Estate Planning
From The Orange Couch

Robin: Hi, this is Robin Tull, and we are coming from the Orange Couch that you’ve become accustomed to where we talk about financial planning subjects. Today I have a friend of mine for 40-some-years, believe it or not,.on the Orange Couch and I get to ask him a lot of questions, so I’m really excited about this.

Doug and I started a long time ago when we were both working for a nonprofit organization. He was the attorney, and I was the Area Director. I would meet with individuals and talk to them about their giving, and then I’d pass them to Doug for their estate planning. Fast forward to today, and we’re doing a lot of that still, aren’t we, Doug? 

Doug: It’s kind of amazing, all these years, we’ve both really worked hard to build teams that provide a lot of value to our clients. We still have that team concept. You and I worked as a team back then in a different venue, and we’re doing the same thing now. We have different roles, obviously. I’m on the legal side; you’re on the financial management and investment side, but we work very closely together, and we’ve always done well together that way.

Robin: When it comes to estate planning, I always have been told, and I tell clients, if you don’t have a will, the state of Virginia does one for you. That’s really the truth, isn’t it?

Doug: Absolutely. and people don’t realize that. A lot of times people assume everything’s going to go to their kids or spouse. However, it really depends on a lot of different factors. If you don’t have a plan that you put in place yourself, then the Commonwealth of Virginia already has a statutory scheme that allows distribution, depending on the situation, to individuals you may not even want to receive anything.

Robin: Let’s break it down practically for people that are watching this Orange Couch video. Let’s start with the estate plan. You always hear about powers of attorney, which is for an estate plan while you’re still living, correct? What are the things you need while you’re still alive?

Doug: That’s a great question. This is one of the things that most people don’t think about because when we use the term, “estate planning” everybody thinks when I pass away, I need to have a plan. I need to set in place who receives my assets, and I also need to have an executor or trustee appointed. What we forget about is what I consider one of the most important parts, and that’s what if you are incapacitated during your lifetime? 

One area where that really stood out to me was during COVID. We all heard on the news how people were not being able to go in to see their loved ones while they were in the hospital, and people were passing away in the hospital without anybody there. Part of that was because of the disease, but a large part of that was because they didn’t have legal access. There wasn’t a power of attorney allowing the doctors to talk to that person. There wasn’t a HIPAA authorization allowing those people to have conversations with the medical professionals. There wasn’t an advance directive. So legally, the medical professionals could not allow them to be a part of the process, which in retrospect is really sad. We tried to get into court to get judges to appoint agents for those folks, but the courts closed. So without the courts and without the powers, we had a big problem.

Robin: Doug and I both serve on the board of a local hospital, and we both know that those hospitals are requiring medical directives, right? So there’s two types of – could you explain what a medical directive does?

Doug: Yes, in Virginia there are three different things we deal with: One is who are your decision makers? We deal with that in a medical power of attorney. The other thing that medical professionals are concerned about is HIPAA authorization, which just identifies not only your decision makers, but other people who you might want to include in receiving any information about your care.The reason the medical professionals are concerned about that is because if they share information with anyone else, it’s a $500,000 fine, and they lose their job. The third one is often misunderstood, but we call them Advanced Medical Directives. They deal with end of life. At end of life, sometimes people are in a situation where internal organs have shut down, and they need to be on artificial life support. If they don’t have that heart-lung machine operating on their behalf, it’s questionable as to whether they would survive. The question is: who pulls the plug and when?

Robin: I have to tell you, just from a personal standpoint, it sounds like something for other people, but I actually had to make that decision with my father. It was very, very difficult. So let me just tell you, do it in advance. That’s the key word. Because you don’t want to have to go through that if you’ve not thought it through with your parents or your spouse. It’s a very difficult decision to make, but if it’s been made ahead of time, it makes it a lot easier than it did for me.

Robin: Let’s now transfer into that subject that’s a little more important, and that is what happens if I die? Property passes three ways: by contract, by law, or by will. An example of contract would be a life insurance policy where you name the beneficiary. Automatically, it goes to that beneficiary. An example of law would be joint ownership with right of survivorship. If I own a house with my wife, Cathy, and I pass, the house goes to her. A lot of things occur in those two areas. Let’s talk about the third area – a will.

Doug: The challenge for everybody is to understand what’s the best for me. What’s the best plan? So that’s why we sit down and talk through it. Every family is a little different. They have unique objectives, priorities, and concerns. Is a will appropriate? Is a trust appropriate? Is a transfer-on-death designation appropriate? What’s the best for that particular client? Depending on the client, that’s where we’re going to end up going.There’s some real distinctive differences. Transfer-on-death designations avoid probate, assuming the person you designate is still alive at your death. Wills do not avoid probate, and that’s commonly misunderstood. So if you have a will, you’re going to go through probate, which in Virginia means a one-year delay in distribution, a cost of probate, and it’s public record. Those are some of the things that we talk about.

Robin: Doug, and I recently had a friend and mutual client who passed, and we experienced that. I was helping the spouse, and pretty much everything had been put into a trust, but there were a couple of other assets that weren’t. What we’re finding – and you could explain this – is that we’re looking at a delay to get access to the money. We’ve got to go through the local clerk of the court, and wait a year. Why is that?

Doug: This particular client had a trust, but didn’t fund it. They didn’t put the assets into the trust, with the exception of a few things. In this case, as you’re saying, we’ve had to experience a particular asset that went through that probate process. The reason it has to wait a year is because, by law, creditors have an opportunity for one year in which to file a claim. So the courts don’t really want assets being distributed out to beneficiaries until that year has passed.

Robin: Let’s get really practical. When is it that I need a revocable living trust? When is it that probably a will will suffice? I get that question all the time.

Doug: That’s a great question, and it all depends, right? What’s interesting is it doesn’t depend on the law so much as it depends on the client. Some of our clients have relatively modest estates, but they still want a trust because they don’t want their children to have to go through that probate process. In general, we can use transfer-on-death designations and that type as a way to get assets to beneficiaries in smaller estates. So generally, we’ll look at that. What I like to look at is: do they have real estate? Do they have real estate in different cities? People don’t realize if you have assets in Chesapeake and Charlottesville, Virginia, you’re going to have probate in both cities – never mind different states. If you want to avoid probate in different states, you should have a trust. If you have business interests, you should have a trust. If you have blended families or children from a prior relationship – very important, very complex, very difficult – but a trust is really, in my opinion, the only vehicle to really help in that kind of situation.

Robin: I have seen over the years it’s easier to transfer from a financial planning standpoint. It’s easy to transfer to the spouse. It’s easy to transfer to the kids that are inheriting the money. You don’t have to go through the court system and the clerk of the court. You don’t have to wait. The money is right there. From our standpoint – the financial planning standpoint – the revocable trust is a way to go.

Robin: The final area I want to touch on that I see on a regular basis is that surviving spouse. So many times, that surviving spouse has children – adult children – and those adult children sometimes have needs themselves. I always encourage that surviving spouse by saying, “Look, your needs come first. You’ve got to take care of yourself.” That’s an area of protection. How do you protect that senior aging parent today?

Doug: Great question there too, Robin. We see the same thing in our practice all the time, and it gets a little bit complex sometimes. For the most part, it all comes down to how you structure your plan. If you do a plan in advance, you can actually plan for the protection of surviving spouses and also for children and other beneficiaries. We do that by creating what I call a sub-trust. If it’s to a spouse, it might be a marital trust that can’t be changed. It’s irrevocable, but depending upon the plan, that surviving spouse can either have complete access or restricted access. Then you appoint somebody independent—sometimes, not always, it’s the spouse—to be the trustee to oversee it. So that’s very, very important.

Robin: It’s interesting. You can all see that we could talk about estate planning for a long time because we’ve been doing this so long, and we’ve known each other so well. We trust this information was helpful. Please send us questions you might have, and we’ll do it again.

Robin: Doug is coming in and doing a workshop on Thursday, December 5th. We have it here upstairs, if you’d like to come. It’s about protecting your family’s legacy. I’m really excited to have him. He’s just an excellent attorney –worked with him for many years. Doug, any final thoughts you’d like to share?

Doug: I just appreciate working with your team so much. You’ve got a fantastic team. It’s good to see 40 years prior when we used to talk about this, and now, sure enough, you’ve built that. Thank you for listening. Please give us a call.