In this final episode of ThimbleberryU's six-part series, Jag and Amy delve into the critical topic of legacy and estate planning for healthcare professionals. Amy points out the potential disputes and uncertainties that can arise without proper planning, as seen in the cases of Prince and Aretha Franklin. Legacy planning ensures that assets are distributed according to one's wishes and helps in leaving a lasting impact, whether it's for loved ones, charitable causes, or the healthcare practice itself.
Prince's estate faced a lengthy legal battle due to the absence of a will, despite having a Revocable Trust. Similarly, Aretha Franklin's lack of a will or trust led to potential disagreements among her heirs and increased estate taxes. These examples highlight the consequences of not having proper estate planning documentation.
The first step in legacy planning is setting clear expectations with loved ones and ensuring that one's will or trust is legally sound and reflective of their desires. This helps avoid misunderstandings and conflicts. Amy compares trusts with wills, explaining the benefits of trusts, such as privacy, probate avoidance, control over asset distribution, and safeguarding one's practice. Trusts, unlike wills, remain private and allow for direct distribution of assets to beneficiaries without court intervention. Trusts also provide more flexibility in how assets are distributed and can be particularly useful in protecting a healthcare practice.
An unfunded trust, like Prince had, lacks assets, which are necessary for the trust's instructions to apply. Other common mistakes in legacy planning, such as failing to update estate plans regularly and not considering tax implications, as seen in the cases of Philip Seymour Hoffman and James Gandolfini.
We aren't all gloom and doom today, however. Amy shares success stories of healthcare professionals who effectively planned their estates, ensuring smooth transitions of their practices and creating lasting impacts through charitable foundations or scholarships. The power of legacy planning and the importance of organizing financial affairs benefits loved ones and the profession.
To get in touch with Amy and her team at Thimbleberry Financial, listeners can reach out by calling 503-610-6510 or visiting thimbleberryfinancial.com.
Jag: Welcome back into ThimbleberryU, I am Jon Jag Gay, I'm joined as always by Amy Walsom from Thimbleberry Financial. Amy, always good to be with you.
Amy: Jag, always great to be talking to you.
Jag: This is part six of six, the final installment on our series for healthcare professionals. Very appropriately, we're concluding this series with legacy planning.
Amy: Absolutely. It's the end of the line, right? That money doesn't get to go with you.
Jag: Right. We'll start with the basics here. We're laughing a little bit, but it is a very serious topic. Why is legacy planning so crucial for healthcare professionals?
Amy: First of all, Jag, legacy planning, estate planning is essential for everybody, not just healthcare professionals. For healthcare professionals, I think it carries some unique importance. First, it ensures that hard-earned assets go where someone wants them to go. It avoids all kinds of disputes that we've seen with different celebrities, Prince and Aretha Franklin come to mind. Second, it allows people to leave a lasting impact. I think after a career of supporting and caring for others, I find with our healthcare professionals, leaving that lasting impact, whether it's for loved ones, charitable causes, or even someone's practice, is really important.
Jag: Two really key points I want to underline there, Amy. One, folks in the healthcare field, generally speaking, have an altruistic side to them because they're working in a field where they're helping people, so they would want their legacy to carry on. Then as we've discussed in the previous five parts of this series, folks in the healthcare industry tend to make larger than average salaries. With all that money, if you don't spend it before you're gone, you want to make sure it's going to go where you want it to go. Prince and Aretha Franklin, you mentioned, Aretha Franklin, obviously a huge story where I'm at here in Detroit because it's a local story here in Motown. Can you give us some examples for both of these celebrities of what went wrong in their estate planning?
Amy: Yes, absolutely, Jag. Both Prince and Aretha Franklin had substantial estates, but they made a common mistake. That common there is the key. They didn't have proper estate planning documentation in place. Prince, obviously a legendary musician, passed away with a revocable trust. Great. That's a slight step up in estate planning documentation, but Prince did not have a will, which is the basic estate planning document. The result is that conflict of having one document and not the other led to a lengthy legal battle among his siblings over his estate, which was estimated to be worth hundreds of millions of dollars. Without having a clear estate plan, having a trust but not having a will, it resulted in uncertainty and disputes among the heirs. That's the last thing most people want, is to set their loved ones up to fight about their assets.
Jag: Worth mentioning here, I just Googled this while you were speaking, Amy. Prince was 57 when he died. He probably was thinking he had some time left to take care of this. This is another example of why you want to take care of this early because you never know, sadly, what tomorrow brings.
Amy: Absolutely. You also asked about Aretha Franklin. She passed away without a will or a trust in place. There, Prince had done some estate planning, just wasn't complete. She hadn't done any estate planning. Her estate was left to be divided amongst her four sons. That created disagreements amongst them. It also created increased estate taxes.
Jag: Yes, because they didn't have all that planning done. These examples, they really drive home the importance of proper estate planning. Let's talk about the specifics. What is the first step for our audience, healthcare professionals, when it comes to legacy planning, Amy?
Amy: The first step is to set clear expectations. That might be a little bit like when I answer questions with it depends. Clear expectations are always the starting point. People need to have a conversation with their loved ones about their wishes and about their estate planning. Helping people get on the same page, but just doing that doesn't get people on the same page. We also have to get the legal documents put in place. That really, while it can be done on your own via some services online, when we're talking about sizable estates, using an attorney who specializes in estate planning is really valuable.
Jag: Just like for our medical professionals, you wouldn't want to Google your symptoms and diagnose yourself without talking to a professional, same applies to estate planning. Let's start with the role of trusts specifically in estate planning, Amy. Are they essential and how can they help healthcare professionals?
Amy: Jag, that's a very big question. Let's jump into the value of trust in estate planning using the example of Prince's unfunded trust, a revocable trust, and contrast that with wills. I think that might be our easiest method. Trusts and wills are both essential estate planning tools. I talked about that a moment ago. They serve different purposes and offer different advantages. Trust, like the one Prince had but didn't fund, can be incredibly valuable for healthcare professionals compared to wills.
Jag: We're going to cover four areas of how trusts compare to wills. Privacy, probate avoidance, control over asset distribution, and safeguarding your practice. Let's start again with the obvious one, and that's privacy.
Amy: Privacy is one of the most significant benefits of a trust. When a trust is established, its contents remain private, unlike wills which become public record after someone passes. That confidentiality can be particularly important for healthcare professionals who may have concerns about the disclosure of sensitive financial information. Wills, as I mentioned, are subject to public scrutiny. Anyone can access the details of someone's will, which includes your assets and beneficiaries once it goes through probate. Obviously, that lack of privacy can lead to unwanted attention and potentially, disputes.
Jag: It's like we've seen now, all the headlines here, all the dirty laundry of the Franklin family has been aired here for sure. Avoiding probate, I know that's important for a lot of folks. How do trusts and wills compare there?
Amy: Trusts are effective in bypassing the probate process which can be time-consuming and costly. By transferring your assets into a trust during your lifetime, you're able to ensure that they're distributed directly to your chosen beneficiaries without the need for court intervention. Now, probate, just to explain, is the court that administers wills. Therefore, wills and things passing through a will must go through probate. Not only does the court validate the will, but they settle debts and they oversee the distribution of assets. Probate can be lengthy and it can get very expensive. That results in delays of distribution of assets.
Jag: Got it. You mentioned asset distribution, control over asset distribution. This is certainly a big piece of it too.
Amy: Yes, absolutely. Trusts provide a high level of control over how and when your assets are distributed. You can specify conditions and timelines around distributions that can be especially useful for our healthcare professionals looking to protect a practice or provide ongoing financial support to their heirs. Wills, on the other hand, outline your wishes for asset distribution, but they don't have the same level of flexibility and control compared to a trust. Once your assets are really distributed through a will, they are no longer under your control. That, again, comes back to making them potentially, the assets, potentially vulnerable to mismanagement or disputes.
Jag: You've hinted the last point on this, safeguarding your practice. If you have a practice in the healthcare industry, you want to protect that after you're gone.
Amy: Absolutely. It's much like my financial planning practice.
Jag: Right, or my podcast production practice, if I want to call it practice.
Amy: Absolutely. For many of our healthcare professionals, safeguarding that practice can be a crucial aspect of what's on their mind when it comes to estate planning. By placing practice assets within a trust, they can ensure a more seamless transition to a designated successor or a partner. What that really does is it makes sure their clients, their patients that they have worked so hard to take care of over the years, continue to have the care they want at their passing. Now, wills can specify wishes for a practice, but the process of transferring ownership and management through a will isn't so helpful necessarily because of the subject that probate creates and the legal complications of probate.
Basically, Jag, trusts offer healthcare professionals a proactive and comprehensive approach to protect their legacy. They provide privacy, they avoid probate, offer greater control over distribution of assets, and can be effective in safeguarding that practice if someone's in private practice. Wills are necessary, even more necessary than a trust because they're the step before, but trusts really offer that more tailored solution to meet specific goals.
Jag: Got it.
Amy: Properly funded trusts, unlike Prince's unfunded trust, can be powerful tools in ensuring a smooth and safe transfer of assets to beneficiaries.
Jag: You mentioned Prince's unfunded trust. What exactly did that look like for those who aren't familiar with that term?
Amy: Basically that assets haven't been put into the trust. Think about
your home, your cars, your bank accounts, your non-retirement investment accounts. Different than a 401k or a 403b or an IRA, the assets I just named don't have a beneficiary. We have to do something to get this money to past heirs. If I put these assets into a trust, these assets are no longer really owned by me, they're owned by my revocable or living trust. I should say there's many different forms of trust. I'm focusing on this first step estate planning here with the revocable trust.
Jag: Got it.
Amy: Essentially what happens is, I'm going to retitle these assets to be in the trust. My bank accounts may be retitled in the name of my trust. Now, in some cases, and we have clients who've done this in conjunction with their state planning attorneys, they haven't retitled that because their institution requires them to open a new account, they have to switch everything over. From a banking perspective, that's a headache. Instead, what they've done is they've added what's called a payable on death designation, meaning at their passing or at the second passing for a couple, those assets go into the trust. They pass them to the trust at death. Unfunded basically means that all those kinds of assets are still in my personal name rather than being in the name of my trust or being left to my trust at my passing.
Jag: Amy, we're into that home stretch right before Christmas. I'd imagine an unfunded trust is like taking a shopping cart through your big box store of choice and not putting anything in the shopping cart. You have the vessel, but you haven't utilized it because you actually haven't put anything into it for it to actually do what it's supposed to do.
Amy: Jag, that's a great analogy. Let's just say that shopping cart though, the use of that shopping cart cost you $3,000 to $5,000.
Jag: [laughs] That's a good point.
Amy: So, yes, correct.
Jag: You are going through big box store X in your gold-plated monogrammed special shopping cart, but you spent all this money on the cart. If you don't put any toys in the cart, you've just wasted that money. I appreciate you taking my analogy and furthering it. Thank you. Let's pivot a bit before we wrap up, Amy. What are some common mistakes healthcare professionals specifically make when it comes to legacy planning?
Amy: One common mistake is failing to update their estate plan regularly. I'll throw an actor out this time, Philip Seymour Hoffman. He had outdated estate planning documents and that can lead to unintended consequences, which we're pretty sure happened in his situation. In his case, the will was so old that it didn't account for the birth of his youngest child.
Jag: So that child got nothing.
Amy: So that child was not included as a beneficiary.
Jag: Got it.
Amy: Another error is not considering tax implications. In the example I just used, there were tax consequences of that. Aretha Franklin and Prince also had them. We know Tony from The Sopranos. If we think about Tony, he was avoiding some taxes. When James Gandolfini, who played Tony on The Sopranos, passed away, approximately 55% of his estate went to taxes because he had not kept his estate planning documents up to date.
Jag: Not that I'm making light of somebody's passing, but given the character he played, that's ironic.
Amy: Yes, it is. [laughs]
Jag: Finally, Amy, can you share any success stories? Let's not be all down on this episode. Let's share some success stories or examples of healthcare professionals who have effectively planned out their estates and left a positive legacy.
Amy: Yes, well, Jag, there's many more of these stories than there are of the bad stories. It's just bias and we don't hear about things when they go smoothly. This is more the norm than not for especially healthcare professionals that are dealing with many times life and death situations. There are people who, through proper estate planning, have ensured the smooth transition of their practice to a trusted colleague, securing that legacy and taking care of more people in the future. Others have established charitable foundations or scholarships in their name. That can leave behind a lasting impact on the healthcare field.
Jag: I'm glad we're ending this on a positive note, Amy, in talking about the majority of folks who do this well. Thanks for the great information, as always, on this. If our healthcare professionals or anybody listening have questions about estate planning, legacy planning, or really anything related to their finances that we've covered in this six part series or not, how do they best reach you at Thimbleberry Financial?
Amy: They can reach us online at thimbleberryfinancial.com. We've got a little chat-with-us button that will allow them to reach us, or they can give us a call at 503-610-6510.
Jag: Pleasure as always, Amy. Happy holidays. We'll talk to you in January.
Amy: That sounds great.
Jag: Security is offered through registered representatives of Cambridge Investment Research, Inc., a broker or dealer member FINRA SIPC. Advisory service is through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated. Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Security is offered through registered representatives of Cambridge Investment Research, Inc., a broker or dealer member FINRA SIPC. Advisory service is through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.
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