Ep. 087 - The Five Essential Estate Planning Documents You Should Know About

Episode Transcript

Austin
Estate planning as God's steward isn't just about deciding who gets what. It's also about making sure the right documents are in place to make transitions clear, efficient, and loving. Today, we'll walk through five key documents every steward should consider using beneficiary designations a will, a trust, powers of attorney, and the living will or advance directive. When used wisely, these documents will help you pass on resources efficiently to the next steward.
So Spencer, in a previous episode, we discussed the decisions that each steward needs to make regarding end of life estate planning. Today we want to walk through the actual documents and much like our previous episode where we didn't dive into the specifics of what Scripture says, we're building on the foundation of the scriptures we've talked about in the past, about what does it mean to be a steward of the resources that God owns?
We are his managers. He provides for us. He owns it all. So we're not going to dive into those things as granularly as we normally do. But today we're going to dive into the granularity of beneficiary designations. Living wills, powers of attorney. Beautiful, beautiful estate planning document. So start us off five key documents. First one is beneficiary designations.
What do we need to do?

Spencer
Well, and even before we go here, let's pause and come back to the decisions that need to be made. Because if we haven't made, those decisions don't come here and then start just implementing. This is critical to embrace your role as a steward and grapple with who needs to be the next steward, and how much do they need to receive, and what's the cadence of that?
Because until you get there, that's the hard work. You know, George Mueller was famous for saying that, you know, of his prayer life out of 100%, about 80% was grappling with the Lord and laying his desires down before the Lord. Where that last 20% of his prayer life was, was then much easier to be able to say, well, Lord, your will be done.
I've already gotten to that point and now I'm praying for some of those, you know, other pieces. Most of it is a grappling with what needs to happen. Lord, what do you direct me to do? And then we get to this and it can actually be much easier because we sit down with an estate planning attorney and they start lobbing all of these questions.
And we've already thought through them. Yes, we've already thought through the key things, and they can use their expertise in a much more efficient way to say, okay, well, you need a will or you need to run everything through a trust, whatever it might be.

Austin
Right. Okay. That's really helpful to continue to remember. So we'll start off with beneficiary designations. The reality here is these are account by account basis. So for your pretax resources your 401k, 403b, IRA your Roth IRA your non-qualified account. You have to name beneficiaries on each of the accounts. What else do we need to know about benefit designations?

Spencer
Well you want to make sure that you've thought through the transition of those resources that you've thought through. You know, like we talked about in a former episode. What are the tax considerations? How do we, you know, push those in a direction you can not name anyone. So if you elect to say, I'm not going to put it in place a beneficiary designation, then those resources will pass via your estate and your will will direct that.
Now there are some important things about beneficiary designations that will actually help you, because it's much harder to update your will than it is a simple beneficiary designation form most of the time. So for our clients who are thinking, okay, about the ease of updating something, you know, if they give us a call and they say, well, I want to change, you know, my percentage to go from 30% to this beneficiary to 40% to this beneficiary, we can prepare that form oftentimes the same day, get an electronic signature, get that back.
It’s very, very easy. When you reach out to an estate planning attorney it is a longer process. Usually you've got to get on their calendar. They've got to review your existing will. You might need to have the whole thing redrafted. Maybe you could put in place a codicil. There's all kinds of different considerations, but it's a longer process typically than to execute.
You've got to have a couple of witnesses and notary and you know there's hoops to jump through. A beneficiary designation, if we use these properly, it can be much simpler. So if we if we think about this, that's one advantage. The other thing that we have to be really careful of is this will supersede your will. So if you name, if you have an IRA, for instance, if it has $2 million and you know, you name your spouse as the primary beneficiary, and so you have two children and you name them as contingent beneficiaries, heaven forbid something happens to your spouse and you at the same time, your contingent beneficiaries that are listed, they
are your, children. And you know, 50/50 share, let's say that you've put in place. Well, let's just say that last year you had a contentious situation with one heir, and you're no longer, thinking that that heir needs to be steward. And you updated your will to say, I'm, I'm not going to give many resources to that, child because I don't trust that child anymore.
Well, even though you updated your will, if you didn't update that beneficiary designation, doesn't matter, for that particular account. Those resources are going 50/50 by what you've said. So you need to be really careful as we use these beneficiary designations, because sometimes people forget what they've done. So for instance, they may have worked for 30 years at a, company.
And they've got that 401K in place and they've got a spouse listed as primary, and they've got, you know, their children listed as contingent. And they did it a long, long time ago. Well, that's still in place and it's still going to supersede your will even if again one of those relationships has frayed there. So understand the power of that, the ease of updating it and how you need to think through that.
Now you can be strategic here and you can, you know, think about how you name this to, different beneficiaries from a tax standpoint as well. So we talked about, the potential even to push some of those resources towards a charitable institution, the pretax resources that can be, you know, one of those opportunities, whether it be a donor advised fund or some other, you know, charitable institution.
So lots of different opportunities with beneficiary designations. But we've really got to be thoughtful about the way that we go about it. We also need to recognize that beneficiary designations are not the same thing as being co-owners of an account. We typically will encourage clients to name beneficiaries, put them as, designated there on an account, whether that's a transfer on death or a payable on death, type of designation, rather than being co-owners.
Because if you bring on a co owner, say again, you have, you know, two children that are your primary beneficiaries, your spouse passed away to children as primary beneficiaries. If you bring on one of those children as a co owner, then when you pass away, that child is going to receive those funds. It's no longer going to go in such a direction.,
typically speaking, where it's going to be split 50/50, that particular account. So again, be careful with beneficiary designations and also know that it's not joint ownership in the same way that we might think otherwise.

Austin
Right. Absolutely. Okay. So we've kind of covered a good broad basis for beneficiary designations. You talked about a will. The reality is everybody should have a will in place. It allows you to speak and say, this is where I want to direct my resources. If you don't have a will in the state of Tennessee, guess what? The state of Tennessee has a will for you.
Yeah, and it may not. And I almost can guarantee it will not follow your desires. So walk us through why we need to have a well, what's that document? How do we how do you clients get those drafted?

Spencer
Well, attorneys always chuckle and say, well pay me now or pay me later because, you know, you can pay me now to draft your will and we'll do this. And it'll be simple and straightforward and they'll be a much lower cost. Or we'll go through a process where you haven't drafted a will you die, and now your, estate is is doesn't have that will, except for what,
the state of Tennessee or wherever you, pass away or resident, they've got a will for you. So you die and test it. That's not a good situation, because, again, it just costs so much more. There's a whole lot more heartache typically for the beneficiary, there’s a whole lot more time involved. It's no fun. So what we want to do is even if most of your assets are now owned by a trust, or you've used some other mechanism to pass along most of your resources, a will is still important to have in place.
Because if you forgot to pass along anything you know via these other means, then you're still stating, this is how I want things to go. You know, at the end of my life, a will essentially is going to be used by the court. You know, you're going to have, your executor, go before the court. There's going to be a probate process that's opened.
The will is going to name your executor is the one who's going to act on your behalf after you pass away, to make sure that your estate is, governed in the way that you've set out in your will. So, in a lot of different estate planning situations in the state of Tennessee, because probate is a rather simple, straightforward process.
We're not setting up a trust to own resources. There are situations, and we'll get into these here in a moment where the trust is the primary estate planning document, and the will might be set up in such a way that it's just a pour over will, where it pushes all resources out of probate into the, trust there at the at the end of probate.
But at any rate, you want to have a will in place. You want to review that over time. You want to make sure that you're comfortable with your executor or personal representative is called in the state of Tennessee that that's the right person to act as your agent there. And then there are other pieces, like, naming a guardian for your children that you would do in the context of the will.
A lot of our clients obviously, they their, their children are, have already reached that age of maturity. They are not going to be, needing guardians, you know, when they're in their 30s and 40s and so on. But for clients who do have, minor children, they need to name guardians there too.

Austin
Right. Okay. So let's go ahead and think about this idea of a trust. Because a trust is not the only document that you need if you are establishing a trust. And I think as stewards, we need to take a step back. Anytime we think about incorporating a trust, there are legitimate reasons. If we have children with special needs, if we have a complex situation of maybe a business or properties that need to be doled out in various ways, I think there can be places where trusts make a significant amount of sense.
But as a steward, we have to always be thinking, is this the wisest use of God's resources to either lock them up within a trust document or to put parameters on them? And so I think we need to have wisdom. We need to be making sure with trusted brothers and sisters in Christ, like, hey, is this the right decision to lock these resources in a trust?
If we have walked with the Lord through that, and there is significant wisdom to where the Lord is saying, yes, pursue this, what would you what do we need to think about when we consider a trust in itself?

Spencer
Well, one of the ways that we think about a trust is that it's going to be a document that is, there's going to be an expense to create it. There's going to be a level of work to actually to be able to use the trust document. So there needs to be some reason on the other side that we're going to pay a bit more to draft it, and that we're going to go through the complexity of retitling assets and maybe holding them in the trust long beyond, a matriarch or patriarchs passing away.
So there needs to be enough on the other side of like the trust really gives us this, here. And that can be a lot of different things. So one of the things is if you hold real estate in multiple states, putting those assets into a trust can be helpful because it helps you to avoid ancillary probate. So most of our clients are going to go through, you know, their heirs are going to go through probate in one state, but you don't want to have to do that in two states.
So using a trust oftentimes there would make sense. Another situation would be like you talked about, if you have a, an heir that has, disability and perhaps needs a trustee in place to help them manage those funds, or we have a spendthrift situation where we have an heir that, we sense needs to be maybe one of the next stewards, but is not really good handling money.
Then putting a trustee in place to help dole out those resources in a way that doesn't harm the beneficiary. Can be important. Another would be if we have a blended family. So let's say we have Mom and dad, have gotten married. They have children, from prior relationships. And we just want to be able to specify how those resources are distributed over time.
Sometimes a trust document, and working through a trust can be really helpful because it can be shared. And then, the trustee can, be able to, make sure that mom's assets, help to take care of dad if he, if she should predecease him. But then those resources maybe come back to, her children.
You know, if you should, once he passes away. So when there's complexity in any of these types of, shapes or sizes, then a trust document allows a family to have clarity of what happens beyond probate. So it may be several years, it may be even, decades beyond that, that the trust is going to speak to how resources are distributed, keeps everybody aligned, keeps clarity, and has the added benefit of allowing you to name that trustee that you're going to, put in place as your agent, that's going to follow your wishes.
If you were really, really concerned about what a steward might be doing 12 years after you pass, you probably need to be putting those resources into a trust. Now, you might also be asking the question of how much can I really speak 12 years beyond, you know, my passing? And should that person actually be one of the next stewards, should they actually be receiving resources?
But there are certain situations, obviously, again, if we have, a disability and a beneficiary or we have, certain situations that can be quite helpful.

Austin
Right. Well, even with the spendthrift provision, if I have a child that's in college that I know that I want to give him help for a down payment for a home. If they're in college, I don't maybe I don't want to give them that $50,000 right now when they're 21. Maybe I want to wait and defer it until they're a little bit older.
Where actually they've taken that initial step to say, hey, I'm going to buy a home. I've got $10,000 of a down payment. Or maybe then we can say, hey, guess what? You have a trust that infuses a little bit more capital to that down payment. It's maybe just a little bit more protective of them when if you were to pass while they're in college, if they receive $50,000 $100,000, maybe it's just that they're not mature enough at that season because they're 20.
And so spendthrift can really be protective in that regard to where it's not just, okay, this person is 35 and then they've displayed 15 years of inability to manage money. It's maybe, hey, they're still young and they need a little bit of help to grow up before they receive the resources.

Spencer
Right. The final thought about trusts is that there is a level of complexity in re titling assets. You know, you can have a magnificently written trust, a beautiful trust. It could be 100 pages long in the document. You could have worked for six months to craft this perfectly with an attorney. If you don't retitle assets and beneficiary designations, that trust is not going to help you.
So there is an extra level, oftentimes within a trust that you just have to be prepared for that re titling process to I can tell you many times that we've started to work with clients, and we've looked at the investments that they have, the resources that they have, and the estate plan that they have, and it is not aligned at all because they've got this trust document in place, but they didn't take the non-qualified account, the family home, the, beach home, whatever it might be, or all of those, and retitle them to the trust.
And maybe their will doesn't, you know, push everything to the trust. So that trust is, is not going to help them there. So just know that if you're going towards a trust, there's going to be some extra legwork typically in updating those beneficiary designations and maybe even finding the custodian to get them in place because they might be complex.
And then also, re titling assets that would be, say, real estate or other kinds of investment accounts.

Austin
Yeah, absolutely. Well, thanks for that last little bit on the trust. Let's shift now to powers of attorney. We've got financial, health care, what do we need to know just generally about powers of attorney. And then specifically as a steward. What are the key decisions that we need to make with these documents?

Spencer
We want to make sure that during our lifetimes, if we're incapacitated, if we're not able to act, that we've got an agent, an agent in place that can step in for us. The number of people that we work with that, go through a period of cognitive decline until their passing is really high. You know, it's certainly not half of all clients, but it's it's a material portion, you know, of our clients that we notice.
So having a person that we've already named beyond a spouse in place. So that next line beyond a spouse doesn't need to be typically your older brother or sister. It needs to be someone that you implicitly trust who is going to be able to step in, should something happen to, you and, your spouse or your first named successor there.
So it's really important to think about that in advance and think about it in two different pathways. One is your property, your financial elements. So this would include your home, any investment accounts that you have, bank accounts, those kinds of different things. The other side though is health care. And oftentimes these are not the same person. You might have, a daughter that is really good with money, who you name as your power of attorney for property.
But let's just say, your son is a physician, and you trust him more for making medical decisions. Okay, well, you can name different people, you know, in this. So you want to think about who is the first person that you name and then who are the successors, you know, to that person so that you've got a clear chain of command because you as a steward, you don't know what tomorrow brings.
You know, James 4 talks a lot about how, you know, you can say, well, I'm going to go over here and I'm going to do business in this area or another. You don't know, what that next step is. And you want to be prepared to be able to pass those resources on to someone who's going to make great decisions as a steward for you.

Austin
Absolutely. Well, I think the other crucial piece with whether it's this or who the executor is, those decisions that you need to make within those documents, if you set them up when you're 30 and you name a parent or a parent in-law, when you're 60, do you want your 90 year old parent being your executor? Do you want them being your power of attorney?
Maybe, but probably not. So let's make sure that you're adjusting those documents over time. As life decisions happen, make sure that your power of attorney is maybe still alive.

Spencer
And ideally still local.

Austin
And still local.

Spencer
Especially your health care power of attorney. Because if something happens to you and your health care power of attorney is on the other side of the country, it's going to be hard for them to make, wise decisions unless they're super engaged and they just understand how to relate to physicians at a distance.

Austin
Right. Absolutely. Okay. So let's go ahead, because we're talking about health care. The last one the living will or advanced directive. Why is this an important document as a steward?

Spencer
Well, it's important because if something happens to you and there is an end of life decision, ideally you will have already communicated that to your loved ones and you will have that in some kind of written document that can be presented to a medical professional. None of us really wants to anticipate a time when we might be on life support, but that will happen to many people, you know, at the end of their lives.
So being able to let your family know and your physicians know, okay, I don't want to be resuscitated in certain situations. I don't want to have, you know, life saving treatment that's going to be incredibly painful. When I'm in a vegetative state, you know, here. So going ahead and specifying that is a real gift to your family, to the next stewards, because they can say, oh, you know, mom already thought about this.
They had already thought about this and said, you know, in these kinds of circumstances, they're going home to Jesus, you know, so let them go. It's going to be hard. Death is always an enemy. Let's grieve this person. But let's also recognize that they had already thought through this. They had given us guidance, and they've given us guidance, and they've given us medical professionals, the medical professionals guidance there as well.

Austin
And these can be tough and awkward conversations. I remember when I was in college, my father sat me down and said, hey, I'm riding my motorcycle a lot more. If I get in a crash and I'm not going to recover, go ahead and pull the plug. And I thought, wow, this is a really dark conversation. But the reality is it.
I'm thankful that we actually talked about it. My father is still living. Thanks be to God. He's still riding his motorcycles. But the reality is I know his desires. It's not just a piece of paper that if my father were to get in a motorcycle crash, that I now have to see the piece of paper and be like, oh, gosh, I have to make this decision based on what the paper said.
No, I've spoken to my father about this. It's uncomfortable having hard conversations. It's uncomfortable talking about the end of life. Just like you said, death is the enemy. But the reality is, if we can have those conversations with those people that we name, it becomes easier. We relieve the burden on that next steward to feel like they have got to discern what does mom want?
What does dad want? So really, the reality here of a living will is it relieves that burden from the steward. And that's really a gift in a lot of ways.

Spencer
What I think we go back to here is the importance of communication and having these conversations during your lifetime with your loved ones. We talked about this in previous episode, detailing the key decisions and then relaying those key decisions. Well, now we also get to not really just the key decisions, but also the way that those key decisions are being then pushed into these documents, which can again, just allay concerns.
So often a heir will have a general sense of the direction that you're going, but actually you're blessing them with that conversation so that they know. Okay. Yeah. This is about what Mom and Dad thought I thought they would be doing. And so now I know with greater clarity. Or it might surface some level of dissonance. So doing that and being able to lay things out can be really helpful because you'll also see how they process it.
So surfacing these also making sure that they're comfortable with whatever, whoever you name with whatever pathway you name it is important there as well.

Austin
Absolutely. So Spencer thanks for the conversation about estate planning documents today. Clients. If you found this helpful, we would love to have a conversation with you about how to really critically think as a steward about those documents that you need drafted. As always, feel free to leave questions or comments down below and we'll see you again next time. If you found this episode valuable, share it with a friend and subscribe on your favorite podcast platform so that you don't miss the next episode.

Disclaimer
This content was provided by Second Half Stewardship. We are in Knoxville, Tennessee and you can visit our website at www.secondhalfstewardship.com. The information in this recording is intended for general, educational and informational purposes only, and should not be construed as investment advisory, financial planning, legal, tax, or other professional advice based on your specific situation. Please consult your professional advisor before taking any action based on its contents.