Estate Planning for the Middle Class: Overcoming Myths with Reality

By Matthew D. Blattmachr, CFP®, Trust Officer, Alaska Trust Company | Volume 2, Issue 5 (May 2014)

Here are a few common misconceptions (or objections) people have about estate planning and trusts – – and how to overcome them.

Myth #1: Estate Planning is only important for the very wealthy.
Reality: Every client needs some kind of estate plan, because everyone has an estate. The size of your estate does not dictate whether or not you need a plan, but rather what plan you need. If clients don’t create a specific plan, then the state is more than happy to provide one via the intestacy laws. These laws vary according to each state and distribute estate assets based on marital and family relationships. If no significant marital or family relationships exist, then all property passes to the state. This is likely not what clients want. For this reason, clients  need an estate plan that ensures their wishes are respected and carried out in the most cost-effective and tax-efficient manner.

Myth #2: Trusts are cost prohibitive if you aren’t wealthy. 
Reality:  The costs of drafting, implementing and maintaining trusts are no longer cost prohibitive. The increased use of computer technology, increased competition amongst financial institutions and the expansion of trust planning has helped to lower these costs. Even when a bank or trust company is chosen as trustee, there are firms who tailor their services to meet the needs of the market without a minimum account balance. Due to these factors, clients now have a cost-effective way to create, open and maintain a trust without the need to be wealthy.

Myth #3: Trusts are only for avoiding taxes.
Reality: Trusts do a lot more than act as a tax strategy. A trust is an estate-planning tool which provides clients with more control over how, to whom and when their assets are distributed.  To this end, a trust can be helpful in a variety of situations. For instance, people who wish to leave assets to a child with a past or present drug addiction problem may not want the child to have unfettered access to the money. Fortunately, a trust can place restrictions on their access to the money while still paying for the child’s healthcare, education and living expenses.  Regardless of a client’s particular situation, virtually all clients can benefit from incorporating trusts into their estate and financial plans.

Myth #4: If I have a Will then I don’t need a Trust.
Reality: In contrast to wills, which are public information, trusts are confidential. Clients who want to protect their privacy may want to consider a trust. This can be helpful for clients who wish to maintain privacy over how and to whom their assets are distributed.

Without a trust, the estate will go through the public probate process.  Therefore, any “interested party” can gain access to your personal wishes and desires.. Probate could “encourage” disgruntled heirs to contest the will and can expose the family to unscrupulous solicitors. Depending on the state, probate can also be expensive. Probate typically requires the involvement of attorneys, executors and other agents, which may result in substantial fees and other filing charges. Additionally, the probate settlement process can be time consuming, especially for complex situations.

Myth #5: If I don’t have children I don’t need a Trust.
Reality: Clients without children should also consider the benefits of a trust. For example, they may not be sure who will look after their financial interests later in life. By setting up a trust they can appoint a trusted individual, bank or trust company to serve as a financial guardian in the event of mental incapacity. This can provide clients with great peace of mind knowing that if they are ever in the position where they cannot manage their own finances, a qualified person or entity will be there to help.

Myth #6: I am going to leave everything to my spouse, so I don’t need a trust.
Reality: This situation may be a little tricky. Families created by second (or later) marriages, especially those with step-children can create an estate planning hurdle. For example, let’s say we have a blended family where the husband has a will that leaves everything to his wife, without leaving anything directly to his biological minor children. If the wife passes away shortly after, it is possible that she could leave everything to her biological children, therefore effectively disinheriting the husband’s children. Trust and estate planning could easily remedy this situation. Additionally, there are many other situations where a trust makes sense, such as when the spouse is young and may remarry or if the spouse may now or in the future have creditor or lawsuit problems.

A little “re-education” can help prospective clients make the right estate planning decisions!


ABOUT THE AUTHOR

Matthew D. Blattmachr is a trust officer with and Vice President of Alaska Trust Company since 2010.  He is an active member of the ATC Trust Committee and is responsible for coordinating all aspects of business development including creating a strategic business plan for company expansion. Matthew is also on the Board of the Anchorage Senior Center Endowment Fund.  Matthew has a Bachelor degree from the University of Alaska Anchorage, a CFP designation from the College of Financial Planning, and has earned a Certified Fiduciary & Investment Risk Management Specialist designation from the Cannon Financial Institute. Matthew will also earn a Master of Business Administration degree from Alaska Pacific University in August. Matthew can be reached at [email protected].

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