June 9, 2022

Senior Wealth Manager and Shareholder of Sand Hill Global Advisors joins Jennifer H. Friedman, Partner at Jorgenson, Siegel, McClure, & Flegel, LLP discuss the importance and principles of estate planning to help you better understand how to prepare for your future.

Below is a transcript of the video interview.

Elizabeth Cody:
Welcome everybody to another edition of our Sand Hill interview series. In this series, we’re going to be speaking with leaders in our community to discuss all aspects of wealth and how it impacts our clients and our prospects.

Elizabeth Cody:
I’m Liz Cody. I’m a Senior Wealth Advisor here at Sand Hill Global Advisors and joining me today, we’ve got our expert, Jennifer Friedman. Hi, Jennifer.

Jennifer H. Friedman:
Hi Liz.

Elizabeth Cody:
Thanks for being with us today. The conversation today is going to be around the basic principles of estate planning, and if you’ll allow me to just read a little bit about Jennifer’s bio, and then we can dive right in.

Elizabeth Cody:
Jennifer is a partner at Jorgenson, Siegel, McClure, and Flegel. She’s been in practice for 25 years. She specializes in estate planning, estate and trust administration, gift and estate tax law, business formation, and planning, and we’ve attached her link to her bio and her website for her company if you’d like to look at that later after the presentation.

Elizabeth Cody:
Jennifer, you and I have talked a lot about this subject, and I feel like there’s always this disconnect between the amount of wealth an individual has, their level of sophistication, and then their familiarity with estate planning, which always surprises me. So typically when a client comes in, the first thing I do is make sure that they’re in good capable hands, such as Jennifer’s, when it comes to estate planning. And Jennifer, you and I have talked about why that is, and I think in some cases, people think they need to reach a certain milestone, or they have to be a certain age, or they have to have been through some specific life event that warrants going to see an estate planning attorney. And you and I both know that not to be the case, so maybe we could start off by explaining to the folks why they should come to you, when they should come to you, and what are the costs associated. So essentially what would that first meeting look like?

Jennifer H. Friedman:
Absolutely. So I think you’re right, people do have an impression that you have to have an estate, an estate being very large before you need to see an estate planner. And in fact, there are a variety of reasons to see an estate planning attorney even if your estate isn’t as large as you think it needs to be. So you need to have, in California, you need to have an estate plan in place in the event that you have more than $166,250.

Elizabeth Cody:
Wow.

Jennifer H. Friedman:
That’s the threshold for having a probate, and most people here have at least that much net worth. That threshold would kick you into probate, which is the court oversight when administering an estate. It’s expensive, it’s time-consuming, it’s really a nightmare. And so as you and I both know, there’s no reason for anybody to go through that process because they can come to an estate planning attorney and get the appropriate documents set up. So even with a low, low value of the estate, you want to see an estate planning attorney.

Jennifer H. Friedman:
Secondly, even if you’re not so worried about what happens at death, if something were to happen to you even during life where you are unable to manage your own affairs, you need to have documents in place regardless of the size of the estate in order to avoid having to go to court and have what’s called a conservatorship, which is like a probate but during life.

Jennifer H. Friedman:
And so for these reasons, pretty much everybody in California should have an estate plan, which could be very straightforward, or if the estate is larger or the family dynamics are more complex, could mean a more sophisticated set-up. The initial cost you asked about, of course, that varies attorney by attorney. It’s pretty common here to have attorneys billing hourly for their time, and for most people, for most married couples, I would say they would find the ballpark range somewhere between $5,000 to maybe $7,000 for the basic estate plan package if things aren’t too complicated. And for a single person, of course, somewhat less than that because there aren’t as many documents to prepare.

Elizabeth Cody:
So mistake number one, then, would be doing nothing, right?

Jennifer H. Friedman:
Yes.

Elizabeth Cody:
I mean, that is a big challenge. And also Jennifer, maybe you could speak to the disposition of assets if you don’t have an estate plan in place because I think that people would be shocked to learn if they don’t have a plan in place, the state of California is going to determine who that goes to. So maybe you could cite some examples.

Jennifer H. Friedman:
Absolutely. So, yes, if you don’t have documents in place saying what you want to have happen at death, the state of California has decided for you. And so what happens there depends on your marital status. If you’re single, then at your death, if you have no documents or no beneficiary designations on accounts, your assets are going to pass first to your parents if they’re living.

Elizabeth Cody:
Oh wow.

Jennifer H. Friedman:
If not, then to your siblings. So if you have a partner, but you’re not married legally, they would get nothing. Even if you’re engaged, they would get nothing.

Elizabeth Cody:
I think that would surprise people.

Jennifer H. Friedman:
Yeah, I think so too. I think people would assume differently. If you’re married, then the spouse would get all of the community property assets, that is anything owned jointly with the spouse, but they would also get up to a half of your separate property, that is assets that you owned prior to marriage. And I think that surprises people as well.

Jennifer H. Friedman:
That would be true, even if you have children. So if you’re married with children, and you die without any documents in place, your spouse is going to inherit quite a bit. That may be okay, but it may not be exactly what you want. And further, the spouse is going to inherit outright without any controls meaning the spouse could then, down the road, leave those assets not to your children, but to the spouse’s new spouse for example, or to some other beneficiary that you wouldn’t have wanted. So in the absence of having the documents in place, what California law provides isn’t terrible, it’s not going to the state for example. A lot of people think if they don’t have anything, the state is going to take it all. That’s not true, but it’s not likely to go to the beneficiaries you want in the way that you want them to inherit.

Elizabeth Cody:
So essentially the estate plan is giving you the control.

Jennifer H. Friedman:
That’s correct.

Elizabeth Cody:
You’re taking the control away from the go government.

Jennifer H. Friedman:
That’s correct.

Elizabeth Cody:
And then Jennifer, okay, so now I’ve gotten the client to you, you’ve been successful in getting them to implement their plan. How often do you dust it off? Take it out, go through the provisions. Is there a rule every five years you do this, or if there’s a life event? Can you just share, maybe with us, some of your suggestions there?

Jennifer H. Friedman:
My rule of thumb for people to pull these, well, I used to say pull it out of the drawer, but of course, that’s a bit antiquated now, open it up on the computer and take a look at it varies depending on their circumstances.

Elizabeth Cody:
Okay.

Jennifer H. Friedman:
I think people who have younger children have more of a dynamic situation and probably should be looking at things every three to five years.

Elizabeth Cody:
Three to five.

Jennifer H. Friedman:
Things are just much more changeable when you have younger children. I think older clients where things are more stable could look, say, every five to 10 years, but that’s assuming no other change. So certainly you’re going to want to speak to your estate planning attorney if there’s been a death, if there’s been a birth, if you’ve had a significant increase in net worth, or as is common here in Silicon Valley, if there’s a potential for significant net worth. For example, you start a company or you join a company that’s private and you get stock options or equity compensation that is hopefully going to appreciate, that would be also a time to get in touch with your estate planning attorney to talk about not only changes to the basic documents but other things that you might do to manage the estate and income tax implications of dealing with that change or potential change in net worth.

Elizabeth Cody:
So now some maybe trusts would make sense in that situation?

Jennifer H. Friedman:
Right. You might be looking at beyond the basics to some lifetime gift trust where you’re setting up trusts now and transferring ownership of some assets to irrevocable trusts that benefit children, parents, other family members, or making charitable gifts. Those are the sorts of things you want to look at as your estate gets larger.

Elizabeth Cody:
Okay.

Jennifer H. Friedman:
Or as I said, if in these cases where you have this potential growth from private equity.

Elizabeth Cody:
And then Jennifer, we all have those clients, they’ve come to you, you’ve gone through all the different situations, they’ve made decisions, you’ve drafted the document, so let’s talk about what happens, the mistakes people make at that point. So sometimes they don’t sign.

Jennifer H. Friedman:
Yeah.

Elizabeth Cody:
They procrastinate. Sometimes they forget that there are things like IRAs and life insurance that fall outside of the estate plan, and they forget to change the beneficiaries there. There are other documents that they should sign like power of attorney, so when somebody comes to you, is there sort of like, okay, here’s the basic packet? These are the things that I don’t want you to leave without doing. And is there a checklist? Maybe you can talk about that part because I think that’s where a lot of people fall down on the job.

Jennifer H. Friedman:
Big problem that we see often. So there are the clients who come to see me. We do all the work, we draft the documents, they spend the time thinking about how they want things structured, and they never finalize, they never sign. Sometimes it’s because there’s one issue that’s holding them up. And for a lot of people, that’s the choice of guardian for the minor kids. That’s a really tough one for obvious reasons. My advice always is do something, you can always amend it later. Pick somebody. Because by doing nothing, you’re actually making a choice. Back to what we talked about before, you’re choosing to let the state decide for you. That’s probably not the choice you want.

Elizabeth Cody:
Right.

Jennifer H. Friedman:
So try and make some simple decision even if it’s not perfect, it’s better than nothing, and you can always change it.

Elizabeth Cody:
And then do you help with the retitling, Jennifer, or is that on them? Do you go through and say, “Now you’ve created the trust. You own a home. You own two cars.” I mean, how does that process work? Because I think that trips people up too.

Jennifer H. Friedman:
Yeah. So for our clients, our process is to help them with this retitling sort of last piece of the puzzle to varying degrees. For real estate that’s in California, we will do the retitling. We will prepare the deeds and get those recorded. For real estate that’s out of California, we will make sure that those properties get retitled either by ensuring the client sees an attorney in another state where that property is located or by engaging the services of a third-party contractor that we use to draft out-of-state deeds. One way or the other, we’re taking care of that real estate because real estate really can cause a problem in terms of probate in another state. That’s a big one.

Elizabeth Cody:
So that’s nice that you’re actually facilitating all this. You’re just shepherding them through the whole process. That’s great.

Jennifer H. Friedman:
Yes. Now for the investment accounts, we can’t do the retitling, but we provide the clients with the checklist of what they need to do and who they need to contact, their financial advisors. So as you know, Liz, with our shared clients, I will encourage them to speak to you about the changes that need to happen in their accounts, and you can help them the rest of the way with that process. Same with life insurance, they need to make sure and update that, but we provide a checklist. Now we don’t follow up with clients on whether or not they’ve done their homework because that would add to the legal fees, and we try and keep those more reasonable. So it’s great to have a team like Sand Hill, that for a client is going to make sure and do the follow-up that they are checking all those boxes and finishing up the estate plan.

Elizabeth Cody:
Yeah, which we will do for them, so thanks for mentioning that. And then lastly, Jennifer, I think you and I have talked about the fact that for clients that have significant wealth, and so now we’re talking about they are going to be creating these trusts for the next generation when they pass on. And you and I have talked about how some clients try to get so complicated in terms of the terms of the trust, and it can be really difficult to administer. So what age should the children receive the money? What do they have to accomplish before they can get access to the money? And so I thought it might be helpful for those clients that do have significant wealth and are thinking about creating these trusts, some guidance on whether broad language or more specific language is most helpful in trying to get them to understand what are they really trying to accomplish here. I think that would be really helpful to hear your thoughts on that.

Jennifer H. Friedman:
Yeah, I agree. It is something that a lot of clients worry about, and that’s actually true. Whether the estate is large or more modest, clients often try and control now, as we all do, we all want to control everything, so the clients try and build that into the structure of their trust for what’s going to happen after they’ve passed away. And the problem with that, of course, is we can’t sit here today and know what’s going to be best in the future, so we try and encourage more broad terms, trusting the trustee that the client selects. So that’s going to be a big part of the discussion with the estate planning attorney is who is the right person or what is the right entity to act as a trustee to follow the rules once the client is passed away and making sure that distributions to children or other family members are done the way the clients would hope.

Jennifer H. Friedman:
But getting too detailed in those instructions in the trust, saying that a child only gets a certain percentage if they’re employed or if they get married or hit certain milestones like that. Oftentimes this can be problematic because a client may not have a child who is able to go to college for whatever reason. Not that they’re being a ne’er-do-well, but that they just don’t learn in traditional setting that way, or they’ve chosen a different path. We all know Steve Jobs didn’t finish college and still managed to do well in the world, so I think those are things that clients get a little too focused on. And so part of what we want to think about is not trying to control every detail about what’s going to happen. Rather try and focus more on who’s going to be the person administering the trust and making sure that that person or entity will distribute the trust the way the client would if they were still living.

Elizabeth Cody:
Okay. So broad language, but maybe talking about health, education, maintenance, support, I think is the typical one that one sees.

Jennifer H. Friedman:
Yes.

Elizabeth Cody:
Which is quite broad and can be interpreted in many different ways.

Jennifer H. Friedman:
That’s exactly right. So that health, education, maintenance, and support standard provides direction to pay for the child’s education, healthcare needs. They could buy a home, start a business, even travel. It’s just substituted judgment. So the trustee is making that choice rather than the child inheriting the funds and making that choice on his or her own. But beyond that, I think you want to be careful and really think through the future impact of getting too much more detailed.

Elizabeth Cody:
So we’ve unpacked a lot, Jennifer. So I just want to make sure we haven’t missed anything in terms of what you think are some of the bigger mistakes that our clients can make while we have you.

Jennifer H. Friedman:
No, I think we hit the big ones. I think the biggest point to drive home to the viewers is that doing nothing is actually doing something because it means you’re choosing to have the state make decisions for you, and really nobody wants that. And so I think the biggest message is see an estate planning attorney, put something simple in place. It can always be changed, but doing nothing either because it’s too hard to think about, understandably, or because you’re not sure what you want to do means that you’re choosing something for your family that likely isn’t right for you.

Elizabeth Cody:
And I think that’s part of what trips people up is they think if they create a trust, and even if it’s an irrevocable trust, that they can’t change certain terms within that. So I think educating them about that would make it feel less scary because it feels less permanent. And so they understand, “Okay, my child’s 3, but eventually they’re going to be 15. What’s that child going to look like? I might not want them to have access to a lot of money.” So I think that will give a lot of clients peace of mind to understand there is some flexibility when it comes to these vehicles.

Jennifer H. Friedman:
Yes, absolutely. And a good estate planning attorney can work flexibility into even the more sophisticated, irrevocable trusts. There are lots of ways to provide flexibility, and so you can do things now and make changes later as circumstances change.

Elizabeth Cody:
Well, Jennifer, I just want to thank you so much. I’ve learned a lot, and I think this has been very helpful, and I appreciate you putting it in terms that I can understand and our viewers will be able to understand.

Jennifer H. Friedman:
Thank you for having me. It’s a pleasure to help educate people on the basic estate planning process.

Elizabeth Cody:
And if anybody wants to reach Jennifer or me, our contact information will be included in this presentation. So thank you so much. Thanks, Jennifer.

Jennifer H. Friedman:
Thanks, Liz.

*****

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