Nothing exposes your wealth to the world as quickly as the court system as evident by recent celebrity divorces. While you can’t necessarily protect yourself from people filing lawsuits, you can avoid the most public court of them all, Probate. But even having a Trust will not necessarily keep all private and there is more to it.
“There are two major items to protect when it comes to public exposure, your wealth and your potential incapacity,” according to estate planning attorney Gamble Parks of Fell, Marking, Abkin, Montgomery, Granet & Raney, LLP. The name of the game is “avoiding conservatorship and probate which can be accomplished with properly effective Powers of Attorney (POA) and health care directives to go along with a Trust,” Parks goes on to say.
People generally start their planning with a Will, but since that does not protect privacy from the court system, they usually implement a Trust. While the Trust avoids the probate court you can also accomplish that by holding ownership in assets under “right of survivorship” title or pay on death accounts. So how does one recognize potential issues ahead of time and where to plan?
Out of Date Power of Attorney: People often times implement estate planning documents as they head into retirement and then forget about them. As people age, so do their named Trustees and power of attorneys for such things as health care and financial decisions. If the people named in the documents are no longer alive, unwilling or unable to step in when needed, court intervention may be required.
“It is a given that documents should refreshed to reflect intentions and the responsible parties to follow, but outlining triggering events to determine capacity is paramount,” according to Parks. From time to time we see situations where the estate is “stuck.” This usually occurs when a person is no longer capable of handling their affairs and while it is clear to family, friends and advisors, the person may see things differently. If they are unwilling to relinquish control, sometimes it comes down to a court order which is just something all want to avoid.
Beneficiaries: If someone or entity is a named beneficiary in a Trust, even for a small amount, they are entitled to a copy of the document and the details of the estate. While your privacy may be protected from public view that does not mean that others are not privy to your entire financial makeup. “If someone wants to name a charity as a beneficiary of the estate and keep their assets private, a great way to do that is via their IRA accounts,” according to Parks. While they are privy to only this one account, the charity also avoids the income taxes associated with IRA.
There are other accounts and structures that avoid probate and that can be singled out from the rest of the estate. These are generally in the form of annuity contracts, life insurance policies and pay on death (POD) accounts, all passing by beneficiary elections tied to those accounts.
Improperly Titled Assets: Getting a Trust drafted is one thing, but making sure it is properly funded is another. During the refinance process is has been common for banks to request the property be removed from a Trust (in essence they don’t want to deal with ownership other than you). “Some people forget to put the property back in the Trust after the financing takes place,” according to Gamble Parks.
The key to keeping your financial affairs private really resides with how your own your assets, who is in charge after you are no longer able and who has the legal access to your information either by choice or by requirement. Gamble Parks reminds us that “many issues are avoided by having current documents that are properly funded and clearly outline triggering events that name people you trust to carry out your wishes.”
Authors’ Note: Seth Streeter, MS, CFP® and Brad Stark, MS, CFP® are Co-Founders of Mission Wealth Management, LLC (MWM), a Registered Investment Advisor. Seth has been recognized by Worth magazine as one of the nation’s top wealth advisors and Brad is listed in the top 100 Independent B/D Advisors . Brad is also an adjunct professor of finance for California State University CI Campus, MVS School of Business and Economics. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Advisory services offered through MWM. Securities offered through National Planning Corporation, Member FINRA/SIPC. NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. The authors can be reached at email@example.com.