Episode 21

Transcript

Alanna Guy: Welcome to the latest episode of Frantz Ward's podcast series, Shoveling Smoke. I'm Alanna Guy, an attorney at Frantz Ward, and I'm hosting today's discussion with my friend and colleague Rick Humiston. Rick is also an attorney here at Frantz Ward. He focuses his practice, advising clients on the full spectrum of estate planning, charitable and other gift planning, educational fund planning, and estate administration. Today he's joining me to talk about some of the basics of estate planning. Welcome to the podcast, Rick.

Rick Humiston: Thanks, Alana.

Alanna Guy: I think we should start out by painting a picture for our listeners. For those of you who don't know, Rick is a powerhouse on the sand volleyball court. Not only am I lucky enough to have Rick as a colleague, but we're also teammates in our sand volleyball league, and let's just say at six foot five, he's definitely one of our most valuable players. Rick, how long have you been playing? I know we poached you for our team just last year.

Rick Humiston: Yeah, I've been playing for about 10 years now, although I'm not sure how much I've really improved over that time, but it's a good playing with you guys and it's always a good excuse to get outside and see some friends during the week.

Alanna Guy: Yeah, I agree. I can't speak to your improvement over 10 years because I didn't know you 10 years ago, but we're pretty happy with you as a new addition to our team. Okay, before we dive into some of the specifics, can you generally give us an overview on what you mean when we're talking about estate planning? I know that before law school, I really only thought about wills and then maybe also trusts.

Rick Humiston: Absolutely. So, generally speaking estate planning is the creation of a set of documents to manage a person's assets should they become incapacitated or pass away. It also refers to the creation of documents called advanced directives which indicate a person's wishes for their personal care if they become incapacitated. There are many different ways to set up a plan and the type of estate plan one needs is generally driven by a number of factors. You would look at marital status, the size of your family, if you have any family members with special needs, income, and the extent of your assets, among others.

Alanna Guy: So, really an estate plan should be very tailored to the client and be specific to their needs and circumstances, and that it's not a one size fits all where you can just fill in the blanks with names and dates. And that's something our listeners have heard me say a few times before on this podcast with one of my co-hosts, Chris Koehler.

Rick Humiston: That's right. Every plan is going to be different. Most will involve wills, living wills, powers of attorney, and potentially trusts, all tailored to the specific needs that we just discussed, and that's where most people want to and should start. Depending on their circumstances, we can work our way up from there.

Alanna Guy: Okay. So, if a client comes to you with absolutely no estate plan, what are some of the basic documents you're talking to them about, initially?

Rick Humiston: So, probably the best place to start is the last will and testament. This is a document that says who gets what when you pass away. You have the option to name alternates, if you wish, and then you also name an executor, whose job it is to make sure that the will gets carried out when you pass away.

Alanna Guy: Okay. So, then what about if someone does pass away without a will?

Rick Humiston: So, when someone dies without a will, they are said to have died in test state. In that case, the local probate court is going to appoint an administrator of the estate. The duties of the administrator are similar to those of an executor with the exception that an administrator must follow more defined instructions of the probate court and must distribute the property in accordance with the law rather than by the terms of a will. So, usually the administrator is going to be the surviving spouse, but if there isn't one, then it's next of kin, and they need to be an Ohio resident. So, if there's no surviving spouse or next of kin that's a resident of Ohio, or if the court finds that they're unsuitable for any reason, some other suitable person is going to be appointed as an administrator. And because there's no will indicating who gets what, the court uses the statute of dissent and distribution, which we also call the intestacy statute, to determine how the assets will be distributed. Generally this favors those most closely related to the decedent and then moves down the line from there. So, a lot of people don't like the idea of a statute determining who gets their property, so this is one of the main reasons that's a cause for people to come to talk to us about starting to think about estate planning.

Alanna Guy: That makes a lot of sense, and I can imagine that it's a highly stressful time for everyone involved when there's no will. I know we were previously talking about how Prince died without a will, which seems like a good case study. So, with an estate that large, I imagine that's a total nightmare for the family to deal with.

Rick Humiston: Absolutely, and I really just sort of followed up on this because he passed away in 2016 and this is still going on. He had a large amount of assets, including a lot of unreleased music, and so by not having a will, he ended up not having a say in where any of these assets or royalties went and it's still a big headache for his family to this day. So, I think the point here is if you'd rather it be you that decides who receives your assets when you pass away rather than the law, and if you want to make it easier on your family, then you want to have a will.

Alanna Guy: Man, a cautionary tale. So, assuming someone is proactive and has a will, what are the steps that are actually taken when they die?

Rick Humiston: Yeah. So, when a person does have a will, the will usually gets filed with the local probate court who then checks to make sure that it's valid, and if they determine that it is valid, it appoints an executor or an administrator, usually following the recommendations of the person who passed away and then the executor or the administrator carries out their responsibilities, generally seeing that the estate is properly settled according to the law and according to the terms of the will.

Alanna Guy: That sounds like a much more streamlined process, and based on what you were telling us about Prince's situation, it sounds like it's definitely a smoother process for the families as a whole when the deceased has a will.

Rick Humiston: Absolutely, because you're going to have less contact with the court, you're going to have less time and expense for your errors than the executor, and you have more control over who receives your assets.

Alanna Guy: That makes sense. So, now that we've covered wills, what are some of the other components of a basic estate plan that you would discuss with a client during an initial consultation?

Rick Humiston: So, usually the next thing we talk about is what's commonly referred to as the advanced directives, which is generally three documents: your living will, your healthcare power of attorney, and your general durable or the financial power of attorney. The purpose of a living will is to document your wish that life sustaining treatment be withheld or withdrawn if you're in a terminal state or a permanently unconscious state. And so, here you're not giving anyone the authority to make those kinds of decisions for you. You're saying, "this is what I want to happen to me if I find myself in that situation." And that's a little bit different than the healthcare power of attorney, the other document, which enables you to appoint someone to make those other medical decisions for you on your behalf in the event that you can't make those decisions for yourself.

Alanna Guy: Right, and then there's the obvious situation of someone being incapacitated if they're in a coma, but what are some of the less obvious situations that would be applicable here?

Rick Humiston: Yeah. Really could be any situation where you're unable to communicate your wishes. So, maybe you're intubated after a procedure, or you have some other sort of medical episode that prevents you from making decisions for yourself. There's a lot of ways you could find yourself in that situation. This situation also applies to the last document in this area, which is the general durable power of attorney or the financial power of attorney. This is the one that says who can handle your financial matters for you if you're unable to do so for yourself. So, for example, this might be who could write a check for you, make a deposit at a bank, pretty much handle any financial matters for you, if you can't do it for yourself. All of these can be changed or revoked by you at any time, as long as you're competent to do that, but I think the most important thing to think about in this area is, who do you trust to make these decisions for you? Because you need to trust that the people that you name are going to act for you only when you would want them to, and only in your best interests.

Alanna Guy: Got it. That makes a lot of sense, and it really sounds like an important decision for people to think through very carefully when they're creating their estate plan. Now, before we start chatting about business succession planning, which is my favorite aspect of today's discussion, can you talk a little bit about what a trust is and some of the reasons why a trust might be the preferred route to take while creating an estate plan?

Rick Humiston: Sure, and I think it's important to start here with an explanation of what a trust is. Frankly, this is an area we could probably take up a few more episodes on this, but I just wanted to give a brief overview of how trust work to start. So, generally a trust is a vehicle that's used to hold and manage assets both during one's lifetime and after one's death. A lot of times the creator of the trust, called the grantor will also be a trustee, the person managing the trust, but sometimes the trustee will be a spouse or a trust company, just depending on the circumstances. There are a lot of different types of trust that can be created based on your situation and what you're trying to achieve. Probably the most common type of trust is a revocable trust, which we also call living trust, which is a type that can be changed or revoked by the creator or the grantor. These types of trusts are popular because the grantor keeps all the benefits of any property placed into the trust for the rest of his or her life, and when you use this in conjunction with a will, there could be a lot of benefits.

Alanna Guy: Okay. So again, several choices to pick and choose from as you're creating the overall plan with the client. So, that's really the what, but talk to us a little bit about the why somebody might choose to go with having a trust.

Rick Humiston: Yeah, there's lots of advantages. First would be to avoid the probate process. Property that's in a trust is not subject to the jurisdiction of the probate court after you pass away. This is something we focus on a lot here at Frantz Ward, trying to avoid the probate process as much as possible. Another advantage is lower costs. In a probate administration you have court costs, appraisal fees, executors commissions, attorneys fees. A trust is not going to bear many of these costs. You also have the privacy element. The terms of a will become a matter of public record once the will has been filed with the probate court. Trusts are usually private documents, and so the administration of a trust is generally not made public. That's attractive to a lot of people. Another big advantage is the control of assets. So, trusts can provide estate management for your family after your death, and the trustee has increased independence relative to an executor. They can have a little more latitude to do what they need to do. One of the areas where that shows up is in speed. A trustee can begin making distributions to beneficiaries right after the death of the grantor, whereas an executor has to wait until the probate court appoints them to do that. And then lastly, depending on how the trust is written, it can help reduce or defer estate taxes. So, those are some of the big advantages. There are many different kinds of trusts that a person might want to consider. We'll save the rest of those for another day, but I think what's important to remember here is that there's many strategies to accomplish many different goals, and so it's really just important that you discuss what those are with your attorney and the two of you or your group develops a plan that works best for you.

Alanna Guy: I like it. You're setting yourself up for another podcast already.

Rick Humiston: Right.

Alanna Guy: This is good news for me. All right. So, clearly the theme of tailoring documents to client-specific circumstances is something we've mentioned today, and also several other times on this podcast as it's something that's a core value of our colleagues and as our firm as a whole. It's obviously no different with an estate plan, as you were just talking about. Rick you've told us about many different options and avenues for people to take, which is why sitting down with somebody like you to understand each of those options and then to decide what is best for their family is really very important and, from what I see with my practice, the intersection is particularly important when business interests are involved. So, we already talked about, Rick, how you and I are teammates on the volleyball court, but professionally, one of the ways that we get to work side by side, being in different practice groups, is in the business succession planning context. Rick, I know this is something that we get to talk about and we get to bounce ideas back and forth with each other, but can you talk a little bit about the role that you play with clients who want to adopt a buy-sell agreement or clients that want to incorporate a business succession plan?

Rick Humiston: Sure. For business owners, estate planning can also include business succession matters, which usually includes strategies to transition a business to the next generation and other exit strategies for the owner.

Alanna Guy: It's tough because not everyone wants to be thinking about their business when they're no longer around to run it, but this is really a very important topic to be talking with our clients about.

Rick Humiston: Yeah, you're absolutely right. Just like with a will, it's a little bit of extra planning. You can save your family and your employees a lot of grief down the road. Probably the most common planning we do here is a buy-sell agreement. This can be beneficial if a business owner or their partner dies or wants out of the business. So, it identifies how the business should be valued, how a buyout will be funded, payment terms, and any other details that might relate to the departure of an owner. One big area where we see this supply is, oftentimes, business owners agree that they don't want to be in business with their partner's spouse or children or some other relative if one of them passes away, and so these kinds of agreements protect the deceased partner's family and the employees of the company, really. Pretty much what it boils down to is just having an extra piece of estate planning in place, tailored to the needs and goals of the business and the business owner.

Alanna Guy: I couldn't agree more and, really, these are delicate, delicate conversations to be had, but the benefits to the family, the company, the employees, et cetera, are important enough to justify having that difficult conversation. All right, Rick, we always like to leave our listeners with a few takeaways. So, what do you have for us today?

Rick Humiston: Yeah, so first and foremost, I would say everyone should have in place a last will and testament, healthcare power of attorney and the financial power of attorney, and possibly a living will, no matter their age or what level of wealth they have. I think in certain circumstances, a trust might also be beneficial. Each person's circumstances will be different, and so it's important to talk with your attorney what the best course of action is there to accomplish your goals. And then, finally, if you own a business, it's also important to consider a buy-sell agreement in order to plan for the eventual departure of an owner.

Alanna Guy: And to recap, have some estate plan, even if you start simple. Tailor that estate plan to your particular needs and the needs of your family. And lastly, if you are a business owner, make sure your estate plan includes and incorporates your business. That's it for this episode. Thanks for joining us, and we look forward to our next discussion. Shoveling Smoke is a production of Evergreen Podcasts. Our producer and audio engineer is Sean Rule-Hoffman. Thanks for listening.