Understanding Estate Planning

10.17.25 Estate planning 

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[00:00:38.82] [AUDIO LOGO] 

[00:00:53.63] Hi. My name is Jordan Sprechman. I'm the practice lead of the US Wealth Advisory practice based in New York. I'm joined here today by my friend and colleague Gigi Orta. Gigi's based in San Francisco. And we're going to talk about basics of estate planning. And why are we going to talk about the basics of estate planning? Our clients consistently tell us that the top two things that they would like to hear from their private bankers at J.P. Morgan about most often are number 1, investments and number 2, estate planning. 

[00:01:29.83] And the topic of estate planning is something that confuses a lot of people. I think it scares a lot of people, and a lot of people don't know how to start on discussing an estate plan. And so what we're going to talk about over the next few minutes are some of the key elements to an estate plan such as what is an estate plan, how do I start on an estate plan, what are the most common estate plans, what are the most common mistakes that one sees doing an estate plan, and one of the hardest decisions around putting together an estate plan. So Gigi, let me ask you first question, what is an estate plan? 

[00:02:07.45] What is an estate plan? An estate plan is the plan by which we're going to dispose of your assets at the time of death. What does that mean? That means who gets your stuff. That's how I think about it. It could be money, real estate, pets, personal belongings. And we'll talk about this, but also, who's going to get your children. 

[00:02:30.21] And those are all obviously big and weighty decisions that people have to make. Another key part of an estate plan is, of course, again involving an estate plan which presupposes that you have passed away. Who's going to carry all this stuff out, right? 

[00:02:46.94] That's right. I actually think, though, an estate plan, we typically think of it as what happens to my stuff when I die, but there is also a possibility that somebody is not totally dead. Maybe they're only mostly dead. And then in that period of incapacity, your estate planning documents can also provide for a mechanism by which your affairs can be taken care of while you're still alive, but unable to do it for yourself. 

[00:03:11.02] And that involves not only taking care of your financial assets, but also yourself personally, right? 

[00:03:16.54] That's right. Both financial decisions and medical health care decisions, which became really a big deal during COVID. People did lose capacity for months at a time and if they didn't have the right documents in place, the family members, the friends had a difficult time making those decisions. 

[00:03:32.77] So an estate plan basically, again, two key elements, number 1, who gets my stuff, number 2, who is the person or who are the persons who are going to carry out what my wishes are as they are expressed in my documents. 

[00:03:47.83] That's right. 

[00:03:49.41] So what is an estate plan? The next question is, where do I start? What do I do? I understand the importance of having an estate plan. I understand the gravity of it, but how do I start? I think a lot of people get hung up on the how do I start because they don't where to go or what to do. 

[00:04:09.28] Yes. How to start an estate plan? I think the hardest part about estate planning is making the decision to do it and finding the person or persons to help you do that. So I would start with choose a good estate planning attorney. That means somebody who specializes in estate planning. There are generalists out there just like there are general practitioners who practice medicine, but if you have something specific that you need done, you would go see a specialist. So for estate planning, I do think it's good to find a specialist. 

[00:04:40.39] How do you find a lawyer? You can ask your friends, ask somebody who had a really good experience with their own attorney, someone they really liked. This is the person you will call if your spouse dies, when your spouse dies. So I think you should choose carefully. In some states-- I practice in California. In some states you can write your own will. I don't generally recommend that, because there are a lot of nuanced decisions that have to be made when somebody drafts an estate plan, but it is in some cases, better than nothing. 

[00:05:12.24] I want to go back to the point of choosing somebody. I totally agree with you. You need somebody who specializes in this, but I think it also needs to be just as importantly, somebody with whom you have a good fit. The chemistry is important, isn't it? 

[00:05:28.42] It's very important. People ask me all the time, what am I looking for when I'm interviewing estate planning attorneys and I say someone who speaks the same way you do, someone you can understand and communicate with because if you have an attorney that you cannot communicate with, you cannot understand the questions that they're asking, how are you going to answer them in the best way? So I think you're looking for personality, obviously expertise, capacity to take new clients. 

[00:05:53.85] Some people are concerned about cost, so they will ask about fees, but I think that fit from a personality perspective. You have to feel really comfortable with your estate planning attorney. You're going to talk about really personal things, so it should be somebody you like. 

[00:06:11.31] I always tell people when this comes up, if you get that phone call or that text or that email and you see that name at the top, you want-- your reaction ought to be, this is good or this is important, or they're going to communicate something that this person thinks I need to hear. If your instant reaction is oh no, what's this going to cost me? Or I don't really want to talk to him or her, or this is bad, then it's probably not the right person, is it? 

[00:06:43.02] Totally agree. No. 

[00:06:44.18] So that's my approach. I agree with you. Competence always super important. And I think you get the competence from, again talking to colleagues who have had good experiences, friends or colleagues, or coworkers or whatever, who had a good experience with somebody, but also the fit is critical. 

[00:07:04.03] I practiced law for 20 years and when people would come to me and they would want to update their estate plan, I would often ask them, why don't you go back to the attorney who drafted it? That's less expensive, maybe easier, they already know you, they know the family. And I cannot tell you how many times people said, well, I never really liked that person which begs the question, why did you hire them? 

[00:07:22.68] It's always a good question. I think sometimes it's just you stick with the thing that's easiest to do, but these issues are so important you really want to be talking to somebody with whom you have a certain simpatico. You have to have something of a relationship with that person. 

[00:07:36.73] I would also emphasize that I have had many clients use the same attorney that represented their parents, that worked with their parents, and that attorney might be practicing in a different state. It is very important to find an attorney who practices in your state, because there are very specific issues that are different state by state. 

[00:07:55.57] So let's talk about that. You're in California. The first thing I always think of when I think of California, well, aside from high taxes, but we have those in New York. 

[00:08:04.62] I thought you were going to say nice weather. 

[00:08:06.53] Well, there's that too, but the thing that I always think of first and foremost is community property. And we're not going to get into a discussion of community property or separate property here, but that's the kind of thing that if your lawyer's in Oregon, which is a separate property state, what does he or she know about community property and vice versa? 

[00:08:31.82] Absolutely. Community property. property tax issues are different state by state, homestead issues. So really important, I think, to find someone who practices where you live, those are the laws that are going to control. 

[00:08:45.26] Now, one of the things that a lot of again, in this world of estate planning, which is very personal, everybody's going to have their own different decisions. Everybody thinks about their family and their legacy in a very individual way. And so therefore, they may not necessarily share a whole lot of information, even with friends, about what their plans are going to be. What is the most common type of estate planning for let's start with a married couple first, and then a single individual second. Married couple, what's the most typical estate plan? 

[00:09:21.31] Most typical estate plan in terms of who gets what? 

[00:09:24.40] Yes. 

[00:09:25.30] So most married couples plan to give all of their assets to the surviving spouse. If they have children, then after the death of the second spouse, the assets will be distributed to the children. That's not always the case, but that is the most common. 

[00:09:41.50] And that's certainly my experience. Most of the time most people are going to say all two spouse, we're going to talk about what the all two spouses in a second, because there's a big nuance there, all two spouse and then all two children. I agree with that. I'm going to say that's true 90% to 95% of the time that's, I think, fairly. That's the most common situation. 

[00:10:04.23] There may be a few. Sometimes you see a few small cash gifts to some family members, maybe a small gift to a charity that person supports, but the majority is everything to the spouse and then to the children. 

[00:10:13.98] So now let's talk about nuance number 1, all to spouse. There are basically two ways that wealth can pass, one is outright, the other way is in trust. Talk a little bit about the difference between the two and why it's so important. 

[00:10:29.28] I think most people think about leaving their money to their spouse outright with no restriction. They haven't even thought about anything other than you're my spouse, I love you, of course, I'm going to give you everything. What I gently try to socialize is the idea that your spouse might get remarried or fall in love with somebody else. They don't even have to get married to somebody else. 

[00:10:51.03] And everybody comes to the table with a little bit different life experience. Maybe they've heard of somebody who had a stepparent who they didn't get along with, and that stepparent got all the money. That can happen. And so when you give all your money outright to your spouse with no restrictions, it's a tremendous amount of trust, but it's not in trust. 

[00:11:09.55] I was going to say in most specifically married with children if property passes outright to surviving spouse, surviving spouse can do whatever he or she wants to do with that wealth which means that your children, my children, would be disinherited completely. And the way to protect that is, or to avoid that outcome is-- 

[00:11:33.18] The best way to protect that is to still say, I'm going to give everything to my spouse. I want you to have access to my money for yourself and for our children, but I'm going to hold it in a continuing trust for your benefit, and I'm going to put some restrictions on that, some guardrails. One of the decisions that has to be made if that's the type of plan you're thinking of is who is going to be in charge of making those distributions from that trust for the spouse. 

[00:12:01.42] Oftentimes, I see the spouse as the trustee of that trust which to me is like putting the fox in charge of the hen house. You really want to put the guardrails up. And sometimes this is more important for second marriages, third marriages, blended families. The issues can get really complicated, but I think conceptually pull it way back and think the first decision I have to make if I'm a married person is what happens on the death of the first spouse. And to your point, there are two fundamental choices outright to the spouse or in trust with some sort of guardrails. 

[00:12:33.65] It doesn't have to be all or nothing. You can leave some to spouse outright, some in trust for the benefit of spouse, but it's one or the other. It's outright or in trust, and the assets that pass outright are now freely available for the spouse to do whatever he or she wants to do with. The assets and trust are going to stay in trust for as long as the trust lasts. How long does the typical trust last in that case? 

[00:13:00.49] The lifetime of the spouse. 

[00:13:01.84] Yes. 

[00:13:02.86] And I think you can also think about it asset by asset. So you could say all of the assets in the trust go in a continuing trust for my spouse, but maybe you have an IRA, 401(k) life insurance policy. You can use a beneficiary designation to name the spouse outright. So the spouse does receive some cash outright, but the bulk of the estate is generally held in trust for the lifetime of the spouse and whatever's left when that spouse dies passes to the kids. 

[00:13:32.56] So married couple, all the spouse whether outright or in trust after the surviving spouse dies, all the children. What are the biggest issues when wealth passes to or is available for children? 

[00:13:48.95] So children-- legally adults in most states, I think all states at age 18. I think we can all agree-- I have three children. I think we can all agree that 18, parents are necessarily dead in this scenario, and all of the money at 18 is a bad idea. 

[00:14:06.37] Whatever all is? 

[00:14:07.61] Whatever all is, yes. We were talking earlier when I was young and in college and I had an ATM card, I had the choice of taking $5 or $10, and I would stand there and go $5 or $10, $5 or $10. $5, that was a good guardrail for me. I didn't have all of the money accessible to me at that age. 

[00:14:29.60] So most parents would say, do you want all the money for the kids? And I always want this money available for basic needs. Education, health care, basic support, but you're not going to get the bulk of the inheritance until you either reach certain ages of maturity, which, by the way, we're totally guessing on those ages, or it can stay in trust for the lifetime of the children and provide that backup plan if those kids ever need a distribution, they have access to wealth, but they never really get the keys to the kingdom. 

[00:15:03.46] And when people leave money in trust for the benefit of their children, parents leave trust for the benefit of their children, you talked about the children will get distributions of some of that wealth at a certain time. First of all, do they tend to get it all at once, or does it tend to get dribbled out? And if it gets dribbled out at what ages typically does it get dribbled out? 

[00:15:25.46] I've seen it all different ways. I certainly have seen people do one bulk distribution at age 30 or 35, call it. I prefer to do a dribble out plan for my own kids. I call it the three strikes plan. I am a baseball fan. I think three strikes. I think the first two mistakes you get-- for my own kids, 25% is the first distribution and then another 25%. The last distribution will be the balance, that's the largest distribution. If my children have made mistakes with those first two distributions, they've got one more chance to fix it. 

[00:16:01.04] And at what ages are we talking about? 

[00:16:03.17] Well, I recently changed my ages of distribution. 

[00:16:05.46] You moved them out? 

[00:16:06.65] I moved them out further. 

[00:16:07.58] Of course you did. Everybody does. 

[00:16:08.87] I did. I started with 25, 30 and 35. My son turns 25 this year. Not that I don't trust him. It's not that I don't trust him. I'm enjoying watching my children learn how to live with a budget. I'm enjoying watching them have some financial education on their own. Understand the value of working. So I did just recently push my ages out a little later. But I don't think going past 40 makes much sense. If my kids are losers at 40, they're still going to be losers at 45. 

[00:16:44.14] That's probably right because-- and the way I've always looked at it, I always have 35 in my head, but if you haven't figured it out by 35, the chances are you're going to figure out are probably pretty slim. 

[00:16:53.78] Exactly. 

[00:16:55.83] And most clients do the three-tiered approach, whether it's 25, 30, 35. 30, 35, 40, whatever those numbers are. One of my mentors in this business always used to say, that's same analogy. Three bites at the apple, which is two more than Adam had. 

[00:17:16.35] I think it's really important to think about your own kids. This is a very personal decision. The other thing that will drive the decision between a staged out outright distribution versus holding it in trust for the lives of the children is the amount of wealth, the amount of money that is coming down to those kids, I think is a really important piece of the puzzle. And so I like to think about it with my clients. We can talk about the ages in a vacuum. We can talk about the things that they might need, but how much money. There's a big difference between three kids and $10 million and one kid and $100 million, big difference. 

[00:17:55.39] So we've talked about the married couple now let's talk about the single individual with children. Fair to say that most common estate plan is-- 

[00:18:08.53] Most common estate plan is 100% for an unmarried person with children. 

[00:18:14.03] And I just want to pause on the idea of all the children, especially multiple children, we will often hear clients ask us, should I treat the children differently or should I treat them the same. And you can make arguments on both sides of that issue. What do you see most commonly and what's your view on that? 

[00:18:38.15] I see most commonly equal to the children. If somebody wants to treat the children differently, I think it's time to take a big pause and understand why. In my experience, in my almost 30 years now in practice doing this and talking about estate planning and working with families, treating the kids differently has tremendous psychological effect. 

[00:19:02.64] And Gigi, I am 100% in agreement with you. And we often hear parents somewhat glibly push back on that and say, well, I'm going to be dead so I don't care if they're mad at me. And I don't think that's the real issue. The real issue is that will create friction between the siblings themselves and that, frankly is I think, something that we really want to avoid. 

[00:19:28.20] I totally agree. And I actually think it's interesting that most of the parents are punishing the more successful children. That's the child who gets less because that child doesn't need it. 

[00:19:40.38] Correct 

[00:19:40.82] Which is punishing success, which is not what we intend to do as parents. 

[00:19:44.16] That's right. Agreed. So most common estate plan married couples all the spouse then to children single individual, all the children, 

[00:19:55.45] Single individual with no children a little bit more complicated. 

[00:20:01.25] Way more complicated. 

[00:20:03.22] Those are clients you often can't execute the estate plan because they can't decide what to do with their money. Most common choices are going to be some set of friends, family members, and maybe charity, but that's a tough decision, it's a tough decision. Also, I think you should have a little fun with your estate plan. I think you should, of course, take care of the people that you love in your nuclear family, take care of your kids, take care of your spouse. 

[00:20:29.99] In my own estate plan, I am not married, I have children, I am leaving a slug of money to be used by my closest friends, and my letter of wishes is that they each take that money, go on a big trip and everybody has to buy one very expensive, iconic item in my memory and that makes me happy. Your estate plan should make you happy. 

[00:20:52.43] Yes. And slug is a legal term, right? 

[00:20:55.86] It's a term of art. 

[00:20:57.32] Fair enough. Shifting gears a little bit, what's the most common mistake that you see when people create estate plans? I think the first is they just don't go ahead and do it. That's the number 1, but beyond that-- 

[00:21:14.25] I think a lot of people, even if they get past the step of hiring the attorney, getting through that first set of questions, they get those drafts, the drafts sit and they never sign them. 

[00:21:24.95] Suppose that is. 

[00:21:26.75] I think any estate plan is better than no estate plan, but I think people feel like they're making these really significant, monumental decisions and they have to be perfect. Nothing's going to be perfect. There's no way to make this estate plan perfect, but I think the one thing is people just get scared and they don't get it done. 

[00:21:44.73] And can't you change an estate plan at any time? 

[00:21:48.54] Absolutely. Change it as many times as you'd like. 

[00:21:53.27] So people simply don't execute on the plan. They don't go ahead and they don't sign the documents and they don't do anything. What are some other common mistakes that people make? 

[00:22:02.09] So one of the really common mistakes, particularly for those we haven't talked about the types of estate plans can have a will versus a trust, but for those who elect for a revocable trust, which is most common in California, the trust only works if you fund it, meaning you transfer your assets to the trust. And I cannot tell you how many people never get. They sign it and they think, great, and they have a glass of wine and they cheers and they think, I'm done, but you're not done. You have to get that estate plan funded. 

[00:22:34.40] It's like having a fabulous car but not putting any gas in it it's just simply not going to go anywhere. I find mistake that a lot of people make is that they don't, and I'm using a word, a tricky word here, appropriately communicate the terms of their plan to the interested parties and that-- 

[00:22:53.61] I can't tell you how many people can't even find the estate plan when someone was died. And I think the most important thing that you need to do is not necessarily, if you don't want to communicate the terms, like, when are the kids going to get the money, at what ages, how are you thinking about it, but that you've done it where you keep it, who's the attorney, who's your banker, that's all really, really helpful when somebody passes and you need to help administer the estate. 

[00:23:22.74] And another thing I think a lot of people don't do is they don't update it as appropriately because things happen in life changes, right? 

[00:23:33.45] That's right. I think people set it and forget it and that's a mistake. I think this is a living, breathing document. Every couple of years, at minimum you should look at it. One, net worth changes so those decisions like as an example, we were talking about how old should your kids be when they receive their inheritance, net worth goes up dramatically. You might want to think about those ages. 

[00:23:56.24] The people that you've named to help administer the estate, that could be the trustee, the executor, the guardians of your children, are you still friends with them? Do you still talk to them every day? So I think the nominations that we make is something that absolutely needs to be looked at. 

[00:24:12.36] And on the point of nominations, one of the things that I'm fond of telling our clients is that when it comes time to pick a guardian for your minor children, that is when you really find out what your spouse thinks of your family because-- 

[00:24:32.13] Talking about guardians for one second, it's the number 1 reason parents would come to me for estate planning. I think it's the number 1 thing on the minds of parents is I really have to name my guardians. And I would say the number 1 reason people don't execute the estate plan is because they can't get past that decision. 

[00:24:49.14] And if you think about it it's completely illogical because you're worried about that less than 1% probability that both parents pass away before the youngest child is 18. 

[00:25:02.98] That's right. 

[00:25:03.43] Not saying it doesn't happen, but it's such a remote possibility that failing to execute on that because you simply can't make a decision never made any sense, still doesn't make any sense to me. 

[00:25:14.44] No. I totally agree. I think make your best guess. Put a couple of backups in there so you have a deep bench is the best thing you can do to protect those kids and change it. If you change your mind, change the documents. 

[00:25:28.84] Bear in mind you can always change your mind if for whatever reason you decided it wasn't the right decision. So final question, might be the final question. What are the hardest decisions that somebody has to make in implementing or deciding on, I guess deciding on and then implementing an estate plan? 

[00:25:50.58] I think the hardest decisions when making an estate plan are who do I name to receive my assets? As we've talked about maybe what ages should the kids be before they receive their inheritance? What are the purposes for which they can receive distributions? I think one of the hardest things is deciding who to name, to take care of everything for you. 

[00:26:11.94] And those individuals or whatever go by, what's the terminology? We call them executors? 

[00:26:20.73] It depends on the document. So if it's a will you'll have an executor, if it's a revocable trust, you'll have a trustee. You'll also have agents in your powers of attorney. And thinking about who those people are going to be, for some people, very easy, very easy. At least for the married couples, they've got each other, but you have to name some alternates. And not everybody has a good bench of people that they trust to handle this for them. 

[00:26:46.15] Or sometimes the people that they trust might be as we used to say, in a different context, geographically undesirable may live on a different coast, or they may not be age appropriate, or they're an awful lot of things that you think this person's the right person except that they live there, or they have their own families, or whatever. 

[00:27:11.13] You're also just making a nomination. We abolished indentured servitude a long time ago, so you can't make somebody do it. You are nominating the people that you wish to do it. Everyone who is nominated in one of these estate planning documents will have the opportunity to say yes or no at the time the appointment is necessary. 

[00:27:30.39] And doesn't that therefore heighten the importance of communicating that decision to the people who you're nominating because you want them to serve, you're expecting them to actually serve, right? 

[00:27:41.61] You are. 

[00:27:42.98] Is there anything else on the topic of estate planning that you typically communicate with clients that you're talking with or attorneys that you're dealing with? 

[00:27:53.01] I think what I want to impress upon people is that I get a lot of people who say, I'm so behind the eight ball, I haven't done my estate planning. I know I should have gotten it done. And to them I say you are well ahead of your deadline, because if you are talking to me about it, it means you are still alive. So your deadline for estate planning is death. 

[00:28:10.35] People do get stuck, I think what is the statistic? 50% of people don't have a will in the US and that's a tragedy to me. Every state has a default estate plan for you. The state has decided where they think your assets should go. I think it's far better for you to decide for yourself, but you still have time. If you're watching this video you still have time to get it done. 

[00:28:34.74] And again, the enemy should not be the perfect of the good. You don't necessarily have to do everything all at once. If you had to choose an order in which you think documents should be executed, what would be the order speaking as a Californian? 

[00:28:54.33] Speaking as a Californian, I would say the revocable living trust is the number 1 document, that's the nucleus of the estate plan that should absolutely be considered signed and funded. I think one of the easiest steps to accomplish some estate planning is the beneficiary designation form. Make sure you have a primary beneficiary and a secondary beneficiary on your retirement accounts, on your life insurance policies, even on your checking account, savings account you can put beneficiaries on those types of accounts and you have accomplished some estate planning. 

[00:29:27.77] And you just need to what the implications of those designations are because you want to make sure that those beneficiary designations are properly harmonized with the designations that you've made, for instance, under a revocable trust. 

[00:29:41.37] That's right. And here's what I do not recommend. I do not recommend trying to do it yourself. Even with the software packages I'm sure they're very good, but the decisions that you have to make for these documents to be populated at the end of that question process are very nuanced or significant tax issues that can happen from making a bad choice so I do think it's worth the time, the money, the effort to consult with a dedicated estate planning attorney, formally execute the documents, and then you'll have a relationship with that attorney so that you can change the documents in the future. And also at the Private Bank, we are well equipped to help people think about their estate planning, look at the documents from time to time, answer questions as they come up. 

[00:30:28.51] I just want to ask one final question, because we've been talking about estate planning now in the context of dying, but there's an awful lot of estate planning that goes on before dying most of that, not all of it, but most of that tends to be tax motivated, isn't that right? 

[00:30:45.49] That's right. The revocable trust the will really logistics. How do assets transfer when you die it has nothing to do with tax. It has nothing to do with income tax, it has nothing to do with estate and gift tax. And so sometimes the motivation to do the estate planning is tax related. Different topic. 

[00:31:04.80] Yes, quite a different topic, but wanted to mention it because I think a lot of people associate passing away with estate taxes and to some extent income taxes, but certainly estate taxes, but what we're talking about today is just making sure that on your passing you know as you said at the outset, where your wealth passes, who gets your stuff and who's in charge of executing to make sure that your wishes are carried out the way you wanted them to carried out. 

[00:31:35.75] That's right. And we haven't really talked about the choice between a will or a trust, but that's another driving factor, another decision that has to be made. All wills go through the court system. We call that probate. sounds scary. 

[00:31:50.59] It's just a Latin word means proof, that's all. 

[00:31:53.17] Of course you know that. 

[00:31:54.72] Sorry. 

[00:31:55.65] Probate is a public process. 

[00:31:58.54] Yes 

[00:31:59.25] It can be very time consuming in some states, California, it can be very expensive in some states, California, but even if you're in a state where wills go through the probate system pretty quickly, pretty easily, maybe even not very expensive, it is a public process. And the idea of somebody knowing my children, knowing their names, their addresses, their birthdays, and every penny they're inheriting as public information to me, makes it absolutely a no brainer revocable living trust. 

[00:32:38.67] And of course, people will fall everywhere on the spectrum of how they feel about that sort of public disclosure, but privacy, through the probate process, there's a great deal of privacy that a family loses that they may not want lost. Gigi, thank you very much for your time today. Thank you, everyone, for joining our conversation today. Our Private Bank team is happy to help support you wherever you may be on your estate planning journey. 

[00:33:05.12] Thank you for joining us. Prior to making financial or investment decisions, you should speak with a qualified professional in your J.P. Morgan team. This concludes today's webcast. You may now disconnect. 

[00:33:16.37] [THEME MUSIC] mational purposes only. Opinions expressed herein are those of the speakers and may differ from those of other J.P Morgan employees and affiliates. Historical information and outlooks are not guarantees of future results. Any views and strategies described may not be appropriate for all participants and should not be intended as personal investment, financial, or other advice. As a reminder, investment products are not FDIC insured, do not have bank guarantee, and they may lose value. The webcast may now begin. 

[00:00:38.82] [AUDIO LOGO] 

[00:00:53.63] Hi. My name is Jordan Sprechman. I'm the practice lead of the US Wealth Advisory practice based in New York. I'm joined here today by my friend and colleague Gigi Orta. Gigi's based in San Francisco. And we're going to talk about basics of estate planning. And why are we going to talk about the basics of estate planning? Our clients consistently tell us that the top two things that they would like to hear from their private bankers at J.P. Morgan about most often are number 1, investments and number 2, estate planning. 

[00:01:29.83] And the topic of estate planning is something that confuses a lot of people. I think it scares a lot of people, and a lot of people don't know how to start on discussing an estate plan. And so what we're going to talk about over the next few minutes are some of the key elements to an estate plan such as what is an estate plan, how do I start on an estate plan, what are the most common estate plans, what are the most common mistakes that one sees doing an estate plan, and one of the hardest decisions around putting together an estate plan. So Gigi, let me ask you first question, what is an estate plan? 

[00:02:07.45] What is an estate plan? An estate plan is the plan by which we're going to dispose of your assets at the time of death. What does that mean? That means who gets your stuff. That's how I think about it. It could be money, real estate, pets, personal belongings. And we'll talk about this, but also, who's going to get your children. 

[00:02:30.21] And those are all obviously big and weighty decisions that people have to make. Another key part of an estate plan is, of course, again involving an estate plan which presupposes that you have passed away. Who's going to carry all this stuff out, right? 

[00:02:46.94] That's right. I actually think, though, an estate plan, we typically think of it as what happens to my stuff when I die, but there is also a possibility that somebody is not totally dead. Maybe they're only mostly dead. And then in that period of incapacity, your estate planning documents can also provide for a mechanism by which your affairs can be taken care of while you're still alive, but unable to do it for yourself. 

[00:03:11.02] And that involves not only taking care of your financial assets, but also yourself personally, right? 

[00:03:16.54] That's right. Both financial decisions and medical health care decisions, which became really a big deal during COVID. People did lose capacity for months at a time and if they didn't have the right documents in place, the family members, the friends had a difficult time making those decisions. 

[00:03:32.77] So an estate plan basically, again, two key elements, number 1, who gets my stuff, number 2, who is the person or who are the persons who are going to carry out what my wishes are as they are expressed in my documents. 

[00:03:47.83] That's right. 

[00:03:49.41] So what is an estate plan? The next question is, where do I start? What do I do? I understand the importance of having an estate plan. I understand the gravity of it, but how do I start? I think a lot of people get hung up on the how do I start because they don't where to go or what to do. 

[00:04:09.28] Yes. How to start an estate plan? I think the hardest part about estate planning is making the decision to do it and finding the person or persons to help you do that. So I would start with choose a good estate planning attorney. That means somebody who specializes in estate planning. There are generalists out there just like there are general practitioners who practice medicine, but if you have something specific that you need done, you would go see a specialist. So for estate planning, I do think it's good to find a specialist. 

[00:04:40.39] How do you find a lawyer? You can ask your friends, ask somebody who had a really good experience with their own attorney, someone they really liked. This is the person you will call if your spouse dies, when your spouse dies. So I think you should choose carefully. In some states-- I practice in California. In some states you can write your own will. I don't generally recommend that, because there are a lot of nuanced decisions that have to be made when somebody drafts an estate plan, but it is in some cases, better than nothing. 

[00:05:12.24] I want to go back to the point of choosing somebody. I totally agree with you. You need somebody who specializes in this, but I think it also needs to be just as importantly, somebody with whom you have a good fit. The chemistry is important, isn't it? 

[00:05:28.42] It's very important. People ask me all the time, what am I looking for when I'm interviewing estate planning attorneys and I say someone who speaks the same way you do, someone you can understand and communicate with because if you have an attorney that you cannot communicate with, you cannot understand the questions that they're asking, how are you going to answer them in the best way? So I think you're looking for personality, obviously expertise, capacity to take new clients. 

[00:05:53.85] Some people are concerned about cost, so they will ask about fees, but I think that fit from a personality perspective. You have to feel really comfortable with your estate planning attorney. You're going to talk about really personal things, so it should be somebody you like. 

[00:06:11.31] I always tell people when this comes up, if you get that phone call or that text or that email and you see that name at the top, you want-- your reaction ought to be, this is good or this is important, or they're going to communicate something that this person thinks I need to hear. If your instant reaction is oh no, what's this going to cost me? Or I don't really want to talk to him or her, or this is bad, then it's probably not the right person, is it? 

[00:06:43.02] Totally agree. No. 

[00:06:44.18] So that's my approach. I agree with you. Competence always super important. And I think you get the competence from, again talking to colleagues who have had good experiences, friends or colleagues, or coworkers or whatever, who had a good experience with somebody, but also the fit is critical. 

[00:07:04.03] I practiced law for 20 years and when people would come to me and they would want to update their estate plan, I would often ask them, why don't you go back to the attorney who drafted it? That's less expensive, maybe easier, they already know you, they know the family. And I cannot tell you how many times people said, well, I never really liked that person which begs the question, why did you hire them? 

[00:07:22.68] It's always a good question. I think sometimes it's just you stick with the thing that's easiest to do, but these issues are so important you really want to be talking to somebody with whom you have a certain simpatico. You have to have something of a relationship with that person. 

[00:07:36.73] I would also emphasize that I have had many clients use the same attorney that represented their parents, that worked with their parents, and that attorney might be practicing in a different state. It is very important to find an attorney who practices in your state, because there are very specific issues that are different state by state. 

[00:07:55.57] So let's talk about that. You're in California. The first thing I always think of when I think of California, well, aside from high taxes, but we have those in New York. 

[00:08:04.62] I thought you were going to say nice weather. 

[00:08:06.53] Well, there's that too, but the thing that I always think of first and foremost is community property. And we're not going to get into a discussion of community property or separate property here, but that's the kind of thing that if your lawyer's in Oregon, which is a separate property state, what does he or she know about community property and vice versa? 

[00:08:31.82] Absolutely. Community property. property tax issues are different state by state, homestead issues. So really important, I think, to find someone who practices where you live, those are the laws that are going to control. 

[00:08:45.26] Now, one of the things that a lot of again, in this world of estate planning, which is very personal, everybody's going to have their own different decisions. Everybody thinks about their family and their legacy in a very individual way. And so therefore, they may not necessarily share a whole lot of information, even with friends, about what their plans are going to be. What is the most common type of estate planning for let's start with a married couple first, and then a single individual second. Married couple, what's the most typical estate plan? 

[00:09:21.31] Most typical estate plan in terms of who gets what? 

[00:09:24.40] Yes. 

[00:09:25.30] So most married couples plan to give all of their assets to the surviving spouse. If they have children, then after the death of the second spouse, the assets will be distributed to the children. That's not always the case, but that is the most common. 

[00:09:41.50] And that's certainly my experience. Most of the time most people are going to say all two spouse, we're going to talk about what the all two spouses in a second, because there's a big nuance there, all two spouse and then all two children. I agree with that. I'm going to say that's true 90% to 95% of the time that's, I think, fairly. That's the most common situation. 

[00:10:04.23] There may be a few. Sometimes you see a few small cash gifts to some family members, maybe a small gift to a charity that person supports, but the majority is everything to the spouse and then to the children. 

[00:10:13.98] So now let's talk about nuance number 1, all to spouse. There are basically two ways that wealth can pass, one is outright, the other way is in trust. Talk a little bit about the difference between the two and why it's so important. 

[00:10:29.28] I think most people think about leaving their money to their spouse outright with no restriction. They haven't even thought about anything other than you're my spouse, I love you, of course, I'm going to give you everything. What I gently try to socialize is the idea that your spouse might get remarried or fall in love with somebody else. They don't even have to get married to somebody else. 

[00:10:51.03] And everybody comes to the table with a little bit different life experience. Maybe they've heard of somebody who had a stepparent who they didn't get along with, and that stepparent got all the money. That can happen. And so when you give all your money outright to your spouse with no restrictions, it's a tremendous amount of trust, but it's not in trust. 

[00:11:09.55] I was going to say in most specifically married with children if property passes outright to surviving spouse, surviving spouse can do whatever he or she wants to do with that wealth which means that your children, my children, would be disinherited completely. And the way to protect that is, or to avoid that outcome is-- 

[00:11:33.18] The best way to protect that is to still say, I'm going to give everything to my spouse. I want you to have access to my money for yourself and for our children, but I'm going to hold it in a continuing trust for your benefit, and I'm going to put some restrictions on that, some guardrails. One of the decisions that has to be made if that's the type of plan you're thinking of is who is going to be in charge of making those distributions from that trust for the spouse. 

[00:12:01.42] Oftentimes, I see the spouse as the trustee of that trust which to me is like putting the fox in charge of the hen house. You really want to put the guardrails up. And sometimes this is more important for second marriages, third marriages, blended families. The issues can get really complicated, but I think conceptually pull it way back and think the first decision I have to make if I'm a married person is what happens on the death of the first spouse. And to your point, there are two fundamental choices outright to the spouse or in trust with some sort of guardrails. 

[00:12:33.65] It doesn't have to be all or nothing. You can leave some to spouse outright, some in trust for the benefit of spouse, but it's one or the other. It's outright or in trust, and the assets that pass outright are now freely available for the spouse to do whatever he or she wants to do with. The assets and trust are going to stay in trust for as long as the trust lasts. How long does the typical trust last in that case? 

[00:13:00.49] The lifetime of the spouse. 

[00:13:01.84] Yes. 

[00:13:02.86] And I think you can also think about it asset by asset. So you could say all of the assets in the trust go in a continuing trust for my spouse, but maybe you have an IRA, 401(k) life insurance policy. You can use a beneficiary designation to name the spouse outright. So the spouse does receive some cash outright, but the bulk of the estate is generally held in trust for the lifetime of the spouse and whatever's left when that spouse dies passes to the kids. 

[00:13:32.56] So married couple, all the spouse whether outright or in trust after the surviving spouse dies, all the children. What are the biggest issues when wealth passes to or is available for children? 

[00:13:48.95] So children-- legally adults in most states, I think all states at age 18. I think we can all agree-- I have three children. I think we can all agree that 18, parents are necessarily dead in this scenario, and all of the money at 18 is a bad idea. 

[00:14:06.37] Whatever all is? 

[00:14:07.61] Whatever all is, yes. We were talking earlier when I was young and in college and I had an ATM card, I had the choice of taking $5 or $10, and I would stand there and go $5 or $10, $5 or $10. $5, that was a good guardrail for me. I didn't have all of the money accessible to me at that age. 

[00:14:29.60] So most parents would say, do you want all the money for the kids? And I always want this money available for basic needs. Education, health care, basic support, but you're not going to get the bulk of the inheritance until you either reach certain ages of maturity, which, by the way, we're totally guessing on those ages, or it can stay in trust for the lifetime of the children and provide that backup plan if those kids ever need a distribution, they have access to wealth, but they never really get the keys to the kingdom. 

[00:15:03.46] And when people leave money in trust for the benefit of their children, parents leave trust for the benefit of their children, you talked about the children will get distributions of some of that wealth at a certain time. First of all, do they tend to get it all at once, or does it tend to get dribbled out? And if it gets dribbled out at what ages typically does it get dribbled out? 

[00:15:25.46] I've seen it all different ways. I certainly have seen people do one bulk distribution at age 30 or 35, call it. I prefer to do a dribble out plan for my own kids. I call it the three strikes plan. I am a baseball fan. I think three strikes. I think the first two mistakes you get-- for my own kids, 25% is the first distribution and then another 25%. The last distribution will be the balance, that's the largest distribution. If my children have made mistakes with those first two distributions, they've got one more chance to fix it. 

[00:16:01.04] And at what ages are we talking about? 

[00:16:03.17] Well, I recently changed my ages of distribution. 

[00:16:05.46] You moved them out? 

[00:16:06.65] I moved them out further. 

[00:16:07.58] Of course you did. Everybody does. 

[00:16:08.87] I did. I started with 25, 30 and 35. My son turns 25 this year. Not that I don't trust him. It's not that I don't trust him. I'm enjoying watching my children learn how to live with a budget. I'm enjoying watching them have some financial education on their own. Understand the value of working. So I did just recently push my ages out a little later. But I don't think going past 40 makes much sense. If my kids are losers at 40, they're still going to be losers at 45. 

[00:16:44.14] That's probably right because-- and the way I've always looked at it, I always have 35 in my head, but if you haven't figured it out by 35, the chances are you're going to figure out are probably pretty slim. 

[00:16:53.78] Exactly. 

[00:16:55.83] And most clients do the three-tiered approach, whether it's 25, 30, 35. 30, 35, 40, whatever those numbers are. One of my mentors in this business always used to say, that's same analogy. Three bites at the apple, which is two more than Adam had. 

[00:17:16.35] I think it's really important to think about your own kids. This is a very personal decision. The other thing that will drive the decision between a staged out outright distribution versus holding it in trust for the lives of the children is the amount of wealth, the amount of money that is coming down to those kids, I think is a really important piece of the puzzle. And so I like to think about it with my clients. We can talk about the ages in a vacuum. We can talk about the things that they might need, but how much money. There's a big difference between three kids and $10 million and one kid and $100 million, big difference. 

[00:17:55.39] So we've talked about the married couple now let's talk about the single individual with children. Fair to say that most common estate plan is-- 

[00:18:08.53] Most common estate plan is 100% for an unmarried person with children. 

[00:18:14.03] And I just want to pause on the idea of all the children, especially multiple children, we will often hear clients ask us, should I treat the children differently or should I treat them the same. And you can make arguments on both sides of that issue. What do you see most commonly and what's your view on that? 

[00:18:38.15] I see most commonly equal to the children. If somebody wants to treat the children differently, I think it's time to take a big pause and understand why. In my experience, in my almost 30 years now in practice doing this and talking about estate planning and working with families, treating the kids differently has tremendous psychological effect. 

[00:19:02.64] And Gigi, I am 100% in agreement with you. And we often hear parents somewhat glibly push back on that and say, well, I'm going to be dead so I don't care if they're mad at me. And I don't think that's the real issue. The real issue is that will create friction between the siblings themselves and that, frankly is I think, something that we really want to avoid. 

[00:19:28.20] I totally agree. And I actually think it's interesting that most of the parents are punishing the more successful children. That's the child who gets less because that child doesn't need it. 

[00:19:40.38] Correct 

[00:19:40.82] Which is punishing success, which is not what we intend to do as parents. 

[00:19:44.16] That's right. Agreed. So most common estate plan married couples all the spouse then to children single individual, all the children, 

[00:19:55.45] Single individual with no children a little bit more complicated. 

[00:20:01.25] Way more complicated. 

[00:20:03.22] Those are clients you often can't execute the estate plan because they can't decide what to do with their money. Most common choices are going to be some set of friends, family members, and maybe charity, but that's a tough decision, it's a tough decision. Also, I think you should have a little fun with your estate plan. I think you should, of course, take care of the people that you love in your nuclear family, take care of your kids, take care of your spouse. 

[00:20:29.99] In my own estate plan, I am not married, I have children, I am leaving a slug of money to be used by my closest friends, and my letter of wishes is that they each take that money, go on a big trip and everybody has to buy one very expensive, iconic item in my memory and that makes me happy. Your estate plan should make you happy. 

[00:20:52.43] Yes. And slug is a legal term, right? 

[00:20:55.86] It's a term of art. 

[00:20:57.32] Fair enough. Shifting gears a little bit, what's the most common mistake that you see when people create estate plans? I think the first is they just don't go ahead and do it. That's the number 1, but beyond that-- 

[00:21:14.25] I think a lot of people, even if they get past the step of hiring the attorney, getting through that first set of questions, they get those drafts, the drafts sit and they never sign them. 

[00:21:24.95] Suppose that is. 

[00:21:26.75] I think any estate plan is better than no estate plan, but I think people feel like they're making these really significant, monumental decisions and they have to be perfect. Nothing's going to be perfect. There's no way to make this estate plan perfect, but I think the one thing is people just get scared and they don't get it done. 

[00:21:44.73] And can't you change an estate plan at any time? 

[00:21:48.54] Absolutely. Change it as many times as you'd like. 

[00:21:53.27] So people simply don't execute on the plan. They don't go ahead and they don't sign the documents and they don't do anything. What are some other common mistakes that people make? 

[00:22:02.09] So one of the really common mistakes, particularly for those we haven't talked about the types of estate plans can have a will versus a trust, but for those who elect for a revocable trust, which is most common in California, the trust only works if you fund it, meaning you transfer your assets to the trust. And I cannot tell you how many people never get. They sign it and they think, great, and they have a glass of wine and they cheers and they think, I'm done, but you're not done. You have to get that estate plan funded. 

[00:22:34.40] It's like having a fabulous car but not putting any gas in it it's just simply not going to go anywhere. I find mistake that a lot of people make is that they don't, and I'm using a word, a tricky word here, appropriately communicate the terms of their plan to the interested parties and that-- 

[00:22:53.61] I can't tell you how many people can't even find the estate plan when someone was died. And I think the most important thing that you need to do is not necessarily, if you don't want to communicate the terms, like, when are the kids going to get the money, at what ages, how are you thinking about it, but that you've done it where you keep it, who's the attorney, who's your banker, that's all really, really helpful when somebody passes and you need to help administer the estate. 

[00:23:22.74] And another thing I think a lot of people don't do is they don't update it as appropriately because things happen in life changes, right? 

[00:23:33.45] That's right. I think people set it and forget it and that's a mistake. I think this is a living, breathing document. Every couple of years, at minimum you should look at it. One, net worth changes so those decisions like as an example, we were talking about how old should your kids be when they receive their inheritance, net worth goes up dramatically. You might want to think about those ages. 

[00:23:56.24] The people that you've named to help administer the estate, that could be the trustee, the executor, the guardians of your children, are you still friends with them? Do you still talk to them every day? So I think the nominations that we make is something that absolutely needs to be looked at. 

[00:24:12.36] And on the point of nominations, one of the things that I'm fond of telling our clients is that when it comes time to pick a guardian for your minor children, that is when you really find out what your spouse thinks of your family because-- 

[00:24:32.13] Talking about guardians for one second, it's the number 1 reason parents would come to me for estate planning. I think it's the number 1 thing on the minds of parents is I really have to name my guardians. And I would say the number 1 reason people don't execute the estate plan is because they can't get past that decision. 

[00:24:49.14] And if you think about it it's completely illogical because you're worried about that less than 1% probability that both parents pass away before the youngest child is 18. 

[00:25:02.98] That's right. 

[00:25:03.43] Not saying it doesn't happen, but it's such a remote possibility that failing to execute on that because you simply can't make a decision never made any sense, still doesn't make any sense to me. 

[00:25:14.44] No. I totally agree. I think make your best guess. Put a couple of backups in there so you have a deep bench is the best thing you can do to protect those kids and change it. If you change your mind, change the documents. 

[00:25:28.84] Bear in mind you can always change your mind if for whatever reason you decided it wasn't the right decision. So final question, might be the final question. What are the hardest decisions that somebody has to make in implementing or deciding on, I guess deciding on and then implementing an estate plan? 

[00:25:50.58] I think the hardest decisions when making an estate plan are who do I name to receive my assets? As we've talked about maybe what ages should the kids be before they receive their inheritance? What are the purposes for which they can receive distributions? I think one of the hardest things is deciding who to name, to take care of everything for you. 

[00:26:11.94] And those individuals or whatever go by, what's the terminology? We call them executors? 

[00:26:20.73] It depends on the document. So if it's a will you'll have an executor, if it's a revocable trust, you'll have a trustee. You'll also have agents in your powers of attorney. And thinking about who those people are going to be, for some people, very easy, very easy. At least for the married couples, they've got each other, but you have to name some alternates. And not everybody has a good bench of people that they trust to handle this for them. 

[00:26:46.15] Or sometimes the people that they trust might be as we used to say, in a different context, geographically undesirable may live on a different coast, or they may not be age appropriate, or they're an awful lot of things that you think this person's the right person except that they live there, or they have their own families, or whatever. 

[00:27:11.13] You're also just making a nomination. We abolished indentured servitude a long time ago, so you can't make somebody do it. You are nominating the people that you wish to do it. Everyone who is nominated in one of these estate planning documents will have the opportunity to say yes or no at the time the appointment is necessary. 

[00:27:30.39] And doesn't that therefore heighten the importance of communicating that decision to the people who you're nominating because you want them to serve, you're expecting them to actually serve, right? 

[00:27:41.61] You are. 

[00:27:42.98] Is there anything else on the topic of estate planning that you typically communicate with clients that you're talking with or attorneys that you're dealing with? 

[00:27:53.01] I think what I want to impress upon people is that I get a lot of people who say, I'm so behind the eight ball, I haven't done my estate planning. I know I should have gotten it done. And to them I say you are well ahead of your deadline, because if you are talking to me about it, it means you are still alive. So your deadline for estate planning is death. 

[00:28:10.35] People do get stuck, I think what is the statistic? 50% of people don't have a will in the US and that's a tragedy to me. Every state has a default estate plan for you. The state has decided where they think your assets should go. I think it's far better for you to decide for yourself, but you still have time. If you're watching this video you still have time to get it done. 

[00:28:34.74] And again, the enemy should not be the perfect of the good. You don't necessarily have to do everything all at once. If you had to choose an order in which you think documents should be executed, what would be the order speaking as a Californian? 

[00:28:54.33] Speaking as a Californian, I would say the revocable living trust is the number 1 document, that's the nucleus of the estate plan that should absolutely be considered signed and funded. I think one of the easiest steps to accomplish some estate planning is the beneficiary designation form. Make sure you have a primary beneficiary and a secondary beneficiary on your retirement accounts, on your life insurance policies, even on your checking account, savings account you can put beneficiaries on those types of accounts and you have accomplished some estate planning. 

[00:29:27.77] And you just need to what the implications of those designations are because you want to make sure that those beneficiary designations are properly harmonized with the designations that you've made, for instance, under a revocable trust. 

[00:29:41.37] That's right. And here's what I do not recommend. I do not recommend trying to do it yourself. Even with the software packages I'm sure they're very good, but the decisions that you have to make for these documents to be populated at the end of that question process are very nuanced or significant tax issues that can happen from making a bad choice so I do think it's worth the time, the money, the effort to consult with a dedicated estate planning attorney, formally execute the documents, and then you'll have a relationship with that attorney so that you can change the documents in the future. And also at the Private Bank, we are well equipped to help people think about their estate planning, look at the documents from time to time, answer questions as they come up. 

[00:30:28.51] I just want to ask one final question, because we've been talking about estate planning now in the context of dying, but there's an awful lot of estate planning that goes on before dying most of that, not all of it, but most of that tends to be tax motivated, isn't that right? 

[00:30:45.49] That's right. The revocable trust the will really logistics. How do assets transfer when you die it has nothing to do with tax. It has nothing to do with income tax, it has nothing to do with estate and gift tax. And so sometimes the motivation to do the estate planning is tax related. Different topic. 

[00:31:04.80] Yes, quite a different topic, but wanted to mention it because I think a lot of people associate passing away with estate taxes and to some extent income taxes, but certainly estate taxes, but what we're talking about today is just making sure that on your passing you know as you said at the outset, where your wealth passes, who gets your stuff and who's in charge of executing to make sure that your wishes are carried out the way you wanted them to carried out. 

[00:31:35.75] That's right. And we haven't really talked about the choice between a will or a trust, but that's another driving factor, another decision that has to be made. All wills go through the court system. We call that probate. sounds scary. 

[00:31:50.59] It's just a Latin word means proof, that's all. 

[00:31:53.17] Of course you know that. 

[00:31:54.72] Sorry. 

[00:31:55.65] Probate is a public process. 

[00:31:58.54] Yes 

[00:31:59.25] It can

be very time consuming in some states, California, it can be very expensive in some states, California, but even if you're in a state where wills go through the probate system pretty quickly, pretty easily, maybe even not very expensive, it is a public process. And the idea of somebody knowing my children, knowing their names, their addresses, their birthdays, and every penny they're inheriting as public information to me, makes it absolutely a no brainer revocable living trust. 

[00:32:38.67] And of course, people will fall everywhere on the spectrum of how they feel about that sort of public disclosure, but privacy, through the probate process, there's a great deal of privacy that a family loses that they may not want lost. Gigi, thank you very much for your time today. Thank you, everyone, for joining our conversation today. Our Private Bank team is happy to help support you wherever you may be on your estate planning journey. 

[00:33:05.12] Thank you for joining us. Prior to making financial or investment decisions, you should speak with a qualified professional in your J.P. Morgan team. This concludes today's webcast. You may now disconnect. 

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