Do You Need a Trust? Estate Planning 101 for Retirees

In today’s episode, you’ll learn more about:

• Why beneficiary designations and account titling should be one of your first estate planning reviews.
• What a will actually controls and why it doesn’t avoid probate.
• When a revocable living trust may make sense.
• The key differences between revocable and irrevocable trusts.
• Why simply creating a trust isn’t enough if assets aren’t properly coordinated with it.
• The core estate planning documents retirees should consider.
• Why communicating your estate plan with family can be just as important as creating it.

Listen Now:

The Smart Take:

Go Inside the Episode: 

0:00 – Intro

2:35 – Before You Worry About the Documents

6:45 – What does a will actually do?

9:55 – Do you need a trust?

13:45 – Revocable vs Irrevocable Trusts

17:11 – What documents should you have?

20:22 – Financial advisor’s role in this process

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Estate planning is one of those things everyone knows they should do, but many people continue to put it off. In fact, a recent survey found that almost 60% of Americans don’t have a will or trust. But even having the documents isn’t enough. Your beneficiaries, account titling, and even conversations with your family all need to work together. Today, we’ll cover the estate planning basics every retiree should know, including what a will actually does, when a trust might make sense, and the documents you should have in place.

Walter Storholt:

Welcome back to Retire Smarter. I’m Walter Storholt, alongside Tyler Emrick. He is a certified financial planner as well as a chartered financial analyst, and one of the wealth advisors at True Wealth Design. And great topic today because I think estate planning is something that often gets overlooked by folks. And so always helps to hit the basics in this arena.

But what you call basics, Tyler, you guys still go into some great detail, depth, and strategy here. So yes, this is the 101 course, I suppose.

Tyler Emrick:

It is. Yeah.

Walter Storholt:

But you’re a very sharp teacher that’s going to [inaudible 00:01:15] a little bit more. We’re going to have an introduction to the 201 course, I think a little bit today too.

Tyler Emrick:

We’ll try to get into it for sure. I mean, well, I think I led with this statistic, right? I mean, 60% of Americans really haven’t got their estate documents in place. That stat, Walt, I’d say it tracks with just real world experience and some of the meetings that we continually sit in on where families, I had a will 20 years ago. It’s still down there. It’s dusting off down in the old safe in the basement.

So it’s not uncommon to have these types of conversations, which is kind of why we figured, hey, let’s go in and maybe start tackling some of those basic core concepts families need to be thinking of when they say, all right, maybe I should pull this thing out, dust it off, take a look at it, and say, hey, is this still applicable with what we’ve got?

Walter Storholt:

I’m surprised the number was actually even that favorable. I thought it would’ve even been more people not having a will or trust because of just, it’s not a fun thing to think about or talk about for most people. And it sounds complicated to a lot of folks. And it’s also like, when do I really need to even get that? I don’t need to get that when I first start my working career. It’s not like a 401(k) where I’m told over and over, get started on that saving for retirement. But you don’t have that quite as much pushed in front of us from an estate planning and will standpoint.

Tyler Emrick:

Sure. Absolutely. Well, and you pair that with the fact that, even if you have some of the documents, it’s not uncommon for us to find out that they were never implemented. They were never put on as beneficiary, or funds were never actually moved to the trust or whatever. So not only the whole fact of, hey, let’s get this thing set up, but then also that practical application of it a lot of times kind of falls short.

So yeah, I mean, as I think about just starting that conversation and going in, I think a good starting place for families to think of are just like, well, what do I got and where is it? I get all the time, do I need a trust or do I just need a will? And before you can kind of get down into that, I mean, I think a lot of the big thing is is like, well, how are things set up now and where do you have everything?

When we go through a financial plan with families, there’s a net worth page on there. Sometimes it’s two pages. But it’s basically, Walt, it’s just a list of assets, like the big assets, big accounts, house. I mean, if you have a boat or RV or something like that, it could be listed on there. But it’s always a good starting point. And I always kind of pull that out and talk through it.

So if listeners are, I work with an advisor, go back through those plans, take a look at that net worth page and start to say, all right, this is what we’ve got that we kind of need to start making decisions on and start kind of checking off the boxes there, and saying, well, how is this account set up? Because depending on that type of account, what needs to happen from an estate planning standpoint could be vastly different, Walt. It can be vastly different.

You start thinking about, well, if you got retirement accounts, these are your 401(k)s, your IRAs, your 403(b)s. Generally, these accounts are just going to have beneficiaries that they have listed on here. So getting an inventory of who’s my primary beneficiary? Who’s my contingent beneficiary? Your taxable brokerage accounts, these are your non-retirement accounts, things that you’ve invested in, stocks, bonds, ETFs, whatever the case is. Are there transfer on death instructions on that account? Transfer on death instructions and beneficiaries are basically the same thing. But it’s basically like, hey, if I pass, where does this money go? And you want to go, well, all the way down into what are my bank accounts, my checking accounts, my savings accounts. You could take it as far as your real estate. Well, who’s on the title? Is my title transfer on death? Is it jointly held or is it just in my spouse’s name?

These are all things when you’re first starting to have this kind of conversation that are just really good to wrap your arms around, take a look at it, and say like, well, where am I at now? You got to know where you kind of start.

Walter Storholt:

It’s such an adult conversation you have to have because basically every sentence you just said there was like, if I die, what happens to this? If I die, what happens to this?

Tyler Emrick:

That is true.

Walter Storholt:

And so people do get overwhelmed by that conversation.

Tyler Emrick:

Absolutely.

Walter Storholt:

But we got to have it. We got to do it.

Tyler Emrick:

We do, right? And when you start to think about it, what it allows you to do is really start to quantify and have good conversations with your spouse or your family or whoever maybe would be taking part in this to try to understand like, well, what are my wishes? How complex do I want to make it? Is this very simple or not?

Because everything that we had just mentioned before on checking those accounts, one of the things that I think gets lost in this shuffle a lot of times is that I get this thing, “Tyler, I want to avoid probate. I don’t want my heirs to have to go through probate.” So everything that I just listed out there on those accounts, that will help you avoid probate. Transfer on death instructions and beneficiary elections are simply, hey, if you pass away, your heirs send in a death certificate to the custodian that holds that account. And that custodian looks at those beneficiary elections or transfer on death instructions. And that’s enough for them to start distributing funds. It doesn’t have to be approved by a judge or go through a probate court or anything like that.

So like that first line of defense to avoid probate is making sure that your accounts are titled properly and potentially transfer on death or beneficiary elections are set. And so when we start thinking about a will, which is I think, well, that’s the first thing that pops into everybody’s mind, right? I mean, hey, I got a will or I need to update my will. And when we think about-

Walter Storholt:

If you’re going to start somewhere between a will and a trust, most people are going to go, okay, will seems the easiest thing to figure out and understand, and I’ve got better grasp of that.

Tyler Emrick:

This is the document that I’m told I need, right? Yeah. 100%. And that is what a will is. A will is a document that basically lists out your wishes on what you want to have happen and who do you want to control that estate process. But one of the big caveats I think can kind of get lost in the shuffle is that, well, who is that will directed to and wrote for? Well, it’s wrote for the probate courts. So anything that is actually going to pass through your will is going to go through probate. So all those things on, hey, it’s not going to be private. Hey, it’s going to be subject to the probate process. If anybody’s gone through that process, depending on where you’re at, what state you’re in, that could be easy or it could be hard. Depending on the complexity of the estate, there could be fees, that type of thing. Maybe an attorney needs to get involved to help you through that process. So if a lot of your assets are going to be passed through the will, one of the things that you are insuring is that your assets are going through probate. Well, do you want that to happen?

And another thing that I think as we maybe even take a step back and take these two things we’ve talked about and how they work together, I think is important, right? Because what I first talked about was, hey, transfer on death instructions, beneficiary elections doesn’t have to go through probate, doesn’t go through the will. Will goes through probate. Well, it’s not uncommon. I was just in a meeting a couple months ago where an individual, we were going through her will and in her will, she had some very specific bequests. So these are just things like, “Hey, I want so-and-so to get this amount. I want so-and-so to get this.”

You can outline that in a will, and it’s a very fine way to potentially do that. But when we started looking at that first step of like, “Well, where are all your accounts? Where do beneficiaries transfer on death instructions?”

We rapidly found that really there wasn’t enough of her assets that were going to go through the will to make those bequests, right? Because all those transfer on death instructions and beneficiaries, since it doesn’t go through the will, those assets are gone. They’ve already been distributed. So if you’ve got that you want a hundred grand to go down to your niece or nephew and there isn’t a hundred grand that’s going to pass through probate or go through the will, is that election going to be able to be made and picked up?

Because, hey, she was thinking, “I just updated my will. I want this bequest to go in here,” but this whole thing where they talk and work together becomes extremely important in a situation like that.

Walt:

Yeah. It’s one of those things, too, that just sounds, as you’re talking about, what goes through probate, what doesn’t? If this isn’t properly filled out, it triggers these consequences. There is a lot of coordination that has to happen-

Tyler:

There is.

Walt:

… if you’re not choosing, I guess, the simple path. And the more you want to customize it, the more everything’s got to be buttoned up, I guess.

Tyler:

Oh, absolutely. Well, and then as we start thinking about… Well, I’m sure some of the individuals clicked on this because they’re like, “Hey, do I need a trust or a will?” So you start getting down-

Walt:

You said that’s the big question a lot of people ask you, right?

Tyler:

It is, right? And you start thinking about it, “Well, do I need a trust?”

Well, one of those considerations is, is this trust going to simplify that process? Is it going to simplify this whole, what goes through probate, what goes through transfer on death instructions? Well, if everything potentially goes through the trust and everything is set up that way, does that simplify things and make sure that some of these titling issues and whatnot don’t come out appropriately? Because a trust doesn’t always say, “Hey, I don’t need a will.” It’s not a substitute. A lot of times it’s used in conjunction.

So you might have a trust and then you might have what they call a pour-over will, where your will says, “Hey, if I missed anything and it’s coming through here, oops, I want it to go to my trust.” And it’s kind of like that catch all provision to kind of move everything in here.

But there’s still certainly some coordination things that I think need to be at the forefront when you’re thinking through this. We go back and we think through some of these statistics. That same survey, almost 97% of families recognize the importance of talking about their estate plans, but only around 60% of those families actually have conversations with their children or their heirs who are going to get it to help them understand those wishes.

Going back to your point, Walt, it’s maybe not the best, easiest conversation for families to potentially have, nor is it a fun conversation to have. I can’t tell you how many times I’ve talked to families and like, “Yeah, I tried to bring it up to kids, but they’re like, ‘No, no, no, I don’t want to talk about it. I don’t want to talk about or think about that.'” And it can be very difficult and hard, but you need to make sure that as you’re thinking about that communication, well, what really does need to be in place and what needs to be communicated? That’s extremely important.

I’ve had a situation, it’s been a couple years ago now, where an individual, their parents had a trust. Trust meant to simplify things, make things easier. And come to find out, there was a provision in this trust where one of the siblings, so the children, would have the ability to purchase their primary residence. There were three siblings in total. They wanted one to actually have the ability to purchase the home from the other siblings and then kind of distribute it out from there. That provision in the trust actually had a time limit that says, “Hey, upon my passing, there is 60 days for the individual to make this election to purchase it.” Well, he had no idea that that provision was in the trust, not top of mind.

Walt:

Oh, wow.

Tyler:

Not top of mind, right? You’re grieving, you’re thinking about it. And that he did not meet that 60-day provision. And now, they’re actually still in court proceedings because the other siblings did not want them to have that ability and didn’t think that that was fair. So their parents were probably thinking… Well, hey, you’re talking there, you’re sitting across from an attorney as you should as you’re thinking through this, “Oh, 60 days? That’s plenty of time, right? They’re going to go through, they’re going to think through it. I’m going to be passed. They’re going to be looking at these documents. Hey, make the decision. I don’t want it to drag out. Let’s put that in there. That’s fine. That should be plenty of time.”

But if there was no education or no, “Hey, this is what I want beforehand…” That’s not always the case. So you start thinking about how that document’s drafted. You’re in one mindset, but the reality of what actually happened was very far different. And yeah, then now you’re talking about court proceedings and things like that, extra fees onto the estate. And it was really a complete mess. They’re still actually kind of working through to this day.

Walt:

Wow.

Tyler:

So we want to try to avoid that. And because that’s what a trust is really there meant to do, Walt. It’s meant to give you control as an individual after your passing to help make some of these very specific elections or requests or whatever, and do it in a much easier way.

So when I think about this trust conversation and trust, yes or no, I think one of the basic things that listeners need to understand first is that there are a multitude of different trusts out there that can do different things depending on what you’re trying to accomplish. And its most basic format though, I want you to think about it in two forms of trust to wrap your arms around. And this is what’s called a revocable trust and an irrevocable trust.

The vast majority of trust work that we do and see for families is revocable trust. Okay? What a revocable trust is, is it’s essentially a document that is a living, breathing document over the course of your life. You as a trustee is the individual that can change it. It’s not its own separate entity. It’s not filing its own tax return. It is you. I like to say that a lot of people, when they describe to me what they think a will is, they’re actually describing to me a revocable trust.

Walt:

Oh, interesting.

Tyler:

It’s directions on how I want my assets to be distributed. It’s where I want different accounts to go. It’s how I want my affairs to be handled. And upon your passing, what happens is that trust then becomes irrevocable, and it doesn’t have to actually go through the court system. In most cases, it’s a legal document that can be used to where your heirs can use it to distribute assets and not have to necessarily go through the probate process. That is the goal of it. That’s what a lot of people think a will is, “Oh, hey, it’s my wishes. It’s what I want to have happen.”

But the key distinction is a revocable trust would allow you to skip that probate process and allow your heirs to… Essentially, the goal is to make it more effective and efficient. We need to be careful on how it’s wrote. Think about that scenario we just talked about with the clause where the child can actually purchase a house. We want to be cautious and careful on that. But that revocable trust allows you to have that control.

This is where we have the common things that come up, Walt, “Hey, I have young kids. I don’t want them to get access to it until they have certain ages,” or whatever the case is. A trust would allow you to set some of those parameters in place. So that revocable trust is what we see the vast majority of families leaning on if they’re just wanting to have control or make a smooth transition of their assets and trying to avoid probate.

Irrevocable trusts, the most common one we see is like a Medicaid planning trust where we’re worried about qualifying for Medicaid or whatever the case is. These irrevocable trusts, once they are funded, a lot of times you can’t change them. They’re set once assets are in there. Sometimes they become their own entity. They have their own EIN, they file their own taxes. These are when individuals are looking to potentially save money in taxes or potentially change assets or a whole host of reasons why you might want to do an irrevocable trust. But again, the vast majority of families are just looking at that revocable one so they maintain control, and they’re really just wanting to help make a smoother transition into avoiding that probate process.

So as we’re thinking about these documents, right, a trust, a will, what state documents should you have? The quick and dirty list is a will. You’re going to need a will no matter what. Maybe you have a trust if it’s appropriate. We don’t want to forget about our financial and healthcare power of attorneys as well. These are things where if you become incapacitated or if you need someone to help make financial or healthcare decisions, they can do that. A living will or advanced directives would be something that you might want to look at as well. This is your wishes regarding medical end of life care. HIPAA authorizations is another one that could potentially be in there.

But as I think about the list, that’s a really good starting point for the vast majority of families that are saying, “Well, where do I start? What documents do I need?”

That’s it, Walt, that’s the list. That’s what you need to start thinking about. And then obviously take a look at that net worth statement, take a look at where your assets are, start there, and then bring in an appropriate professional attorney, lawyer, or whatever to help you talk through what you’re trying to accomplish, and of course draft up those documents for you.

Speaker 3:

What would your life look like if you designed it around your true wealth? It’s a powerful question and one that True Wealth Design helps individuals, families, and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments, and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.

Walt:

And would you say this is pretty much for everyone? If I’m young and single, still great to put these things on file and go through this process? If I’m married and now have a kid, definitely you should be on this train? And the further along in life and the more things that you accumulate and people that are in your lives, just the reasons sound like they accumulate.

Tyler:

Oh, absolutely. Now, the complexity might not be there at the beginning. That first scenario, maybe just beneficiaries on your 401k and transfer on death instructions on your bank accounts. Maybe that’s enough for you to get it and accomplish it. Maybe as children come into the picture, now you got to think about, “Well, who’s guardian?”

I remember when my wife and I were talking through ours like, “Well, who would we want to take care of our kids? Is that the same person that we would want to handle our finances for our kids? Are those decision points the same? And how complex do we want this to be?”

Because when we start thinking about trust and some of these other things, it’s meant to simplify, but I’ve seen time and time again to where in practical applications, these trusts can add complexity over the long run. So you just really want to make sure what’s right for you, what’s right for the family.

I think everyone should do it, like you had mentioned, but the scale and the degree of what you need just depends on your family makeup and where you want those assets to go, how you want to do them. Conversations on if your charitably inclined, what accounts go to charities? What accounts go to my family and children? There’s some tax consequences there. How do we start thinking about it? Those are obviously all good conversations to have as the complexity or as your wishes expand on what you’re trying to accomplish.

Walt:

All good stuff. Great breakdown today, Tyler. Really appreciate it as always. My last little question for you, obviously you guys do very comprehensive financial planning at True Wealth Design, but when you start getting into this estate planning conversation, this isn’t you guys executing these documents and doing all of these things. Do you have partnerships with estate planning attorneys? Is that kind of what happens here to bring all this together?

Tyler:

Correct. Absolutely. Yeah. We always need an attorney to draft up any type of legal documents. Now, the path that you choose can vary depending on family complexity and how we get those accomplished. So there’s a multitude of ways to get these documents updated and services that are out there, obviously with technology and the advances there. You have a whole plethora of opportunity.

We’re really here to be your hub, to help have and drive these conversations, making sure you’re thinking about them and getting you to that point to where, all right, hey, now when the documents need drafted, or if there’s some considerations here that we need to bring in a specialized attorney to do, absolutely, that’s when that kind of happens. And then we help drive that conversation, help make sure that things don’t get lost. Because hey, when we’re having these financial planning conversations and getting to know our families, we know a lot of those levers and a lot of times some of the questions that maybe if you haven’t gone through and talked to attorney before, you might not be thinking of asking. So we’re there to help make sure that you feel prepared. We’re in those meetings a lot of times and driving those conversations.

Walt:

Yeah. It’s that old football analogy, right? You guys are the quarterback, making sure everybody’s coordinated on the play and doing their role and their job and just making sure that the play goes according to plan and coordinating everything.

So if you need that kind of person and team in your financial life as you get ready for retirement or just thinking about your financial future in general, you can certainly see if True Wealth Design is a great fit to work with you. All you have to do is go to TrueWealthDesign.com and look for the Let’s Talk button, or you can click the link in the description of today’s show and schedule a time to visit. It’s a 20-minute or so discovery call, again, to see if you’re a good fit to work with one another, where you are right now, what some of your goals are, and then you can take next steps from there. But check that out if you’d like to have a deeper conversation with Tyler or an experienced wealth advisor on the team at True Wealth Design.

Tyler, thanks for all the guidance today, and we’ll look forward to catching up with you again next week.

Tyler:

Oh yeah, it was fun. We’ll catch you on the next one.

Walt:

Yeah, see everybody next time right back here on Retire Smarter.

Speaker 4:

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