to consider.

If you do go with an executor you know personally, you’ll want to sit down and talk with them about it. You want them to know that you’ve assigned them the task and why you chose them specifically. And, if you’re choosing one child out of many, you’ll want everyone to be on the same page so there’s no unexpected turbulence after you’re gone.

How about Legal Guardians?

Legal guardians are the folks who will take care of your minor children should something happen to you before they reach the age of 18. Like your executor, this job requires a lot of trust in the person you choose.

Clearly, this is not a job that ends after the estate is closed. Who you decide to choose should be a matter of closeness of relationship (as in bond, not necessarily family ties), mutual values, and ability to handle the responsibility. Have an in-depth conversation with the person or people you choose. You want to confirm that you’re comfortable with their parenting style, make sure they feel they’re up to the job, and let them know why you chose them.

Important Trait in Common: Trust

What’s the key theme in all of these roles from beneficiaries to executors to legal guardians? Trust. The level of trust you have in the people who are involved in and benefit from your estate plan should be strong to be successful. If you ever have any questions about selecting the key players in your estate plan, don’t hesitate to reach out.

Your Estate Plan Should be Unique to You

There it is in a nutshell. Those are the basics of the key people in your estate plan.

Whether your estate plan is simple or complicated, it does require some thought and time, but it’s worth the investment. A proper estate plan can save you and your estate costs, taxes, and fees; help your family and friends; and provide you peace of mind.

Perhaps most importantly, through proper estate planning, you can help your favorite charities in ways large and small.

No Day Like Today

Why not start right now with my Estate Planning Questionnaire? It’s provided to you free, without any obligation.

Do you have an estate plan? Why or why not? I’d love to hear from you. You can reach me any time at gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

Pets are a huge part of many families. They are there to snuggle you, greet you every day when you come home, and share so many of life’s best memories with you.

For most people, planning what happens to your loved ones, including pets, is a big contributor to sound peace of mind. In the past, probate and trust laws did not allow pet owners to provide for the care of their pets after death, however, in 1990, the National Conference of Commissioners on Uniform State Laws enacted the first pet trust statute in the Uniform Probate Code. Fortunately, the State of Iowa is one of the majority of states that have adopted a law on animal trusts, most often referred to as “pet trusts.” It reads as follows:

633A.2105 Honorary trusts — trusts for pets.

  1. A trust for a lawful noncharitable purpose for which there is no definite or definitely ascertainable beneficiary is valid but may be performed by the trustee for only twenty-one years, whether or not the terms of the trust contemplate a longer duration.
  2. A trust for the care of an animal living at the settlor’s death is valid. The trust terminates when no living animal is covered by its terms.
  3. A portion of the property of a trust authorized by this section shall not be converted to any use other than its intended use unless the terms of the trust so provide or the court determines that the value of the trust property substantially exceeds the amount required.
  4. The intended use of a trust authorized by this section may be enforced by a person designated for that purpose in the terms of the trust or, if none, by a person appointed by the court

Pet trusts include the following elements:

  • Selecting a caregiver to attend to the daily needs of your pet.
  • It is recommended to name a second caregiver, in case the first can’t adequately care for the pet or decides not to do so.
  • You can include instructions for day-to-day needs as well as overall healthcare. You can be as general or as specific as you’d like.
  • You can set aside monetary distributions, on the condition that it is used for your pet’s needs.
  • The monetary distributions may include a reward/stipend for fulfilling the caregiver role.

Let’s talk about your furry friends and how we can ensure they are provided for in case something happens to you. Give me a call at 515-371-6077 or shoot me an email at gordon@gordonfischerlawfirm.com.

GoFisch blog

Mark Twain famously said, “A classic is something everybody wants to have read, but no one wants to read.” Life insurance is a little like that. Everyone needs it, but we don’t like to talk about it much.

Life Insurance as Key Estate Planning Tool

Life insurance is an amazing estate planning tool. I cannot stress enough the importance of life insurance. I, of course, don’t sell it, so I have no economic stake here. It’s just that life insurance is generally reasonably and affordably priced, yet still so helpful with so many financial goals. Replacing a breadwinner’s earnings is one of the most commons ways it is utilized. But, it can also provide liquid assets for a small business when a key partner dies. Life insurance can also cover costs that you might forget about, like funeral costs or unpaid taxes. While there are many advantages to life insurance, and you most definitely need it, life insurance can also create estate planning issues.

Three Estate Planning Issues Life Insurance May Create

The major issue created by life insurance is that of the “sudden windfall” to your beneficiary. Do you really want, say, your 19-year-old to inherit several hundred thousand dollars at once? Even oldsters with experience managing finances may find a huge influx of cash to be overwhelming.

Another issue to consider: does your beneficiary receive government benefits? If so, proceeds from your life insurance policy might make your beneficiary ineligible for further benefits. By the way, don’t think that those receiving government aid are all elderly. Quite the opposite! A vast majority of Medicaid recipients are under age 44. Regardless of age, any beneficiary on Medicaid, or similar government aid program, is at risk of losing benefits without careful estate planning.

Finally, for high-net-worth (HNW) individuals and families, there is the issue of the federal estate tax. Everything owned in your name at death is included in your estate for estate tax purposes. Yes, that includes the death benefit proceeds of your life insurance policy. Considering that many policies carry quite hefty death benefits (several hundred thousand dollars, or more, not being unusual), this is definitely something for those with HNW to carefully consider.

In Trusts we Trust

I’ve explained trusts generally before. A quick primer: in simplest terms, a trust is a legal agreement between three parties: grantor, trustee, and beneficiary. This allows a third party (the trustee) to hold assets for a beneficiary (or beneficiaries).

There are a nearly infinite variety of trusts. One type of trust is an irrevocable life insurance trust or ILIT.

So, what IS an Irrevocable Life Insurance Trust?

Think of an ILIT as an “imaginary container,” which owns your life insurance policy for you. This provides several benefits. An ILIT removes the life insurance from your estate, i.e., lowers estate tax liability. Like other trusts, an ILIT allows you to decide how, when, and even why your named beneficiary receives life insurance proceeds.

Wait, what was that about the three parties?

The grantor is you, the purchaser of life insurance.

The trustee can be anyone you, as grantor, chooses — an individual(s) or a qualified corporate trustee (like the trust department at your bank). But, note a major difference between an ILIT and other kinds of trusts – with a large number of other trusts, you can name yourself as trustee. With an ILIT, you wouldn’t want to do so, because the IRS may then determine that life insurance really hasn’t left your estate.

Who can be a beneficiary of an ILIT?

Most often, spouses, children, and/or grandchildren are the named beneficiaries of an ILIT. But really, it can be any individual(s) you, as grantor, choose.

Your beneficiary and your life insurance proceeds

The conditions under which a beneficiary receives distributions from an ILIT is up to you. You can, for example, specify that your beneficiary receives monthly or annual distributions. You can decide the amounts. You may even dictate that your beneficiary receives distributions when s/he reaches milestones which you choose. For example, you can provide for a large(r) distribution when a beneficiary reaches a certain age, graduates from college or post-graduate program, buys a first home, marries, or has a child. Or, really, just about any other condition or event that you decide is appropriate.

You also have the option to build in flexibility, so that your trustee has the discretion to provide distributions when your beneficiary needs it for a special purpose, like pursuing higher education, starting a business, making an investment, and so on.

And, of course, if your beneficiary is receiving government benefits, an ILIT can account for that, as well.

Good gosh, is there anything an ILIT CAN’T DO?

Once again, an ILIT is irrevocable. While an ILIT provides a great deal of flexibility, there’s one action for certain you can’t take — you cannot transfer a policy owned by an ILIT into your own name. So, if you think that someday you may need to access the policy’s cash value for your own purposes, you probably shouldn’t set up an ILIT.

Options for “ending” an ILIT

Now, I suppose, there’s nothing requiring you to continue making insurance payments into your ILIT. Depending on the kind of policy you have, your policy may lapse as soon as you miss your premium payment. Or, if your policy has cash value, these funds may be used to pay premiums until all the accumulated cash is exhausted. So, that’s an option for “ending” an ILIT.

I bet you have some questions. Let’s talk!

An ILIT can provide you, your loved ones, and your estate with significant benefits. To learn more, contact me at my email, gordon@gordonfischerlawfirm.com, for a free consultation, without obligation. You can also give me a call at 515-371-6077.


*Yes, you’re right – ILIT is really not a word, but an acronym. You caught me. It’s just that Legal Word of the Day sounds more exciting than Legal Acronym of the Day. Also, congratulations to you for being the kind of person who reads footnotes.

**In 2019 an individual must have an estate of more than about $11.18 million, and a married couple an estate of more than $22.8 million, before they need to worry about federal estate taxes.

april fool's day balloons

Hopefully, you didn’t get pranked too bad today or misled by a jokester on social media today. But, if you did, happy April Fool’s Day! We all love a good practical joke now and then, but the subject of estate planning is definitely not one to laugh at. If you already have an estate plan in place, that’s fantastic, but don’t let an old or inadequate estate plan make a fool out of your life, property, and legacy.

Review Your Estate Plan

Let this lighthearted April Fool’s day actually serve as a reminder to review your current documents and determine if you need to consider updated language, additional provisions, or a different strategy (like “upgrading” from a basic will to a trust). When revisiting your estate plan consider these common mistakes I see when reviewing folks’ less-than-optimal documents.

Living Trusts Missing Retirement Plan Lingo

Many people have a valid portion of the estate assets investing in retirements plans like IRAs and 401(k)s. The mistake comes when people designate their revocable living trust as the beneficiary of these plans, but the trust hasn’t been written or updated to grant the trustee the power to manage the accounts placed in the trust. Without vesting this power in the successor trustee (presuming the testator was the initial trustee and then passed away), the trustee can lack the ability to properly deal with the plan assets and unfavorable income tax consequences can occur.

Uncertain if your revocable living trust properly contains the requisite retirement plan lingo? Simply check with an experienced estate planning attorney and invest in amending.

Outdated Living Wills

Also known as an “advanced medical directive,” your living will should contain the appropriate Health Insurance Portability and Accountability Act of 1996 (more commonly referred to as HIPAA) language. (HIPAA involves privacy and who can and cannot have access to your medical records.) If your living will was drafted pre-2001 (before Congress passed new rules governing the Act) it likely doesn’t contain the essential references to HIPPA. I’ve even seen some living wills written well after 2001 that didn’t have the proper provision. It may sound silly, but without this “magic” wording, your designated health care representative won’t have access to your medical records. Without this access, they may not be able to fulfill their duty in making the most informed decisions regarding your health care as possible. This mistake can be especially important if you’ve designated someone other than a close relative (such as a spouse or adult child) as your agent.

Underfunded Living Trusts

Another mistake I’ve seen is living revocable trusts that are not fully funded. Undoubtedly, without the guidance of a quality estate planner, the funding process can feel overwhelming. When people procrastinate or run into roadblocks when placing assets into their trust they can get frustrated and fail to complete the process. This is a misstep with negative consequences because without funding the trust, it’s best thought of as an empty container waiting for a testator’s assets to fill it up. Without it, if the person with the underfunded trust passes away, the estate will still need to pass through the sluggish and costly probate process. And, quite frankly, the investment in the trust will have been for little benefit or advantage.

Let your estate planner help you through this process. Also, consider if you have any new major assets that need to be assigned to the trust.

All jokes aside, every Iowan deserves a high quality and functional estate plan that meets their goals. Don’t be a fool and let more time go by before reviewing your plan! Please contact me with any questions; I offer a free one-hour consult.

Businessman taking notes and planning in a meeting

Q: How many elephants will fit into a Minivan?

A: Four: Two in the front, two in the back.

Q: How many giraffes will fit into a Minivan?

A: None. It’s full of elephants.

Jokes aside, you can fit just about any asset into a trust. Here is a “short” list of assets actually placed into trusts:

  1. Airplanes
  2. Antique automobiles
  3. Antiques
  4. Artwork
  5. Assets held by C Corporation
  6. Assets held by S Corporation
  7. Autographed books
  8. Barn doors
  9. Beach house
  10. Beanie Babies
  11. Boats
  12. Bonds
  13. Books
  14. Bookstore
  15. Boxes
  16. Boxing gloves
  17. Broadway musical
  18. C Corporation stock
  19. Cheese shoppe
  20. Chocolate store specializing in “I love chocolate” t-shirts
  21. Chocolate store specializing in baking chocolate
  22. Chocolate store specializing in bars of chocolate
  23. Chocolate store specializing in candy-coated chocolate
  24. Chocolate store specializing in chocolate and almonds
  25. Chocolate store specializing in chocolate mixed with peanut butter
  26. Chocolate store specializing in couverture chocolate
  27. Chocolate store specializing in dark chocolate
  28. Chocolate store specializing in milk chocolate
  29. Chocolate store specializing in organic chocolate
  30. Chocolate store specializing in hot chocolate
  31. Chocolate store specializing in liqueurs chocolate
  32. Chocolate store specializing in semi dark chocolate
  33. Chocolate store specializing in sweet chocolate
  34. Chocolate store specializing in white chocolate
  35. Chocolate store* (You’re now probably quizzically asking, “Should I send Gordong chocolate?”)
  36. Coin collections
  37. Comic books collection
  38. Commercial and residential real estate
  39. Condominiums
  40. Credit card rebates
  41. Cupcakery
  42. Depression-era glass
  43. Dolls
  44. Enamelware
  45. Equestrian ribbons
  46. Farmland
  47. Ghosts
  48. Gold bullion
  49. Grain
  50. Guitars
  51. Hedge fund carried interest
  52. Historic papers
  53. Installment notes
  54. Intellectual property
  55. Law firm
  56. Life insurance
  57. Limited liability partnerships
  58. Livestock
  59. Marbles
  60. Mineral rights
  61. Monica (my wife)
  62. Moonstone
  63. Music store
  64. Mutual funds
  65. NHL team
  66. Oil and gas interests
  67. Olives
  68. Operating partnership units
  69. Paint-by-number landscapes
  70. Painted planks
  71. Paintings
  72. Patents
  73. Photographs
  74. Pickles
  75. Pooled income funds
  76. Racehorses
  77. Real estate
  78. Restaurant
  79. Restricted stock (144 and 145)
  80. Retained life estate
  81. Retirement benefits
  82. Royalties
  83. S Corporation stock
  84. Sculpture
  85. Sculpture garden
  86. Sea urchins
  87. Seat on New York Mercantile Stock Exchange
  88. Seats at events
  89. Snow globes
  90. Soda pop bottles
  91. Spirits of the damned
  92. Stamp Collection
  93. Stocks
  94. Tangible personal property
  95. Taxidermy
  96. Teddy bears
  97. Timber deeds
  98. Vacation home
  99. Vehicles
  100. Violin
  101. Wines

*Yes, this is a cry for help. I love sweets, especially chocolate, way too much.

Why put assets in trust?

There can be many reasons to use a trust, and specific benefits can accrue from specific trusts. In general, there are four great reasons to initiate a trust.

1. Save money

Using a trust, you avoid probate, which can save you lots of money. Probate will generally take two percent-plus of your estate, and even “just” two percent of your entire estate can add up to a lot of money. Avoiding probate also helps you avoid fees, costs, and taxes.

2. Save time

timer with sand in it

Using a trust, you avoid probate, which can save you lots of time. Going through probate, even here in Iowa, can take several months, to a year, or even more. Your heirs and beneficiaries may not receive their inheritances until the end of this probate process. Again, with trusts, you bypass probate. With trusts, your beneficiaries can get their inheritances in mere days, or weeks, rather than several months.

3. Flexibility of distributions

Don’t want your 18-year-old to inherit half-a-million dollars in one fell swoop? I agree it’s not a good idea. Trusts offer flexibility for the payout of inheritances. You set the ground rules of when and how distributions are made. For example, you might decide your children can receive distributions at certain ages. (For example, one-third at age 25, one-third at age 30, and the remaining at age 40). Or, you might decide your children can receive distributions at the attainment of certain milestones, such as marriage, the birth of a child, buying a first home, or receiving a certain degree

4. Privacy

Probate proceedings are public. Your will, once you pass and it is filed in court, is a public record. Some desire privacy about financial matters (say, about their family business) even after death.

Also, privacy can prevent hurt feelings among family members. For example, do you really want your Cousin Joe to know he received significantly less than all the other cousins?

What are the drawbacks to a trust?

It’s more expensive to set up a trust than basic estate plan documents, although I would say those costs are greatly outweighed by the money you’ll save your estate in the end. It’s also a bit of an administrative hassle, as your assets (such as car, house, stock funds, etc.) have to be retitled in the name of the trust. Again, though, I believe this inconvenience is much outweighed by the smooth operation of a trust at death.

Let’s talk about trusts!

Have an asset that didn’t make the list of 101 items? It can probably still go in a trust (even if it isn’t chocolate related!). Sometimes it’s hard to know if a trust may be right for your personal situation. It certainly doesn’t hurt to take me up on my offer for a free one-hour consultation. Give me a call at 515-371-6077 or shoot me an email at gordon@gordonfischerlawfirm.com.