How Does a Trust Company Work?

A trust company may provide expert investment, asset management and estate settlement services for clients who need them.

Although they aren’t for everyone, a trust company can provide a variety of investment, tax and estate planning services for their customers.  Wealth Advisor’s recent article, “Understanding How Top Trust Companies Operate,” gives us a high-level overview of the nature and function of trust companies, as well as the services they provide.

A trust company is a separate entity owned by a bank or other financial institution, or in some cases by a law firm or other professional. It can manage trusts, trust funds and estates for individuals, businesses and other entities. In most cases the assets are held in actual trusts, with the trust company named as the trustee. They typically use several types of financial professionals, including financial planners, attorneys, portfolio managers, CPAs, and other tax professionals, trust officers, real estate experts and administrative personnel to effectively manage the assets.

Trust companies perform a wide variety of services related to investment and asset management. Most companies manage the investment portfolios within the trusts of their clients, however some prefer a client’s financial advisors do so instead. There’s also a variety of investments, such as individual securities, mutual funds and real estate, that can be employed to achieve growth or income.  They also can provide safekeeping services within secure vaults for other types of tangible investments or valuables, like jewelry, and occasionally for important documents, such as an original will or trust.  They also take full fiduciary responsibility for their clients’ financial well-being. This means that the clients’ best interests are always considered in each service and transaction performed.  See here for a fuller list of areas where a professional fiduciary may be utilized.  https://www.galliganmanning.com/practice-areas/estate-planning/

Most clients use trust companies for estate settlement services, either as the executor or a trustee.  They can perform such tasks as valuation, dispersion and re-titling of assets, payment of debts, and expenses, estate tax return preparation and the sale of closely held businesses.  Trust companies frequently work with their clients’ heirs to provide the same types of services to the estate assets’ recipients as to the donor.

Trust companies aren’t for everyone, but serve a vital role in some estate plans.  They are especially useful where there are likely to be family disputes, disabled or very young beneficiaries, or in some cases, where a client doesn’t have someone they feel comfortable putting in charge of their estate.  Most clients who want to use a professional trustee must meet certain financial requirements, usually including at least a certain net worth, but for clients with these concerns, it’s worth it.  See Kevin’s Korner for more ideas on how to pick your fiduciaries.  https://youtu.be/W2LjFQFmY_I

If you expect to avoid family disputes in your estate, have young or disabled individuals or don’t have someone suitable, you should consider the use of a trust company in your estate plan.  Please contact our office for a free consultation to discuss how a professional fiduciary can help you achieve your goals.

Reference: Wealth Advisor (December 10, 2019) “Understanding How Top Trust Companies Operate”

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A Will is the Way to Have Your Wishes Followed

Individuals often do not make or appropriately update wills because they wrongly believe they aren’t necessary, but the will is the place for your wishes.

A will, also known as a last will and testament, is one of three documents that make up the foundation of an estate plan, according to The News Enterprises’ article “To ensure your wishes are followed, prepare a will.”  Two other very important documents are the Power of Attorney and a Health Care Power of Attorney. These three documents all serve different purposes, and work together to protect an individual and their family.  Today I’ll focus on the will and its important for conveying your wishes for your assets.

In our practice, we often encounter situations where a person passes away either without a will or without updating their existing will, both of which can lead to tragic results.  Assets will often go to unintended beneficiaries with far greater cost, difficulty and time.

There are a few situations where people may think they don’t need a will, but not having a will or updating it properly can create complications for the survivors.  Here are a few instances where people mistakenly believe they do not need a will.

First, when spouses with jointly owned property don’t have a will, it is because they believe that when the first spouse dies, the surviving spouse will continue to own the property. However, with no will, the spouse might not be the first person to receive any property that is jointly held, and it is especially true that the spouse may not be the first person to receive individually jointly owned property, like a car.  Even when all property is jointly owned—that means the title or deed to all and any property is in both person’s names –upon the death of the second spouse, an intestate (meaning no will) proceeding may have to be brought to court through probate to transfer property to heirs.

We frequently encounter situations where an executor will say that the decedent told them what they want, and that it does not match the will.  Or even worse, a decedent will have an old will that no longer reflects their wishes, such as not updating a will after getting married. In these situations, the will controls the property, even though the wishes are now wrong. It is critical to update your will with changes to make sure that the will conveys your estate to the beneficiaries you want.

Secondly, any individuals with beneficiary designations on accounts transfer those accounts to the beneficiaries on the owner’s death, with no court involvement. The same may apply for POD, or payable on death accounts.  In Texas you can even go so far as to name a beneficiary specifically on your deed or car title.  If the beneficiary named on any accounts has passed, however, their share will go into your estate, forcing distribution through probate.  Beneficiary designations also don’t adequately plan for successors, incapacity of beneficiaries and sometimes don’t allow many beneficiaries.   Clients often try to avoid probate on their own by the use of beneficiary designations, but we often have to open estate administrations where they are incomplete or ineffective for the above reasons.

Third, people who do not have a large amount of assets often believe they don’t need to have a will because there isn’t much to transfer. Here’s a problem: with no will, nothing can be transferred without court involvement. Let’s say your estate brings a wrongful death lawsuit and wins several hundred thousand dollars in a settlement. The settlement goes to your estate, which now has to go through probate.

Fourth, there is a belief that having a power of attorney means that they can continue to pay the expenses of property and distribute property after the grantor dies. This is not so. A power of attorney expires on the death of the grantor. An agent under a power of attorney has no power, after the person dies.

Fifth, if a trust is created to transfer ownership of property outside of the estate, a will is necessary to funnel unfunded property into the trust upon the death of the grantor. Trusts are created individually for any number of purposes. They don’t all hold the same type of assets. Property that is never properly retitled, for instance, is not in the trust. This is a common error in estate planning. A will provides a way for property to get into the trust, upon the death of the grantor.  This is called a pour over will.  See here for more details.  https://www.galliganmanning.com/i-have-a-trust-so-why-do-i-need-a-pour-over-will/

With no will and no estate plan, property may pass unintentionally to someone you never intended to give your life’s work to. Or, having an out of date will that doesn’t reflect your wishes may direct property to someone you no longer wanted to benefit.  Having an up to date will lets the Executor know who should receive your property. The laws of your state will be used to determine who gets what in the absence of a will, and most are based on the laws of heirship. Speak with an estate planning attorney to create a will that reflects your wishes, and don’t wait to do so. Leaving yourself and your loved ones unprotected by an up to date will, is not a welcome legacy for anyone.

Reference: The News Enterprise (September 22, 2019) “To ensure your wishes are followed, prepare a will.”

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Everyone Needs an Estate Plan!

Everyone should have an estate plan
Every adult needs an estate plan, don’t wait until you have an “estate.”

Every adult, whether we have a lot of property or not, should have an estate plan.  A client once told me they didn’t need a Will because they didn’t have an “estate.”  They thought it meant substantial wealth, but estate planning is much more than that.

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected, even beyond the finances. An estate planning attorney works with individuals, families and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

This is by no means an exhaustive list, but here are some milestones in life when you need an estate plan:

Becoming an adult. It is true, for most 18-year-olds, estate planning is the last thing on their minds. However, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in, if something occurs.  Michael Galligan from our office gave a great presentation this summer on this topic.  See here for the video.  https://youtu.be/lZUaMVRRTms  

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. In community property states like Texas, it creates the new wrinkle of community property.  For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be coordinated and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets, in case someone needs to access accounts.

If this is not the first marriage, there is an even greater need for an estate plan because there may be children from the prior marriage to plan for.  Remember, your assets don’t go to a surviving spouse just because you are married, so you definitely need an estate plan.

When children join the family. Whether born or adopted, the entrance of children into the family makes an estate plan especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.  You also want to address these issues.  https://www.galliganmanning.com/the-importance-of-business-succession-planning/

If a divorce occurs. Divorce is a sad reality for more than half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any controlling-on-death accounts are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes and planning for incapacity.

In sum, it is important to realize everyone needs to plan.  Don’t wait because you think you don’t need one.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

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