What are the basic elements of an estate plan? What is each of the documents designed to do? Who needs an estate plan? Why is it important to avoid probate? What actions should I take to avoid it? What are the costs involved? Clayton meets with Cathryne Harrison from Hundley & Harrison to discuss each of these questions in this 10 minute video.
Clayton: Hi, I'm Clayton Johnson from Squire Wealth Advisors, and with me today I have Cathryne Harrison, one of the founding partners of Hundley and Harrison. She is an estate planning attorney. I've worked with her closely and she does an awesome job. We wanted to talk today about a few elements of estate plans - why they're important, why we need them - and thought there's no better person to go to than Cathryne, who's been doing this for a while. So thanks for joining me, Cathryne!
Cathryne: No problem, happy to be here Clayton!
Clayton: Alright, I want to start very basic here, Cathryne. What are the basic elements of an estate plan?
Cathryne: Great question. Let's start right from the ground up. An estate plan is a collection of legal documents where you make your end-of-life decisions, and where you designate the distribution of your assets. There are 4 main documents in a family estate plan. The first is a revocable trust, the second is pour-over wills for you, or you and your spouse if it's a family estate plan, and the third and fourth are a power of attorney for both of you, and advanced healthcare directive for both of you.
Clayton: So can you talk to me a little about each of these documents, and what they're designed to do? Why these documents?
Cathryne: Yes, absolutely. The trust is the most important. A trust is a legal entity where you hold all your titled assets. Your home, your bank accounts, sometimes even your cars - they should be owned by your trust. Anything that is owned by your trust completely skips probate. So that's a trust.
A pour-over will is your safety net. So we want all of our assets to skip probate, but the pour-over will is your safety net that says anything that is still owned in your individual name pours into your trust. It's also where you outline what you want your guardianship to look like if you have kids. Wills have to be probated - so thinking about your estate plan, if you have a simple will, it's not the most effective way to do everything, but it does point the direction for all your assets to go. So those are the first two.
Where a will and a trust really come into play once you've passed away, the power of attorney and advanced healthcare directive really come into play while you're still alive but you've become incapacitated for some reason. You may have cancer, or you may have some form of dementia or Alzheimers, or you may have gotten into a car accident and you have a traumatic brain injury, right? So if you're incapacitated, your advanced healthcare directive allows you to name an agent to make your medical decisions for you since you can't. It's also where you outline your end-of-life care wishes.
Your power of attorney is similar to an advanced healthcare directive. You name an agent to be able to make your legal and financial decisions for you if you become incapacitated. Now both of those expire when you pass away, but they're very, very valuable to have while you're still living so that people can help you with all aspects of your life while you're going through a hard time.
Clayton: Yeah, that's great. And you know, to that advanced healthcare directive, I think a lot of us think that if we're married, our spouse just automatically can make decisions for us in our health if something were to happen to us, right? I believe that's a common misconception because you need that advanced healthcare directive even for a husband-and-wife relationship. Say a situation arises where something happens to me and my wife needs to make a medical decision for me, that advanced healthcare directive allows for that, right?
Cathryne: Quite right. And it really streamlines the process, because what you have is maybe worse comes to worst and something happens to you, Clayton, and your wife has to make some big decisions. And often times the living will portion of the advanced healthcare directive is where you outline what you want your end-of-life care to look like. If you haven't already designated that somehow, then the weight of putting that on a loved one can be quite overwhelming. They wouldn't be doing what you want them to do, they're doing what they would like to do, and probably keeping you alive in a situation where you wouldn't have wanted to be, right? So if you lay it out then you remove that burden from a loved one, so they can just say, 'I'm doing what Clayton wanted me to do."
Clayton: Yeah, that's a good perspective. That's awesome. So I want to talk about a couple of scenarios. Say I'm fairly young - I meet with a lot of people who are young, maybe they have no kids, is there still a reason for a person in that situation to worry about getting a will, a trust, the whole estate plan package?
Cathryne: Yeah, absolutely. My short answer is, absolutely. Even if you're single. If you have assets over $100,000 - which these days, anybody that owns a house in this area is over $100,000 - you're going to be subject to probate if you die. In order to avoid the chaos of probate, the time and expense and delay that probate brings, and the potentially blind distribution to siblings or parents that you may like or dislike - if you have a trust, you're going to designate where all those assets go. You can skip probate and you have the efficiency of a distribution that you want.
Clayton: Yeah, that's great. So now let me give you a scenario. Say I'm retired, all my kids are out of the house. Why then should I worry about estate planning? I mean, you kind of talked about it with the $100,000 limit, but...
Cathryne: Yeah, and I think that really is highlighted when you think about what probate is. I don't know if we've talked about that yet, but probate is a court-administered process where your estate is identified, it's itemized, and then it's distributed. Now that all sounds nice, but the big problem there is that the court oversees all of it. And if anybody has had some experience with court, they know it's slow and it's expensive. So most people don't like probate because 1) it takes a long time and 2) it's very expensive - much more expensive than an average estate plan is. And 3) assets become a public record. Now, my older clients really care about that right off the bat, when I say 'public record'. They want their privacy. Younger people don't realize why that's a big deal as much, because their lives are on TikTok or something. But it becomes a problem because there are predators that will watch probate, and they see something filed and they say, 'you know what? I'm going to go try to put a lean on that house' - because you have to list all your assets! And it invites predators, it invites the potential for abuse on an estate. So my personal opinion, if we can keep your assets as private as possible, distribute them as efficiently as possible, and avoid as much probate as possible, then you're going to be happy, your beneficiaries are going to be happy, and everything is going to go much more smoothly for your family.
Clayton: Hmm. That's really good, Cathryne. And for me, being a financial advisor, I'm looking at the numbers of it, I'm often weighing the pros and costs, and the cost-benefit analysis and all that. Really the cost of probate - you mentioned this - the cost of probate is significantly larger than just going and getting an estate plan drafted and updated every once in a while. A fraction of the cost. So if your goal is legacy, and you want to leave a legacy for your children and not a burden or a debt or any of that, an estate plan makes so much sense. You pay whatever you pay (depending on the complexity, obviously) but it's going to be a fraction of the cost. It's not that cost prohibitive. In my experience with estate plans, they're pretty reasonable.
Cathryne: It is a fraction of the cost. And some people care about this quite a lot - it provides quite a peace of mind, right? As a mom of a bunch of young kids, if I go on vacation with my husband, my kids aren't with me - every parent has gone through this, right? You think, ok, what's going to happen with the kids, what should I have signed, right? Before I was an attorney, have I signed something down? Who's going to take the kids? How is everybody going to be ok? If you have an estate plan, that peace of mind is very invaluable. From a financial perspective, it's very affordable for most people. Surprisingly so.
Clayton: That's great. Well Cathryne, thank you so much for joining me. We're going to include Cathryne's contact information in the show notes. I'll have my contact information. So if you're interested in learning more about estate planning, or getting your estate planning done, or you want to know how your estate plan fits in your overall financial plan, either one of us would be happy to consult with anyone. Thanks again Cathryne for joining me today.
Cathryne: No problem.
|Clayton Johnson: firstname.lastname@example.org||Cathryne Harrison: email@example.com|