Trusts, Wills, and Estates: War Stories from a Career Trust Officer

April 12, 2021 — Today we are fortunate to have an interview with Jim, a retired vice president and trust officer  at a large Pennsylvania bank, who spent his entire career administering estates of all kinds and sizes. We think you will find his real life examples of what to do – and what not to do – in estate planning very useful.

The tips, advice, and experience that Jim brings to this important  topic is critical, since inevitably, everyone needs an estate plan. Jim believes that only about 50-75% of people of retirement age have an estate plan of some kind. Most of those folks have wills, while a much smaller percentage have trusts. As he pointed out early on in our interview,  even if you think you don’t have an estate plan, you actually do. That is because in the event of no will or trust, the government has rules about how your assets will be divided after your death. The problem is that it probably won’t be distributed the way you wanted it to be done.

How does the trust process work and how are they different from wills?

Jim: A trust is a document similar to a will, but it is private. Trusts do not have to go through probate (hence the term avoiding probate). A will or a trust can be destroyed or changed at any time. A will can be discovered as public information, which could be embarrassing. With a trust only your attorney and trustee know what is in it. Another advantage of trusts is that they are faster to settle.  With a will you have to advertise, and can’t safely distribute the assets before the end of that period without taking a risk that a creditor might surface who has to be paid. The amount of time you have to wait depends on the state. Tax issues are usually not going to be too different with either option.

How do you set up a trust?

Jim: Trusts are normally set up by an estate planning attorney. He or she will provide guidance and advice. The document is drafted and then signed with witnesses. Then all of your assets except personal property are put into that trust, which now owns the assets. It is possible to set up a trust yourself using an online program, but it would be extremely risky.  

How does a bank or other expert like an attorney handle a trust if they are appointed executor?

Jim: If a bank is appointed executor it will pay debts, distribute the assets, and pay taxes.  No matter who is the executor, distributions can be set up anyway you want – all at once, periodically, at a certain age, etc. Bank trust departments tend to be compensated by a percentage of the assets, often 5%, and usually less on larger estates.

Who should you choose to be executor of your estate?

Jim: Whoever you choose should be impartial, intelligent, and not easily influenced.  People often choose a brother and sister, but that can create problems as you both age. Someone from a younger generation might be a better choice. Being an executor is a lot of work, and might be a serious imposition on a volunteer. Choosing a bank is often a good choice because banks are impartial and have experience doing this. If the executor or administrator gets hit by a bus, the trust department will have someone to take over. Jim admitted that bank trust departments often tend to get problem situations, such as large estates or where problems are anticipated with heirs are anticipated. For couples without close relatives who could be executors, banks are ideal.

What are the best things to do when setting up your estate plan?

Jim: One family I remember did very well in life and had created substantial wealth. They were worried that their son saw that and would feel entitled and never develop on his own. So early on they told him, we will pay for your education, buy you a car, and provide nice gifts, but that is all. Don’t expect anything after we are gone.  The kid turned out great, and is now taking the same approach with his children.

What are some of the worst mistakes you have seen in estate planning?

Jim:  Overall, when you write your will or trust you have to remember that after your death there is no second chance to change your mind. So think carefully and get good advice. You can always change your mind, so go back and look at your plan periodically.

A mistake I have often seen is not setting age or time provisions for distributions. For example, if a child is very young and you give him or her a big chunk of money, it might be gone really quickly. A better idea is to give a fraction every so often, and/or at certain ages. 

Not being fair can cause problems. I remember a father who left everything to a daughter who was not married, and gave nothing to the son, who was married. The father told me that the son would look out for the daughter. I advised him that this wasn’t fair, the son is going to be bitter, and maybe not so eager to look out for his sister.

Even when you try to be fair bad outcomes can happen. For example, heirlooms and other family assets carry emotional weight and tend to bring out the worst in people. Old grievances re-emerge. I have seen cases where some of the heirs never spoke again. It is best to stipulate in writing exactly what is going to happen to avoid problems down the road.

I once had a case where the parents of a young child were killed in an accident. The trust said he got everything when he came of legal age. At 21 he got the money and went through it quickly. When other relatives complained that all of the money was gone, there was nothing to be done.

What about issues that come up with mixed families and second marriages?

Jim: These are tougher issues and I have seen many problems. An interesting example I had was a widow and widower who married late in life; the new family had four grown kids.  The trust was set up so each child got one fourth of the estate. Then the wife died, and the husband changed the trust so his stepdaughter only got a lump sum of $50,000, which favored his natural children. The other kids continued to split the original bequest. Ironically, the man lived a long time, taken care of by the stepdaughter. In the end he had spent almost all the money in the trust. The stepdaughter got her $50,000, but as the residual beneficiaries, the other children found there was almost nothing left for them. 

What should someone with a special needs child be concerned about?

Jim: If the child is a ward of the state it will pay for their basic care. If you leave money to that heir it will have to be spent  down, so the assets are best left to the other children. A separate trust or arrangement could be set up to provide additional money to the special needs child. Adult children who need help but are not institutionalized are more difficult to provide for. You need talk to an estate planning attorney in the state where you live to help handle this.

Any parting advice or comments?

Jim: Beneficiaries of an estate have to understand that the assets will be distributed exactly how the will or trust says.  It is in writing, and that is how it will be done. I was frequently surprised by how many intelligent people don’t get this, and end up getting upset and spending money on legal challenges, but to no avail. Logic seems to go out the window in so many cases. Just because your neighbor’s sister-in-law says it is not fair, the will controls the way it will be. I have seen these types of situations come up on Topretirements blog comments.

Just to show you how bizarre things  can happen, here was an interesting case with divorced parents who died. Each child got about $10,000 on their 21st birthday.  One day of the children called me up and asked how she could get her money, now that she was 21, and she wanted it quickly. She arrived to pick up the check with four friends. Outside the car was packed for spring break, the financing of which was probably not in the mother’s plan. Spacing the money out might have been a better idea!

For further reading:

• What Will Be Your Digital Legacy: A Mess for Your Children?
• Is It Fair to Leave Different Amounts to Your Children
• Don’t Die Without a Will
• Leaving an Inheritance to Your Children: The Height of Foolishness?

Bottom line:

Thanks for sharing your experiences with us Jim. I know I learned a lot, and hope Topretirements Members will do the same. Please share your thoughts and experiences in the Comments section below.