#22 - How to Secure Your Legacy

Eric Blake: Welcome to another episode of the Simply Retirement Podcast. I am your host, Eric Blake. On this show, we focus on providing retirement education and supporting women throughout the retirement journey. To help us do that today, we're again joined by a very special guest, Susan Barnett.

Susan is a partner and senior attorney at Haiman Hogue. Haiman Hogue is a faith-based estate and family protection and elder law firm as well. And one of the biggest challenges that many women face once they've experienced a divorce or they've been widowed is estate planning. And as we learned in episode 18 with Chris Downs, estate planning is not just something that you have to worry about when you pass away. It is just as important, and I make the argument that it's even more important while you're still alive. But one of the critical decisions is what should the key document be for my estate plan, is a simple will going to be enough or should I think about a living trust? Both of these can be very effective, but today, I'm going to have Susan help us consider some of the key factors to consider when deciding which of these documents may be optimal for your specific situation.

So, Susan Barnett, welcome to the Simply Retirement Podcast.

Susan Barnett: Thanks, Eric. It's good to be here. As Eric said, my name is Susan Barnett. I am one of the partners at Haiman Hogue. And just to give you a little background on myself, I graduated from law school back in 1989, so I've been a lawyer for about 24 years now. Then went from directly out of law school to the district attorney's office and spent about nine years there, close to 10, and had twin girls very early. And so I decided to start at that point being a stay-at-home mom and spent 16 years with that being my full-time job, mom, and wife. Loved it, kept up my certifications and all the things I needed to do to continue to be an attorney, but really focused on my family. And then, when the kids were in high school, not needing me at home so much anymore, that's when I got back into my legal career. But I still have to say the best job I ever had was getting to be a stay-at-home mom. I felt like I was playing hooky every day, although it was a lot of work, too.

Eric Blake: Oh, absolutely.

Susan Barnett: Yeah. So estate planning is important for everybody, but if you find yourself on your own as a single female, you need to make sure that you've got a good plan in place so that your wishes are known. And what most people know about are wills, and that is a very, very common estate plan, but there are other options. Some things about wills, they only deal with what happens at death, and so there's no provision about if you become incapacitated, who's going to manage your assets, those kind of things. There are other documents that go along with the will that can help with that. Certainly, you want to make sure you've got all the medical documents you need, but the financial power of attorney is very iffy. It's called a statutory durable power of attorney, and that's where you have an agent that can make decisions for you, legal decisions, deal with your assets, all those kinds of things. And so that document seems very powerful, and in the wrong hands it can be abused, but when you need it, it's really going to depend on who you're dealing with and whether it works or not.

Eric Blake: That's one of the things. Yeah. I think that's interesting because a will is the most simple document to solve the estate planning issue. There's so many different options out there now and legal services that people can get through their employer and different things like that. But again, I think one of the downsides to that is if you don't really evaluate what your options are and what some of the drawbacks are. I would love for you to share, in general, what are some of the drawbacks to just using a basic will for estate planning purposes.

Susan Barnett: In my mind, there's several. First of all, not dealing with things while you're alive. The will package will have that financial power of attorney, but if you've got someone who is your agent, they go to the bank, and let's say it's your child or mom's bedridden. I need to get on her account. I need to start to pay her bills. Then the bank, it's gotten to a place where they basically will say that we are glad to do that, but we need you to have her come in and tell us that the power of attorney is still good. That's a problem if mom is bedridden. And so you find out that it's not going to work when you need it. It's too late, and maybe Mom's incapacitated and can't sign new documents. So that's one struggle.

With the will plan and a real big misconception, I've had lots of people that'll tell me, "Well, I've got a will. I've said everything I want to say. Everything is laid out on paper. We should be good," but it requires probate. And so, a will is not valid until a judge says it's valid. And so that's another drawback. And while probate in Texas, I have nothing to compare it to because this is the only place I've ever practiced, but I'm told probate in Texas is on the simple end compared to some other states. The big issue now with probate is it's public nature, it's all-

Eric Blake: Can you explain that a little bit more? Yeah, can you talk about that a little bit more just as far as what that means to people that might not be completely familiar with it?

Susan Barnett: Yeah, our courts are public courts of record, which they always have been. That's not anything new. What is relatively new in the last 20 or 30 years is the internet. And so now those public records are on the internet and anybody can access them. Before, you had to walk into the clerk's office and say, "I want to look at this file," and the public could do that, but it took some effort. Now, it takes no effort, and there are programs that capture all this information, and all of a sudden, when a will is filed, your beneficiaries are known, your executor is known, and they connect that executor to their cell phone number. When you finish a probate, there's usually an inventory that has to be filed so your assets are known. Things that most people would think of as private information are now readily available, and it results in scams, certainly spam phone calls and mail that look very official, sound very official. It's just not something anybody wants to deal with if they can help it, and especially while they're grieving.

Eric Blake: Well, that was a great point. I think maybe... I was going to say it's off-topic, but it's really not. Well, I think one of the risks that we're all dealing with these days is the risk of identity theft and people getting information that we don't want them to have, and I would expect that that's another reason now today more than maybe it was 20, 25, 30 years ago where going through the probate process now potentially puts you at more risk of identity theft, or as you said, some of these scams that are out there.

Susan Barnett: Yes. And something else that's even more unpleasant than that is, as I said, the will only deals with what to do with your assets when you die. If you don't have someone that can successfully use a power of attorney, then the only other option they have is to become your guardian, and that's another court process that involves at least two attorneys. So it's very expensive. And it means that this person who you would trust to take care of you now has to ask the court permission for every penny they spend for you, and it's very invasive. It is not a pleasant process by any means, no matter how nice the judge is. It's a really hard process to go through. So, there is an alternative to a will that will avoid guardianship and probate.

Eric Blake: Well, I have to say, honestly, I have to claim guilty, thinking that in my earlier years as a financial advisor, I couldn't even tell you where I heard this. Being an advisor for 25 years, you pick up things everywhere. But I have to say, again, I was guilty of saying, even talking to clients about estate planning and saying, again, "The cost of probate in Texas is not all that great, so you probably need a will. That's probably sufficient." And then, again, I have to stay away from providing legal advice, but those conversations come up, and you say, well...

And I think, also, like some of the other products out there that we deal with, annuities or some of these products that get a bad name, maybe there's some of that as well, and you may be able to shed some light on that, the idea that living trusts get pushed way more than maybe what they should. I would love to get your feedback on that to hear what you, as an attorney, how do you feel about that? Has that happened in the past where living trusts were sold to people that maybe they really didn't need it?

Susan Barnett: Well, the benefit of a living trust is no matter how simple it is, and sometimes that's part of the problem, which is the misunderstanding about what a living trust is. People hear in the media and movies and all those things about trust babies and not being able to access your money because somebody else has got control of it. We're not talking about those kinds of trusts. We're talking about a very basic living trust that is your alter ego, but by transferring the title of your assets into that trust, you're the trust maker, you're the beneficiary, and you're the trustee. You play all three roles. And so you have 100% control of everything. And so you have to dispel that belief first.

I personally don't think they can be overdone strictly because of the features. You may have a home and a checking account and a trust will still help your family avoid probate and guardianship. And it can be very, very basic. It does not have to be complicated, but by having the trust own the assets instead of you personally, you own it as trustee, then those other pieces fall into place later when things start deteriorating for whatever reason.

Eric Blake: Well, let's step back a little bit and say if you have one, what would you suggest is the easiest or most basic definition of a living trust? Is that something that you could share?

Susan Barnett: Sure. I think of a living trust as a treasure chest. You retitle your assets, change the names on your accounts, and get a transfer deed that transfers your house into that trust, which holds those assets, but you've got the key. You can get in and out of it. You can do anything you want with it, but if something happens to you or you become incapacitated, you've given someone else directions on where the key is, and they can then unlock it and take care of things for you. If you are still alive but incapacitated, they can do a lot of things for you. And then, once you pass away, they can then do whatever your wishes were as far as distributing it to your beneficiaries.

Eric Blake: What would you suggest is maybe the biggest advantage? We talked about, I guess, saying the probate aspect of it, avoiding probate maybe potentially the biggest benefit of a living trust, but what would you say is next? As far as just priority wise, what is the next benefit that a living trust offers over just a simple will?

Susan Barnett: I think it's really about being able to have the people you trust in place to step right in and do the things you need them to do. And also, just the fact that there's so much more flexibility within a trust that if you've got... Let's say you've got a child that has an addiction problem and you don't want them to ever be in charge of their own share, but you want them to benefit from it, you can set the trust up really with whatever parameters you want to have moving forward after you're gone. And you can distribute the assets directly to your beneficiaries, or you can restrict them if they need to be.

But what I struggle with is probably the biggest preventative other than the probate and the guardianship when it comes to a living trust is that it's set up so that if there is an issue, an unforeseeable issue with one of your beneficiaries, your trust is going to anticipate that because the trustee will have the ability to say, no, we're not going to hand it off to this beneficiary because they're going through a divorce or they're going through bankruptcy or something and we're going to hold it until that passes or we're going to take care of it in a different way because they've become incapacitated and thereby avoid guardianship for them.

It really is a safe way with more flexibility to figure out, okay, look at the scene, see what is needed in that moment, and then handle it appropriately when it's something you really can't predict ahead of time.

Eric Blake: So Susan, if somebody comes into your office and they say, "I want to explore a living trust," first of all, what are the primary parties to that trust? You've touched on it as we've gone through, but just to fully outline what those parties are, who makes up the... We talked about the trustee and different titles, different titles that you've referenced. Who are the exact parties of a living trust?

Susan Barnett: So first, it's the trust maker. That's the person that owns the assets and sets up the trust and decides the terms of the trust with their attorney. And then there's the trustee, which is the person who actually manages the assets, invest them, spends the money, pays bills, all those things. And then there's the beneficiary who is the one that benefits from the assets that are in the trust. And at times, those roles can be filled by different people. However, in the beginning, when we start out, the client is all three of those. And so that's why they control to do anything that they want.

Eric Blake: Now, if a single individual, as you said, they would be the trust maker. They would be the trustee. Couples, how does that work? If it's a couple, do they have one living trust or they each have a separate living trust? How does that work?

Susan Barnett: There's a lot of different ways you can do it, but the most common is a joint trust, especially in Texas. It's different in different states because of the community property rules and all those things. But in Texas, the common thing is a joint trust with husband and wife in all three of those roles.

And something to say about the single clients is that very commonly they're going to want to have a co-trustee with them, especially depending on their age. They might not... I'll tell you what the normal DIY plan is. Get beneficiaries and co-owners on all your assets. And if you set that up... And I think that's some of where the financial advisors struggle. They know they can avoid probate by doing those kind of things, but that doesn't anticipate issues with the beneficiaries. And so that's why we say, you know what? A trust is really better because you don't know what condition your beneficiary is going to be in when they inherit.

And so the common... People think of DIY plans as, oh, go on to some of these websites and do your own estate plan. That's not the most common DIY plan. It's I'm going to make beneficiaries on everything and we're just going to avoid probate that way. And that's accurate. If you've got beneficiaries listed on accounts and things like that, then it's going to go straight to that beneficiary unless there's a problem with that beneficiary or they've died or they're incapacitated, those kind of things. And so having the trust set up is important. And having a co-trustee where you would normally put your child on maybe as a co-owner of the account, instead, they can be a co-trustee and then they have a fiduciary duty to you to do everything in your best interest and they don't own the asset with you. So if they go through a bankruptcy, nobody's coming up after your checking account. Just because it's in the trust, they don't own it. They are just a co-trustee with you. So that's something that we talk a lot with our single clients.

I deal with a lot of widowed clients and when we get to that place, one of my first questions is, "Do you want a co-trustee with you moving forward? It's always been you and your husband. Now, do you want one of your kids to step up and help you out?" And most people do at that point in life.

Eric Blake: I think one of the, I'm sure you see these mistakes probably more than I do, and that is a widowed individual, widowed woman or divorced, whatever the case might be, where they'll actually put their child on as a co-owner of the account. Can you explain a little bit why that's probably a bad way to go?

Susan Barnett: Yeah, there's a couple of reasons. First of all, they are a co-owner. So if they have any financial difficulties, you could lose that money, even though everybody knows it's not theirs. It's still seen as theirs. Also, what typically happens, there's that one child that's the most responsible or the oldest or the attorney in the family that gets that title, that role of, come on, come be on all my accounts. And then your parent says, "Well, and I know you're going to share this with your brothers and sisters when I'm gone." And most of the people that I come across, their intent is to do exactly that even though legally they don't have to because they're co-owners and it's theirs when their parent is gone.

The problem, though, is they can have the very best of intentions, but depending on the value of the estate, that could be considered a gift because it's theirs. Legally, it's theirs, and if they go and split it with their siblings, then they're looking at gift tax forms and all kinds of things that parent never intended to happen, was not the plan in the first place. So it seems easy. It's easy to do it on the front end, but the back end can be very messy.

Eric Blake: Excellent. Well, let's talk about the front end and then also the back end of a living trust. So front end, trustee passes away. In general, just the basics of what that process looks like in settling the estate at that point.

Susan Barnett: That's called trust administration, and I look at it and tell my clients, it's like a private probate. No court is involved. You go into your attorney's office, and you sit down and talk about, the next trustee does talk about what needs to happen at this point. And it depends on the terms of the trust. If it's a husband and wife situation, oftentimes, we have a next phase of the trust that looks a little bit different than what it looked like when both spouses were alive. And there's some advantages to that, some asset protection and different things that can be involved in that.

If it's the second spouse to die or a single person, then the trustee is going to pick up and say, "Okay, what did mom say she wanted done with her assets?" And we sit down and look at that together and there's marshaling the assets. So pulling them all together, making sure we know where everything is, should all be titled in the trust. If there is something that's left out of the trust, then you will have to go through probate potentially to get that transferred into the trust, but there's a will that goes with every trust package called pour-over will, and that one asset can be probated and poured over into the trust, and then the trust is where the distribution is set out. And so then you just follow, the trustee follows those instructions. There's things like releases from the beneficiaries to say that they got their share and they're satisfied, things to protect the trustee moving down the road, but that's the basics of how it goes, and it just really is up to the trust maker to decide how they want things distributed and what format and all of those kinds of things.

Eric Blake: But I think I reversed the back end of the front end. So now that we've done the back end, what happens with the probate process, let's talk about the front end. What are some of the challenges? Because I know I've seen these. As a financial advisor, I've seen these challenges. Once you get a living trust in place, what are those next steps that need to take place to make sure that everything gets titled the right way?

Susan Barnett: I can't speak for every law firm, but we definitely will do anything that when it comes to deeds. The day you sign your trust, you also sign your deed transferring your house into the trust. So it's funded with your house, at least from the moment you walk out the door. But then, when you've got financial advisors involved, you go to your financial advisor and say, "Hey, Eric, I now have a living trust and I want my assets where possible to be in the living trust." And so things like investment accounts, checking accounts, most assets can be titled in the living trust.

We do things like we instruct our clients from our... And I can only really speak from what we do, but we give instructions specifically on each type of asset and how it needs to be aligned with your trust. And so checking accounts, regular investment accounts, CDs, those kinds of things, savings owned by the trust so that the title on the account is changed.

And so when it comes to something like a basic checking account, you're going to walk into your bank and say, "I now have a living trust." And they're going to have a form that they want you to fill out, but most banks will just let you change the name on your account. There's some differences with some other kinds of assets, like life insurance policies. You want the trust to be the beneficiary and where possible the owner. IRAs and retirement accounts are their own separate animal that we don't have time to talk about today, but there's things to do there too to line those up correctly. So there's some legwork to be done, but once it's set up, then your trustee following after you just follows the instructions in the trust.

Eric Blake: I think that's the big takeaway is once you have a living trust, you actually have to put stuff into the living trust, right?

Susan Barnett: You do. If you don't, then it's going to happen through a probate, which you were trying to avoid in the first place.

Eric Blake: Well, I want to go back to... Just to jump back a little bit, I think, hopefully, as I see your passion for what you do, and hopefully, our audience does as well, I've always found with estate planning attorneys, there's some reason there's something behind in the past that has drawn you to this field. So if we can, just to get a little bit more of your background, why you chose estate planning over some of the other areas of law that you might've gone into?

Susan Barnett: I really enjoy being able to help people make their life easier. Thankfully, I don't have any horror stories in my background that created this burning desire to do specifically estate planning, but for me, it's a ministry. I do a lot of estate planning, but I do all the trust administration in our office. And there is definitely opportunity to minister to people as they're going through this process that feels so complicated and burdensome. And so my passion there is really to give them peace of mind. And that's true in the estate planning part too. Just being able to give peace of mind to people, that they're not worried about what's going to happen when they're gone. Especially when I'm dealing with a widow or widower and they come in here and they've lost the love of their life, I can reassure them and work with them to do the heavy lifting and get things in place for the next phase. And so I just have a real passion for being able to comfort and minister to people where it's appropriate.

Eric Blake: Awesome. Somebody wants to engage with Haiman Hogue, what does that process look like? They make a call to the office. What happens next?

Susan Barnett: They get an appointment for an initial consultation. We don't charge for those consultations. We give them a worksheet to fill out so that we can have a good idea of what their estate looks like, what their family looks like, and sit down with them for about an hour and a half and just talk about what their concerns are and what it's going to take to get them to a place that they have peace of mind. And then, from that point, we schedule what we call a design meeting, and there's another packet of homework to do for the design meeting. Gives us a little more detail and the names of people that they want to use as their helpers and their agents and those kinds of things. Then they come in for that design appointment with that packet, and we sit down and design their plan. And then usually, from there, about two weeks out, we have the documents ready for them to come in to sign. So it's a three-meeting process that we, without calendar and scheduling issues, can get done within about a month to six weeks.

Eric Blake: So if somebody, they're just thinking through, "Hey, do I need a will? Do I need a living trust? What exactly do I need?" do you charge anything for that initial consultation?

Susan Barnett: Not at all, but we want them to be educated. And I'm really big on... I get a lot of friends that want to come see me, and I'll tell them, "Look, before we even get started, I don't want you to feel obligated just because we're friends. If you want to go somewhere else, you can check it out. But I want to at least educate you so that you know what your options are. And if you go to somebody else and you want to talk to them about it and you know more than they do, run very fast."

Eric Blake: Awesome. Well, how can our audience connect with you, learn more about you and Haiman Hogue and the services that you offer?

Susan Barnett: Well, our website is haimanhogue.com. I think we might have a QR code that will be shared that they can use. And you go through that website and you can learn about all of us here. And also, there'll be a form that you can fill out or our office phone number you can just call. And that number's 214-618-3160.

Eric Blake: Perfect. Well, Susan, thank you so much for joining us today.

Please do connect with Susan Barnett and Haiman Hogue. Estate planning is such an important part of the financial and retirement planning process, especially if you have gone through a divorce or if you've been widowed. And please be sure to have your estate planning documents. Review those every couple of years. Once you have them in place, this is not just a one time, one and done scenario. Make sure you're reviewing that every couple of years. In our case as a firm, we have a process where we review our client's estate plan every two years.

And you want to make sure that the individuals that you've chosen to play these roles that we've talked about, beneficiaries, co-trustees, trustees that you've got in your estate plan are able to and willing to fill those roles on an ongoing basis. And you want to make sure, also, you've touched on it a little bit on, Susan did, on beneficiaries on retirement accounts and bank accounts. Again, in our practice, we have a process. We're reviewing those designations every couple years, sometimes even more often.

In our practice, we just had a situation where a client thought that she had her daughters as beneficiaries on a life insurance policy, but after we dug a little bit deeper, it turned out that it's still to be her deceased ex-husband was the beneficiary on the account. And so I think this is so important.

I'm going to end the episode with that. Of course, please like, follow and share the Simply Retirement Podcast. If you'd like to learn more about us, feel free to check out our website at blakewealthmanagement.com. 

And lastly, please remember, retirement is not the end of the road. It is the start of a new journey.