By: Michael J. “Mick” McGirr, Esq.
Originally published in the March 2021 AZREIA Newsletter. View original print here.
Typically, I write in this space about topics affecting transactions, contracts, or the nuts and bolts of different aspects of your deals. That is because I spend 90% or more of my time working on the business end of things. However, one of the services Phocus Law provides is much less ‘business’ and much more ‘personal’ in nature – estate planning.
What is estate planning? For the purpose of this article, and to keep this simple and not too lengthy, we’ll limit our definition of estate planning to the following: The use of legal tools to plan for the handling of your assets upon your passing. Often, estate plans utilize either a will, a trust, or a combination of the two. If you pass away with only a will, your assets will need to go through the probate, the process through which a court gets involved in ensuring that your creditors are taken care of and your will is carried out properly. When a trust is used in your estate plan, probate is most often able to be avoided entirely as your trust survives after you, meaning that the person or persons you appoint as your successor trustees can carry out your wishes without any court involvement. The simplest way to conceptualize this is that, through the use of a trust, your assets and your estate do not die with you, but rather continue as their own entity, managed by someone you have appointed and whom you have given instructions that bind that person on the disposition of your estate and assets.
For most people who manage to gather assets during their lifetime exceeding a fairly low floor, a trust is the most efficient, cost-effective, and meaningful way to make sure that the wealth you have worked so hard to attain during your life goes to those you care most about, and not to the government in the form of taxes, the courts or lawyers as a result of probate, or unintended third parties as a result of your estate plan not providing clear instructions.
With it settled that a trust is desirable for most folks reading this, let’s talk for a moment about how to utilize that trust in your investing and business life. A trust is only most effective in streamlining the disposition of your assets when those assets are actually titled in the name of the trust. Simply put, if you go through the time and expense of setting up a trust, but then fail to ‘fund’ the trust by assigning all of your assets to the trust, then you are only slightly better off than if you had no trust at all.
I understand that assigning your assets to your trust and continuing to do so with all assets you acquire going forward may sound cumbersome or complicated. Good news – it’s not that bad! Once you have your trust set up, any accounts or assets that you hold in your personal name (personal accounts, personal residence, etc.) should be transferred to the trust. If you are holding investment properties in your personal name, we need to have a conversation about the proper use of LLCs as a shield for your personal assets (one of my favorite topics). As for any businesses you may own, investment properties held in LLCs (or, more rarely, corporations), investment holdings, etc., you can simply replace the member of the entity with your trust. This means that just because you may have a few properties in the same LLC, assigning those to your trust does *not* mean you need to re-title each property. Simply removing your personal name as the member and replacing it with the trust will have the effect of transferring all of the assets/properties/etc. in that entity into the trust.
Estate planning is a big topic that can be daunting to many folks. However, it need not be. Phocus Law has taken many steps to make estate planning as simple, understandable, and pain-free as possible. If you’re interested in discussing your estate planning with an experienced professional who can ‘pull back the curtain’ and make it all make a bit more sense, please reach out. Sam Richardson is a member of the Phocus Law team who heads up our estate planning group. He would love to assist you in setting up a new plan or in reviewing and revising your existing estate plan to make sure it is legally compliant and designed in such a way as to help you achieve your goals. Please feel free to reach him by email at: Sam@PhocusCompanies.com or by phone at (602) 457-2191.