A Personal Note from Cam & Trevor – Dated May 8, 2020
As Certified Financial Planner™ practitioners, we are called upon to deal with an enormous volume of information in our ever-complicated society. The COVID-19 crisis has added many new wrinkles to what we need to consider in our day to day decision making for you and your family.
A few weeks ago, Cam received an email from his estate planning attorney with a recommendation that he and Jane consider making a change to their existing health care powers of attorney documents in light of the new world we are living in as a result of coronavirus crisis.
In this Personal Note, we want to share what was recommended to Cam by his attorney and also share some important thoughts on the reasons you should consider reviewing and potentially updating your own estate plan at this time.
Our Belief in the Need for Estate Planning
Cam typically shares these general thoughts whenever we discuss the need for estate planning: “Our goal is to help you control your property while you are alive, take care of you and your loved ones if you become disabled, give what you have to whoever you want, the way you want, and when you want, while helping you save money on estate and inheritance taxes, avoiding court costs and limiting the amount of overall professional fees you might need to pay in the future. A well-thought-out estate plan can, and should, allow you to meet these objectives.”
In order to help you craft and design your estate plan, we have always relied on the knowledge of the estate planning attorneys who are a part of our collaborative team. Each of the attorneys we work with understands the role we play as the quarterback of your team. They are all comfortable in working in a collaborative manner with us, your CPA professional and any other allied professional that might be required to help you meet your family and legacy planning goals and objectives.
For the majority of our clients, we have found that estate plans that center on the creation and use of a Revocable Trust is the most efficient way to help you control your property while you are alive, to help you save money on estate and inheritance taxes, to help you avoid court costs and limit the amount of professional fees required to administer your estate upon your death. If you have not
reviewed your estate plan with us or your estate planner in the last five years, you should take time to do so to confirm that your existing plan is consistent with your wishes.
An important area to review at this time is who you have selected to act as the successor trustee of your revocable trust estate plan.
Choosing the Right Trustee
Over the next 25 years, 45 million U.S. households are expected to transfer $68 trillion to the next generation, according to Cerulli Associates. Given the wide use of trusts for estate planning purposes, it is not surprising that the ongoing largest generational wealth transfer in history is resulting in increased trust litigation, particularly over the role of successor trustees.
A successor trustee has a fiduciary responsibility to administer and settle a trust after the trustee dies or becomes incapacitated. Successor trustees can be members of your family, a trusted advisor such as your CPA, or a corporate trustee such as Trustee Services Group. When a successor trustee fails to perform his or her duties, it often results in legal intervention. Fortunately, this can usually be avoided with proper planning and due diligence.
In recent conversations with our estate planning colleagues, they have shared to one degree or another that they are seeing a number of recurring issues and mistakes arising when it comes to the role of successor trustees.
Mistake # 1: When Successor Trustees Misunderstand Their Fiduciary Responsibility
Many successor trustees believe their fiduciary responsibility is to the trust creator. In fact, they are required to act in the best interests of the trust beneficiaries. To avoid the conflicts that often ensue, it is wise to detail the successor trustee’s duties within the body of the trust documents. In addition, some education may be needed to ensure these successors understand (and accept) their responsibilities.
Mistake # 2: When Trust-Makers Appoint Co-Trustees Who Disagree
Many trust litigation cases result from disagreements and hostility among family members who have been named to act as co-trustees. Parents who anticipate the possibility of conflict among their adult children should consider naming an unbiased third party to serve as successor trustee.
Mistake # 3: When There is a Failure to Coordinate Among the Grantor’s Key Advisors
Individuals and families may have multiple advisors guiding them through the estate planning process. Oftentimes, the successor trustee is unaware of these relationships and fails to coordinate with them when the estate is settled. To prevent miscommunications that can lead to inaccuracies and financial loss, the grantor should introduce all trustees and advisors at the outset of the relationship.
Mistake # 4: When the Successor Trustee Doesn’t Act Objectively
Naming family members as successor trustees can result in biased decision-making. To ensure the trustee acts in accordance with the grantor’s intentions, it can be helpful to appoint an objective third party.
Mistake # 5: When the Grantor Does Not Build Enough Flexibility into the Trust Documents
Depending on state laws, modifying an irrevocable trust can be difficult—and potentially impossible—once the grantor dies. In California, the process is more navigable, especially if the trust’s beneficiaries unanimously agree to the trust being amended or terminated.
Nevertheless, legal involvement can be time consuming and expensive. One way to avoid this is to name a trust protector, whose sole purpose is to remove an unsatisfactory trustee on behalf of the beneficiaries when necessary.
The bottom line is that choosing the right successor trustee is a decision that should not be taken lightly. With proper communication, education and documentation, it is possible to avoid many of the mistakes that often cause trust beneficiaries to seek legal intervention. In addition, selecting an unbiased third party such as a corporate trustee can eliminate these common setbacks.
Don’t Forget to Include Your Digital Assets
During the past year, we have shared about the importance of incorporating your desires associated with the management of your digital assets as a part of your estate plan. It is common, when reviewing estate plans that are more than five years old, to discover that clarification is needed regarding these digital assets.
Most states have made it easier for court-appointed fiduciaries to gain access to a decedent’s digital accounts, similar to how they would access tangible property. Even so, our colleagues say it is advisable to include provisions in your estate plan that authorize your representatives to access your digital assets, including email and social media.
Here is a summary of the things you should consider addressing in your estate planning documents:
Create a list:
A list of your digital accounts and online assets will make it easier for your heirs to administer your estate. Maintaining a list and instructions for accessing accounts will help authorized people gain access as quickly as possible, which can help prevent unauthorized access and potential identity theft,
among other problems. Any list of digital assets also should include things like cloud accounts with stored family photographs, videos or genealogy information, Dropbox accounts, email and social-media accounts.
Protect the list:
Lists of accounts should either be printed out and kept with the estate plan in a safe place, like a vault or safe-deposit box, or stored within a password manager online. For those using an online password manager as a way to list their digital accounts, it is important to leave instructions for a trusted individual, such as an attorney, custodian, agent or executor, to gain access to the master password, taking care not to leave the actual password in the will or trust.
Choose the right settings:
On some online platforms, users can appoint someone to retrieve a password and control the account upon the user’s disability or death. It is a good idea to ensure the designated representative does not conflict with the executor or other responsible person named in the estate plan. Otherwise, conflicts can arise between your representatives after your death, adding unintended administrative complications. Each site has its own policy, so it is important to check with each site and plan accordingly.
Coronavirus and Health Care Powers of Attorney
Cam’s estate planner recently shared the following information associated with incorporating a potential change in his and Jane’s existing Durable Powers of Attorney for Health Care.
“Due to the ‘stay at home’ orders issued by the government, it is likely that if you need to go to the hospital or have medical decisions made for you due to incapacity, your loved ones will not be physically present, due to the quarantine or risk of infection.
“Health Care Powers need to be revised to take into account medical situations as a result of coronavirus. The provisions in current Health Care Powers were reasonable when a person could travel with loved ones to a doctor or hospital. Now, however, we need to include language in Health Care Powers that:
1. Allows for agents to make medical decisions over the phone or virtually (e.g., Skype, Zoom, FaceTime); and
2. Holds medical providers harmless for decisions made by health care agents.
“Our practice has updated our Health Care Powers to provide for the above-mentioned situations, which will be necessary in this unprecedented time. These changes will apply even after Coronavirus has been conquered.
“It is also important that any children who are over the age of 18 years have a Health Care Power and an asset management power of attorney.”
We think this is important food for thought.
If you have any questions about what we are sharing in this note, please reach out to us. We look forward to continuing to work collaboratively with you and all of your other advisors to ensure that your estate planning goals and objectives are achieved.
On behalf of our entire team, we hope that you and all of your loved ones continue to be well.
Cam and Trevor
The information provided is not a complete analysis of every material fact and are subject to change.
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CTA Wealth Advisors, Inc. and Cetera Advisor Networks LLC are non-affiliated companies.
The opinions expressed in this letter are those of Cameron M. Thornton, CFP® and Trevor M. Cole, CFP®. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Past performance does not guarantee results.
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1 - Choosing the Right Trustee - Private Wealth April 2020 - by Kimberly Bernatz
2 - When Doing Estate Planning, Don’t Forget to Include Your Digital Assets – Wall Street Journal – April 20, 2020 – by Cheryl Winokur Munk
3 - Tisser Law Group, A Professional Corporation – April 3, 2020