The People Behind the Plan with Derek Jensen

Estate planning is more than trusts and documents. It's about people, values, and the future. In this episode, Derek shares the unexpected lessons from a career of guiding families through wealth transitions. What makes a good trustee? When should you talk to your beneficiaries? And what happens when the plan looks perfect on paper but the people aren't ready? Derek explores the real responsibilities of a fiduciary, the rise of incentive and wellbeing trusts, and why the conversations you have today matter more than the provisions you sign.

Learn more about Who Gets What?: https://whogetswhat.fm/ 

This podcast is presented by Jensen Estate Law and produced by Marguerite Productions.

Transcript

SPEAKER_00 0:01

Hi, I'm Derek Jensen, a state attorney and host of Who Gets What. I was having a conversation with one of the other attorneys in the office, and she shared with me that she'd recently met with a client who had been listening to our shows and was ready to take all kinds of action. Which kind of surprised me a bit because so far

The Impact of Inheritance

SPEAKER_00 0:21

in our episodes that have been released, we haven't really talked about here's your action items to go do. And I'd like to start today by going into some of those, what can you do at now to take action on these subjects. It reminds me actually of a conversation I had today with a client, and they were telling me about their daughter and their daughter not being quite ready to inherit. And inheritance is one of those things that it really impacts the beneficiary. It changes them. It can also change them if they they know that it's coming, but they're not involved in that. I had an experience early on that is always something that I remember and I go back to as a bit of a touchstone. And I was a pretty young attorney at that point. But I was called in to draft some very complicated documents for a very wealthy man who was older and dying and had uh had children

A Complicated Estate Plan

SPEAKER_00 1:16

from a prior relationship. The planning was done entirely by himself for them, and he didn't involve his family at all in this. And that felt kind of wrong to me at the time, but I was being brought in by these advisors, and it was all pretty much dictated this is the way it was going to be, and he was the kind of person that was very uh set in his ways. And so I didn't really have a lot of opportunity to kind of counsel and and bring him back and to discuss different issues. So during this meeting, I, you know, we we came up with the tax plan, and the tax plan was perfect. It made perfect sense for his situation and was going to save his family millions of dollars. It was also fairly complicated and required, you know, multiple parties to be involved, trustees, trust protectors, and the like. Uh and again, the family wasn't really involved other than in the beneficiary role. We finally got the plan done, we did all the pieces, and eventually he did die. Things started to go south from there. If I do have a story in my career where there was this question

Family Dynamics and Estate Planning

SPEAKER_00 2:17

of this drama that was going on uh that might be movie worthy, this might be it. I remember having a conversation at a family meeting after his death with one of the daughters. And the daughter's position was, well, we didn't even get a reading of the will. And I that took me completely back. I was like, a reading of the will? What do you what do you mean? And so she had this fictionalized vision of really what estate planning was going to be or what the death of her father was gonna be as far as my role in it, uh, and that there would be this, I don't know, ceremony where a uh you know the the cherished will is coming out and it's being unfolded and presented and and read and and it was going to tell them something, you know. Uh and what was it gonna tell them? You know, that was kind of the question. So I had to ask, really, you know, well, you know, we've we've had these meetings, I've I've explained how the estate plan works, I've shown you the different provisions, et cetera, et cetera. I've let you answer ask all your questions, I've answered as many of them as I can. Uh, you know, what is it that you're really looking for? What would this reading of the will be to you? And and she said, I want to know that I mattered to my dad. And I was like, oh my God, that just stopped me right there, because that wasn't in our documents, you know. That isn't from my perspective, that's not something that we would have in there. I mean, our documents are very technical. They have the tax provisions that are needed, needed, everything that's needed to complete, you know, the structure of this. But what she really wanted was that that affirmation of her existence, of her importance to her father. I had to say, well, that that's not really what we have here in our documents. But it was really sad because it it showed that they didn't have that kind of a relationship where uh she knew his her value to him, where she knew about his estate, his assets, uh, where they really had you know a close bond there. And so that this was really a jarring event to lose dad. There wasn't a real a real smooth transition, and there wasn't going to be. And unfortunately that you know that case did end up in litigation. But that was kind of a a very much of an eye-opener to me. Planning itself is just the documents,

The Role of Trustees

SPEAKER_00 4:34

it's what's written down on the paper. And we can get into all the details, and people can have a significant amount of planning and ideas. They can come in and tell me, well, I you know, I want to rule from the grave, which is an interesting concept. But uh ultimately, you know, the the family and the people that are there are going to have to live with whatever your planning is. And it's I think it's a little bit unfair to expect that somehow uh you know these these documents are going to be able to do or create something uh after your death that didn't exist prior to your death. And I have an example, though, of one time where that did work for us. I had a client who they're a fabulous couple. They had uh owned businesses, worked internationally, uh traveled with their children, and so they lived a very high lifestyle. Uh unfortunately, addiction was part of what happened for their children. And so they knew this about their kids, that they had these issues. Even in you know, in their midlife, so in their their 40s and their heading into their 50s, this was still an issue. And they'd been trying to deal with that as a family, but really there wasn't much we could do. And so there they came to me really hopeless uh and and wanting to talk about really disinheriting uh their only errors because of this issue, which is a very drastic solution and not something that we want. We want to find a better solution. And so we came up with very complicated language that involved what I might call drug and alcohol provisions, and it would require the uh the children to submit to urinalysis to see if they've been been drinking or on drugs, and it also permitted uh use of funds to pay for some rehabilitation. But there was a there was a bright line in there. There was a tough love line in there where if they they couldn't figure it out in a reasonable amount of time, that they would actually lose their inheritance. And it was very, very much difficult provision to have in a document like that. I encouraged them to share that provision with their children during their lives, and they and they actually did. And for a period of time, at least for one of the children, while the the mother was still alive, the child was able to kind of get themselves clean and sober, and and I think it was making a difference for them. But after their death, boy, the the old habits kind of came back. And so what was important in that case is who we named as the trustee. And they happened to have a very close family member who knew the situation, knew the kids, and knew how to deal with them. And, you know, uh his solution was to have them come and meet him for breakfast. He could tell right away if they were using or not using uh when they they came in for breakfast. And he was strong enough that that he could have the tough love and have the tough line there for them that really their parents never could. And so in in this one situation, we were able to see an opportunity to hopefully improve the the children's lives. And I can say that they were able to uh you know get through those problems and kind of get to a spot where um they eventually did take that inheritance, take it over for for themselves, uh manage it themselves, and were able to get benefits. And they also, you know, during the administration, uh, there was funds being used to pay for rehabilitation and get them cleaned up. So I I you know I haven't checked in with that family in a long time, but my hope is that they're still on a good path and that that language made a difference. But it it illustrates really the fact that, you know, we're we were there's a big lift really for those documents to be able to do something to that maybe the the parents couldn't do during their life. And so that's uh that was what was remarkable about that. But this is kind of the experience, you know. So we're looking at the different types of documents, we're looking at the different types of roles. And whenever we're talking about uh from the legal documents perspective, what we want those provisions to be about, I like to think that there's really um you know three roles that we have for that fiduciary. When we're thinking about trust, obviously the fiduciary is a trustee, but the three roles come down to uh the first one is going to be really just keeping track of all the books. It's your it's your accounting, it's your bookkeeping, uh, keeping those records all straight. And there's certain mentalities and certain personnel that are, you know, people that are very capable of doing that. The second is going to be uh investments, making investment decisions. And this could be just working with your financial advisors, or it could be making decisions about selling property, real estate, homes. It could also be uh selling a business or managing a business. But it's you know, it takes a different different set of tools to do that too. And then finally, there's going to be the trust of the provision that is uh in charge of making those distributions. And their job is really to follow the rules that we've put into the document. So if we've put in there that, you know, to pay out all income, then that's what they would do. If we we have more discretionary distributions, or if we have any kind of specific guidance in the document, that's what they're following. So those are kind of the three roles of the trustee. Uh and sometimes the, you know, it's very common actually for the clients to want to put their their children in this role as trustee, um, which is interesting because it's it's kind of like giving the kids the keys to the Ferrari in the garage and saying, now don't go driving it. And we also have seen risky business, so we know what happens there. And that's okay if if you're not if you're not super serious about those instructions and those rules and those limitations. But there there isn't really a trust police built out in the system out there. So there's no one that's going to be monitoring this. And that the two parties there are going to be the trustee and the beneficiary, and if they're the same, we we don't really, you know, we don't have the same kind of uh provisions. It could actually work for tax purposes, but maybe for asset protection or or management or distribution provisions or limitations you have on it, it it might not actually accomplish what you're trying to do. So we really want to think about whether we want the beneficiary as the trustee. Um, sometimes what we'll

Incentive and Wellbeing Trusts

SPEAKER_00 11:00

do is we're thinking about a trust and it's gonna be a long-term trust, uh, it's gonna go over the life of that beneficiary. Well, you know, if if the beneficiary is in their in their teens, um, we could be talking about an 85-year trust. As you can imagine, there's gonna be a lot of adjustments and changes and and uh that'll happen. And the trustee you name today may not be the trustee that's in place 85 years from now. I can almost guarantee it. So the documents have to contemplate that too. We have to think about well, how would we adjust this? How would we adjust this role of this fiduciary, this this financial caretaker of these resources, so that it can be the the document can kind of adjust as time goes by, as the situation changes, as the needs of the beneficiary change. Um that becomes a a more complicated document, obviously, but but ultimately that's what's going to be needed whenever you're thinking about a lifetime trust, is you're gonna need to think through the different the different periods of time that they will have, what their needs will be at the beer at the various times, and try to find guidance that overall works. In the past, like that, drug and alcohol provisions, uh, you know, uh those were fairly punitive. Those provisions were very punitive. I used to say you can have a carrot or stick provisions, you know, and so the drug and alcohol very much had the stick, whereas if you weren't following along and getting yourself sober, uh you were going to lose those benefits. But it also had the carrot, where if you were able to get yourself sober and able to uh take responsibility for your life, that you were going they were going to be able to receive those full benefits. And so that's one theory that goes into it. And we've we've seen a lot of that uh in the past. Uh different kinds of variations that people have used also would would be incentive trusts. So this isn't necessarily that there's a negative, but you want something positive to happen and you want to provide direction on that. So for example, uh, you know, a very common one might be, well, you know, we don't want uh our beneficiaries to be just dependent on upon the trust. We want them to have have jobs, have careers, have professions, whatever it is. And so you might draft in provisions that basically say, hey, if you are um receiving, if you have a job, then you can get more benefits from the trust. It might be maybe it's a matching to what your salary is. So you know, if you're making uh $80,000 a year, that's that's great. Uh we'll give you a matching of 50%. So you get an extra $40,000. And that might help the children, the beneficiaries, uh have a nicer lifestyle, uh kind of raise up where they're at. But at the same time, you know, if they are earning uh six figures, uh, you know, then they're gonna also be showing that they're they're more responsible. It generally takes more responsibility to earn those greater numbers, and they would be able to get a larger amount. Uh, and and that would also help them, and it could help them uh be able to achieve some of their goals, whether that's um you know, buying a home, getting married, having children, retiring early. Um other types of examples might be for of an incentive provision might be to make contributions into their qualified retirement accounts. Many of our clients have significant wealth in their retirement accounts. And that's you know built on a lifelong savings strategy and investing strategy. And really the retirement accounts are a great way to learn about how investments work and what kind of returns you can expect, and really making financial decisions. So there's a lot of education that goes along with those. So encouraging that of a young beneficiary, encouraging them to maybe get in involved and you know, put money into Roth IRAs or traditional IRAs. And again, what you might do is say, for example, they're working and they have a 401k, um, if they make a contribution into their 401k, then the trust might fully reimburse that. They might give them exactly those dollars back so that from their perspective, you know, they weren't uh living on less. They were still living on the same amount and they were getting the maximum contribution into that. So that's an example. That's actually an example of both kind of forced savings, but also uh a bit of mentoring because you're gonna get some education on how to do the funding. So those are you know, incentive trusts were were very much popular for quite a while. Uh more recently, people, uh the state of the art has kind of moved away from that, and and now it's more of the talk of uh well-being trusts, and so it's more of a holistic look at where the beneficiary is. And so the trustees is not necessarily having as strictly speaking or strictly drafted, hey, if this happens, do this provisions. But is we're leaving more of it to the discretion of the trustee and instead providing them guidance on uh you know how what the values of the family are, uh what you know what the if you will, the recipe for success is, and that the trustee has the really the power to make that happen, to provide the support in the way that is needed at that time for the beneficiary, um, which is a lot of discretion, you know. And and so uh on the one hand, you know, very objective provisions like uh match the distribution or the contributions into the retirement accounts, that's pretty easy for a uh a trustee to do. Pay out all the income, very easy for them to do. It's just a math problem, really. But when we're thinking about distribution provisions where it's more discretionary, as much as needed or enough to provide them a good living, but uh also maintain their work ethic, uh, you know, something like this, um that's gonna take more uh kind of fee uh finesse by the trustee. The the trustee is gonna have to really think about that and know more about what's going on in that beneficiary's life. So your selection of who your trustee is is gonna be very important there. And if

Choosing the Right Trustee

SPEAKER_00 17:10

you're considering uh family member trustees, uh again, I think the responsibility of those three jobs, can you do all three of them? Can you can you do the the keeping track of the books, keeping track of the numbers, also the investing, and also the distribution provisions. Often I think of the best trustee might be kind of the CEO type, somebody who isn't necessarily seeing that they have to do all of these jobs themselves, but understands really the bigger picture and they can bring together the resources that are needed for the roles. So for example, they might hire a bookkeeper and an accountant, they might have a relationship with the financial advisor. Uh if there's a question about uh the distributions, you know, they might get help from that too. Maybe uh, you know, I'm not sure exactly where they're gonna get the help on that one, but you know, finding and talking to family members, finding out what's going on in the child's life, this type of thing. Uh most of the time the beneficiary is the child, but obviously it could be somebody else too. So when we think about the those roles, we think about um having these people in your life that are gonna be involved in these documents. Uh this is kind of the the thought process that we need to go through, especially if we're gonna have that trust around for a longer period of time. Now, professional trust companies are out there and you know they are trust companies, so this is actually what they do as an industry and as a business. And they bring a lot of resources to the table. They they absolutely know how to manage finances, they know how to do the the uh keeping track of all the books and all the records. And, you know, from their perspective, they're gonna want to to be pretty formalistic on their distributions. Uh there are some that'll have very great relationships with the beneficiaries, and that's really what you want. You want a partnering between the beneficiary and the trustee. So be selective on those professional trust companies as you're selecting them. Talk to them, find out what their philosophy is and how they work with the beneficiaries. But uh but you also need to prepare the beneficiaries. You know, the the beneficiaries need a little bit of training. They can be good beneficiaries, they need to learn how to do that, kind of understand the language,

Preparing Beneficiaries

SPEAKER_00 19:22

uh find out you know what their rights are, what their powers are, what their expectations are, uh learn how to communicate with the trustees. Those are some of the features that you would want from your your beneficiaries. So getting them to that point, getting the the beneficiaries to the point where they know how to do that is really part of the part of the challenge. We don't want to drop that all on them uh necessarily at the time of your death. We would like to have them uh be able to already know or already have an idea of this. So often it is important to start with maybe a little starter trust. Maybe you have a trust for the beneficiaries that uh you're making annual exclusion gifts into, or maybe a little bit larger. Uh, you know, this gives a great opportunity for your your trustee and your beneficiary to get started and kind of start to understand how to work with the documents before they have you know a real larger amounts in the in the in the doc in the trust itself. So those are some of the strategies that can be used for kind of crafting that out. I had a conversation today with a potent with a potential client, and it really started out very odd. Uh he was telling me about that he had uh been in to change his will three times uh recently, and that he had this trouble with his financial advisor, one of his financial advisors, because they didn't really understand him or listen to him and weren't answering his questions. And as I was talking to him or hearing him say this, I was like, oh wow, this might be a difficult position for me, because uh this gentleman uh may never be satisfied. He might be someone that's just difficult to work with. Uh, but what is really going on here? What is he looking for for his answer? And we just kind of had the conversation and just talked about, you know, his family, his wealth, and where he started and what was important to him. And I was able to kind of steer him back and and really find the the nugget, you know, the thing that he was most looking at and most concerned about. And it was something that really, even though he had done his updates to his will three times, it never got captured in his documents. And I see this often. It's it's an odd thing often, really. I'll have clients who come in and they just did their planning a year ago. And and and they're coming to me as a new attorney, and they're saying, Yeah, we just it it wasn't quite right. Something was wrong. And we go through the whole process. I talk to them and I learn everything I can about them, and then I review their documents. I said, Well, you know, these documents really Really do a lot of this. There's there's not necessarily a lot of this or that that needs to be changed. There's there's usually something. But as we get into that deep that conversation a bit more, I realize that they don't have uh what's the right word here? I realized that the motivation for them to come back and do their planning is that they they really did not feel like they owned it, like they understood it, like it was their plan. It was somebody else's plan. And that was kind of key to it. Uh this is, you know, these are the issues that cause people to lose sleep at night. They worry about, you know, their their their children, their grandkids, they they worry about what's going to happen with their business uh at their death. And it's really hard to get the the answers and the solutions in the documents themselves. But even if technically it's

Concluding Thoughts and Call to Action

SPEAKER_00 22:51

there, uh it's the confidence and knowing that it's there, which is hard, because uh, you know, I again I can look at those documents and say, yeah, this does exactly what you want. It it has this rule and has that rule, and this is going to be taken care of. And you know, I can explain to them how it would be administered, but for whatever reason, it just doesn't quite fit. It doesn't feel it doesn't feel right, it doesn't feel like it's done. They're still losing sleep over it. So our role is to really uh help them gain that confidence in those documents. And that's a big part of really what estate planning is. Um it it's it's scary, you know. I mean, you're you're talking about your own incapacity, you're talking about your death, uh, about really moving assets onto people who may not be ready for them. So you want it to be right. You absolutely want it to be right, you want to do it just once. But of course, the odd thing isn't uh as one one client said to me, well, you know, I want to do it just once. You know, have you ever built a house? You know, you want to put the extra effort in, get it done right the first time. And I said, Yeah, but then 20 years later, you still have to remodel the kitchen. You know, it's just it's just part of it. These things still need to be looked at and updated uh along the way. So that's that's what planning's about. These are hard issues. They take conversations, but you need two for conversations. Who do you need to have a conversation like this with? The best way to get started is to send them a link to the show. Please rate and review wherever you are listening to this podcast. Subscribe to stay up to date with our latest episodes. I'm Derek Jensen, and this podcast is presented by Jensen Estate Law.