Personal Interview with David Savage, a CFP Professional….

Walking back from my post box, I recently saw a familiar sight.  I had received my 1,000,000^th invitation to a free dinner to inform me about handling the assets they assume I have and more specifically how to make a living trust.  That millionth number might be an exaggeration (maybe).  But it feels like only slightly so.

On the bright side for the restaurant hosts, the scrumptious advertising details always make my mouth water with delightful anticipation.  Conversely, some of the fine print in the literature outlining the presentations is enough to scare you to death.  Maybe that is the ploy, scare us with a high enough stress level to get us closer to our final exit step.  Although only AFTER we sign up for whatever it is being sold.

To be more gracious,  I am certain these promotions have triggered action on the part of many of us to actually get up and make a plan.  Others of us still drag our feet despite the threats of losing everything and having nothing to leave behind to loved ones or favorite causes.  Surely, on occasion these dinners are well worth the time, and presented by reputable folks trying to get the word out.  That’s occasionally.  Others are hucksters with rather exceptional fear-mongering skills.

So when attending a recent community lecture by a speaker whose company is a Registered Investment Advisor (RIA) and I heard him utter the words “Probate is not the end of the world,” I almost fell off my chair.  I figured I had to interview this guy and report back to you.

OUR MEETING —

So I arranged a meeting at one of the myriad coffee shops in Ashland Oregon, although later I realized he probably would have preferred the really neat new tea shop.  He mentioned new studies touting the benefits of coffee but said he never acquired the taste.  Thus, we organized his tea and my coffee on the small table surrounded by my sketchy notes and dug into the subject about which he is obviously passionate.

David Savage, a Certified Financial Planner Professional ™ (CRP) is now located in southern Oregon, but has a background in other states and with some well-known companies.

To start our conversation, David recapped that “probate is a legal process whereby a court oversees the distribution of assets left by a deceased person.”  After my complaint about dinner invitations he added that “Yes, some attorneys travel around and give workshops on the evils of probate in order to promote living trusts, which avoid probate.“

Now before I go any further, let me be clear that David is not suggesting probate as a financial planning tool.  I think he is simply trying to make sure if any one of us is on our death bed that the last realization we have is not ‘oh gosh, everything is going to probate,’ but instead something like ‘I am lucky to have had love in my life.’

As a CFP (Certified Financial Planner), he takes no commission and by definition is a legal fiduciary agent, meaning a professional who is obligated to put the client’s interest first.  He also mentioned how strictly they are regulated.  Grimacing, I suggested it would have been nice if the big banks played by those rules.  He laughed but didn’t comment.  Having worked at Morgan Stanley for a long while when residing elsewhere, I think he knows how the big world works.  [And after just seeing the movie, The Big Short, I too understand more of the outrageous exploitation than I would like to know.]

Right now David is just committed to serving his clients well (whether near or far) and giving back to the community.  Part of his service includes avoiding scare tactics to manipulate people into unnecessary actions.  He does think certain steps are vital, and strongly encourages everyone to have a will, a Power-of-Attorney and an Advance Directive filled out.

But again, what about the living trust?  David explained

“a living trust can be a useful estate planning tool for many people,
but may not always be worth the
added cost and effort in my opinion.”

To be clear about its benefits, according to David, the primary purposes of a Living Trust (LT) are to avoid probate, reduce attorney fees and make settlement periods ‘potentially’ quicker.  He added that once in a while you come across the folks who want to avoid the publicity of probate.  They may resent any public procedure, such as notice of the proceedings in the local paper or their name in the classified section to alert possible creditors.  [Of course, you really have to wonder how they would KNOW.  Newspaper subscription in heaven?]  A Living Trust (LT) does not have the same type of publicity.

The tradeoff is that the trusts are more expensive to set up and have to be “funded” correctly, with assets being retitled into the trust.  Additionally, it is essential to remember that when making a decision to establish a LT or not, some assets are NON-PROBATABLE (outside of probate procedures to begin with).  David gave a couple examples of why this is relevant and some things that would not go to probate even without a LT.

1. Retirement accounts can be left to heirs through a beneficiary designation, bypassing probate.  Another good reason to keep your accounts up to date with accurate beneficiary information.
2. Banking or taxable brokerage accounts can be in joint ownership with another name on your account (as long as you truly trust the new ‘co-owner’).  They can also be set up with a designation of “transfer on death” (TOD) or “payable on death” (POD).   Both bypass probate.
3. Life insurance that lists a beneficiary as someone other than the deceased.
4. Property (such as a house) with a legal designation listed as ‘joint tenancy with right of survivorship’ immediately goes to the spouse.  But after the 2^nd death it is still not probatable IF you were to put someone else’s name (like your kids) as ‘joint owners’.   This isn’t for everyone, but still good to remember.
   David added this further point for clarification:

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“It’s important to remember that if you put children on the title of a house, or make them joint owners of a brokerage account, that this constitutes a gift and could have tax consequences.”  He clarifies that for instance, “normally an asset gets ‘stepped up in basis’ at death, meaning that the gains from the time they purchased the asset to the date of their death are forgiven. If you put a child on the title, they would lose the step-up.”

(For more information on the difference between probatable and non-probatable, visit Elder Law Answers http://www.elderlawanswers.com/probate-v-non-probate-what-is-the-difference-14411   )

David gave an example with round figures of a $2 million estate with a house worth $500K, another $500K in brokerage or bank accounts and $1 million in an IRA.  [So a significant estate.]  With a beneficiary’s name on the IRA account, it would not be part of probate.  If the house were in ‘joint ownership’ with a child or someone else that too would not be probatable.  Even the bank and brokerage accounts might be listed as either TOD, POD, or in joint ownership, again bypassing probate.

Another question formed in my mind after David said “with larger estates, a living trust may make sense.”  My question?  What IS a large estate?  How big is big?  Of course, his answer was something I will paraphrase as ‘it depends.’   But he added that in his “opinion” as a ROUGH rule of thumb, assets somewhere around $500K start to suggest the need for a licensed attorney that can “help you weigh the pros and cons.”  Of course it depends on how complex your financial portfolio is and if you have only non-probatable assets (as above).

YOUR ADDRESS MATTERS —

What state do you live in? Does this matter when you think about how awful probate might be?  Curiously, yes it matters.   Some states like Oregon have a flat attorney’s fee for disposing of probate matters.  That is good.  No surprises there.  But others like California work on a commission and a large estate could get socked but good.  David confirmed that “hourly rate states will generally be cheaper.”

Later I noticed that some states allow lawyers to charge a ‘set percentage’ fee.  It might sound good that limits are ‘set,’ but the bad part is that the law often allows the limits to be set on the GROSS value of assets.  Yikes, that means they are charging even more.  [Some of these states include Arkansas, California, Florida, Iowa, Missouri, Montana and Wyoming.]  And only the very wealthy appear to get any kind of graduated ‘deal.’

After our meeting, I contacted David again to ask if there is any type of reference or website that has a state-by-state comparison for flat fee vs. percentage.  He was not aware of such a source but did point me to an on-line discussion that may be of interested to any of us evaluating such costs.  See the page on NoLo – Law for All site that covers lawyer fees and billing for handling resolution of probate estates.

Let’s get one thing straight: a Living Trust (LT) is basically for your heirs.  You are doing them a favor.  David agreed that this is part of the goal and said,

“Rather than go through all the trouble and expense
of having a living trust,
you could let the heirs bear the expense and time
since they’re the beneficiaries.”

Again, he is not promoting probate as a financial strategy.  Instead, he is simply pointing out particular options for consideration that some advisers won’t tell you.  If you are under the assumption that your gift to your heirs is good enough and that dealing with these legal issues is not that onerous, you may not feel a LT is necessary.   If you are looking to leave them one more gift (namely ‘ease’) then you may want to establish a LT yourself, and settle matters.

Personal Disclosure —

For full disclosure, long ago, after reading a book on ‘making your own living trust,’ I figured ‘oh, how hard can it be?’  [And it isn’t really THAT hard.]  Therefore I helped my mother develop one.  Long story short, I prepared lots of it right………BUT it still needed a bit of professional intervention.  Oops.

That brings us to David’s last (and not unexpected) piece of advice.  “For the pros and cons of wills vs. living trusts for your personal situation see a competent estate attorney.”  He further advised “and try to avoid the “trust mill” attorneys.”  Personally, I might add if you ‘do-it-yourself,’ then make sure you immediately follow up with an attorney.  True, it may save you money if you start the process at home (even if your learning curve is immense).  Nevertheless, having it professionally evaluated soon after will definitely save you money, effort and anxiety by avoiding any later unpleasant revelations.

David can be found at: http://savageandcompany.com/

P.S.  As I began the process of putting this post on-line, I stopped for tea and to get my mail.  Guess I don’t have to tell you what was in the box.  #1,000,001.

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