The Smart Estate Plan, Part 2: What to do with the Money

In Part 1, we covered the basics of your will, including guardianship and execution of the will. Now let’s get into how to handle the money.

Here’s the reality. Premature death by a spouse is usually a devastating event for people. First, they’re overwhelmed, then disoriented, depressed, confused, lonely. Children are acting strangely, impacted by the event in ways that neither they, nor anyone around them can understand. On top of this, there’s only one person caring for the kids now, and maybe they have a job that’s asking “when will you be back?”

Does this seem like a time when you’d want your spouse having to deal with the complexities of the finances and investments? No.

Now picture this, your spouse suddenly, within weeks of your death, has $2M, $3M or $10M sitting in their checking account.

Maybe they never handled the bills.

Maybe they never handled the investments.

You expect them to handle this well? I’m sure you think your spouse is smart, level-headed and can learn quickly right? But remember, they just lost the love of their life, partner, father or mother to their children.

What’s going to happen when they go to the bank and talk to the teller? “Mrs. Smith, I see you’ve got quite a large account with us suddenly. Would you like to meet with Matt, our investment professional?” Compelled by the itch to ‘get the money working’, might they invest with this person?

What about that old friend who has always had that great idea to open a combo taco stand-nail parlor and now finally has friend who has the money to fund it? Think there might be a financial mistake made here?

What about when your spouse eventually is ready to date, and meets someone. Is it good for that person and your spouse to both know in the back of their minds that millions of dollars are in the bank? Couldn’t that make things weird? Won’t that cause icky conversations like a pre-nup to be discussed at some point?

Not to mention if they got deeply involved, married this person, realized it was a mistake and divorced; guess who could get a good piece of your money?

What about if the circumstances of your death, say a bad car accident, was your fault, and your estate is facing a lawsuit.

OK, enough already…what am I getting at?

Getting the money outright vs getting it in trust.

Now imagine this scenario. You died. Your spouse called the lawyer, financial advisor and insurance agent, as mentioned in Part 1. They help process beneficiary claims, transfer accounts and process life insurance payouts.

But the assets DO NOT go into the checking account, they are automatically invested, and all the bills get paid, starting immediately.

There is no pressure to start handling the finances.

There is no pressure to “get it invested”.

The money is shielded against any lawsuits or creditors.

Since it’s not in your spouse’s hands, it’s not available for any creep to get a hold of, even if there’s an emotion-driven relationship mistake made.

What am I talking about? The smart way to handle the assets after death. Having as much as possible paid directly into trust for the benefit of you spouse (and kids).

How does this work?

Step 1: You get your wills done (see Part 1.) and include a “testamentary trust” provision.

Step 2: You agree on who will be the co-trustee, along with your spouse, of the trust.

Step 3: You inform that co-trustee and ask them to accept the responsibility.

Step 4: In the event of your death, the co-trustee carries out the process of investing the money, paying the bills and supporting the beneficiaries.

Pro tip: Caution against naming your brother, financial advisor, accountant or pastor as the co-trustee. There are all kinds of problems with this. They get old. They may not be qualified to do a good job. They may be prone to conflicts of interest. 

What should you do? Pick a professional trustee. I prefer a trust company.

Trust companies have the highest level of responsibility to manage the investments appropriately, distribute the funds according to the trust document, prevailing customs and law precedents, and are impartial. And it won’t cost you more to employ them in this role. They charge a similar fee, based on assets in the trust, as advisor would. Trust companies don’t get old, they’re qualified to do a good job, and they don’t have personal, potentially uncomfortable relationships with the beneficiaries.

What about control?

Ah yes, that comes up all the time, and here’s what I tell people: Anything GOOD your beneficiary could do with the money in their possession, they can do with it in trust.

All their costs of living will be paid for. Housing, education, clothing, travel, health care, and “others”, in line with the lifestyle they are used to. They could start a business (after a real business plan process has been completed). And beneficiaries are ALWAYS entitled to 5% of the principle regardless.

But if there’s ever a problem, your spouse or children can have the right to fire the co-trustee at any time.

All the potential problems are avoided. It doesn’t cost more. It’s the right thing to do.

I always tell clients your will is not about you, it’s about how you leave the situation behind for the people you love. Do you want to add stress to an already awful situation or make it as stress-less as possible? Do you want the process to be difficult or easy? Expensive or inexpensive?

Consider having your assets paid into trust, and your family will thank you.

Let’s do it!

 

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