Fred Arnold, a mortgage professional and host of Out of the Rough, interviewed me about trusts and estate planning. As a mortgage professional he sees many customers whose properties are not in a trust. Below are his questions and my answers.
What is estate planning?
Estate planning is a legal toolbox that you, your family or your loved ones can use if something happens to you. What if you cannot handle your own affairs because you are in a coma, sick or in the hospital? Who handles your affairs after you pass away? How will your belongings, real estate and accounts pass to other people, in what manner, and who will be in charge? No matter how much you own, $50,000 or $50 million, you need a plan. The trust is one of the documents in this toolbox.
Why do people put it off?
It is uncomfortable to talk about and easy to put off, but it is critical and relatively inexpensive for what you get. If you think about what the cost might be at the back end if you do not plan, doing it is a bargain.
What are the "big four" documents?
The living trust.
The hammer in the toolbox.
The will.
People ask why they need a will if they have a living trust. The will is a backup to the trust. If something does not get into your trust, say you forgot to change title on an asset, and you end up in probate court, the will tells the judge to put everything into your trust. If everything is properly titled, you will not need the will. Specific gifts, such as "my vase goes to my cousin Joe," belong in the trust, not the will.
An advance health care directive.
It puts someone in charge of your health care decisions if you cannot make them. Most people assume their spouse automatically has this authority. That is incorrect. Someone needs legal authority to consent to surgery, get your medical records, move you from one facility to another or decide about life support. With a directive, if anyone disagrees, you do not have a stalemate. It matters even after an accident from which you will fully recover, because someone has to make decisions right then and there.
A durable power of attorney.
You name someone to act for you in virtually every other circumstance. That person can talk to your lawyer, financial professional, loan officer, your former employer's HR department, the people managing your pension plan or IRA, and your credit card companies.
What is probate, and why does it matter?
If my wife and I pass away, our assets do not magically go to our children. No rainbow comes from the sky and makes our house go to our kids. My kids cannot just sell the house, because they do not own it. A judge has to say, "This is your house, these are your accounts, this is your money." That process is called probate.
Is it expensive?
It can be. It is based on the gross value of the estate, not the equity. For example, statutory fees on a $700,000 home are about $17,000 for the attorney and the same for the executor, around $34,000 in total, before court costs and other expenses. Sometimes people walk away from assets because going through the process does not make financial sense, and the mortgage payment is still due during the one or two years in court. Who pays it?
How does a plan protect children?
Fred has four children, and asked about family members who might want to look after the kids for the wrong reason. You can name guardians for minor children and say whom you prefer. For life insurance, my policy is not payable to my children directly.
No way, because I know what a teenager would do with the money. It is payable to the Mansour Family Trust, and my trustee manages the money for my kids and gives it to them at appropriate ages for appropriate reasons, such as school. In the trust we can also design protection so that if my kids divorce, have bankruptcy trouble or credit problems, the money is safe and they do not lose half of it.
Can I just look this up online?
You can find information online, but it is critical to go to a professional.
How can people reach you?
Visit mansourlaw.com (Mansour is spelled M-A-N-S-O-U-R) or call 661-414-7100.