Transcript

Wiser Financial Advisor – Get Your Estate Documents Done

Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money.     

This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. We love feedback and we’d love it if you would pass it on to me directly at josh@keystonefinancial.com . Also, please stay plugged in with us and get updates on episodes and help us promote the podcast. You can subscribe to us at Apple podcasts, Google, Spotify, or your favorite podcast service. Let the financial fun begin!

Today, we’re going to talk about two of the most fun topics ever: death and incapacitation. I’m going to call this Get Your Estate Documents Done because most people haven’t got them done. In fact, most of the studies I’ve seen show around 70% of the American population has not gotten their estate documents done.

Why is this so important? We’re talking about your financial stuff—your property and your kids (especially if you’ve got minor children), your real estate, or your business if you own one, things like that, things you’re responsible for right now, that you have possession of or have care of.

The reality is, when you and I are gone; when we pass away, we’re not in charge of it anymore. Same if we’re incapacitated, though that may be temporary occasionally. If we’re incapacitated and we get better, there may be a point that we can take stuff back over, but during that period of incapacitation, we would need somebody else to step in and basically take the baton to run forward and figure out what the next steps are, whether with a piece of property or with investments or with minor children. Somebody else is going to be responsible for our stuff and possibly our loved ones, so that’s why the estate documents are so important. They will allow for a smooth handoff.

Let’s talk about what that means from a practical standpoint.

Basic level estate documents would deal with guardianship, so if you have minor children, or if there is anyone you’re responsible for as a guardian, your estate documents are where you would name who you want to take care of those people. Often the circumstances during which this would be needed would be a husband and wife both passing away and their estate documents say who is supposed to take care of their kids until those kids reach legal age; also, who is supposed to take care of their kids’ money until they reach legal age.

I’m not an estate attorney. I don’t practice law, so I’m telling you this from my personal experience as a financial advisor for 20 plus years. I’ve been in the position of sitting across the table from people that have lost loved ones, either their spouse, their parents, their siblings, even a friend—somebody they’re responsible for and cared a lot about. The mental and emotional toll that takes on people is huge, not even including if there are big hiccups from not having the estate documents done. So we really want to try to make this as easy as possible for people. This is really an act of love because what you’re doing is making things organized, making things clear, making things easy for whoever it is to be able to take that baton and run forward.

So, be thinking about it from that perspective, not necessarily yourself. I think the best way to approach estate planning is to ask: “If something happened to me tomorrow, what would I want to happen next? Who would I want getting my stuff, and how would I want that to be distributed? If I’ve got minor children, how would I want them to be raised? Who would I want to take care of them?”

Of course if you are a father and mother, you want to make sure you’ve got the same person named or there’s going to be a court battle that ends up breaking out. Sadly, I’ve seen that happen before. There have been client situations where we’ve seen parents pass away and then it wasn’t clear who was supposed to take over. In one particular situation, a husband and wife got divorced and then they each named different people to be guardians of their children. One passed away, then the other passed away and then you had two sets of grandparents duking it out in court fighting over these grandkids. How sad is that for everybody involved?

The number one thing that should make you afraid of not getting your estate documents done, it that need to have a plan as far as who’s going to be taking care of your kids, your property, your money, your stuff. And stuff is clearly a lot less important than humans you’re caring for, but it’s still important nonetheless, because those humans you care about are going to be dealing with all of that and maybe depending on it for their income. Say if you are somebody who’s inheriting those assets, you’ll be receiving that property and need to make some decisions on it. More than likely it’s going to have a big impact on your own finances. So again, this is an act of love.

It’s a bit painful, right? We kind of take that pain on ourselves having to think about this stuff and make decisions in advance so somebody else doesn’t have to deal with a mess. But honestly, when somebody dies without estate documents, it’s usually a mess.

It helps if people are married. If it’s a husband and wife, then it’s kind of straightforward as far as the other spouse receiving stuff. But if things aren’t organized, it just isn’t good. It’s not a great situation. Typically, somebody is going through a lot of mental and emotional anguish. Then if they have to deal with a financial mess on top of that, with the business end of things not being organized, it’s just not a great situation. So please take the time to go through this.

Now, estate planning doesn’t mean a last will and testament. It doesn’t mean a trust. It means looking at things from a big picture standpoint, thinking about questions like, “What do I need to be worried about here? What decisions do I need to make in advance in case something were to happen to me?” And “happen to me” could be a number of things. Could be I become incapacitated. In that case, I need to make sure I’ve got some directives in advance. I need to make sure I’ve got powers of attorney. Some advanced directives go into things like “do not resuscitate,” and I’m not going to go through the legal document side of things. That’s for you and your attorney to figure out—or if you use some kind of online program, that’s up to you and your comfort level with those things. Full disclosure, I do use an estate attorney but I want to make sure you’re aware that you can do it either way. But if you want advice; if you really want to sit down with somebody and have them look at your particular situation, a software will not do that. If you write it out on a piece of paper, it may be legal but it’s not something that would be buttoned up to the degree that we would want it to be. You can make your own decisions, but ultimately, we do want to make sure those advanced directives are in place in case something were to happen from an incapacitation standpoint.

Now, let’s say I pass away. I’ve got a business. I’ve got real estate. I’ve got 401K’s. I’ve got investments, things like that. All of that stuff has to be dealt with in some way, and if I have designated beneficiaries on any of my property, that trumps anything that I would say in a last will and testament. Again, I’m not an estate attorney. I’m not practicing law here, I’m just telling you what I’ve got set up from a practical standpoint with clients. Beneficiary designations will trump what’s in the last will and testament. Also, if there’s a title naming the owner of a property, that also trumps whatever it says in the last will and testament. So, you see how all of this stuff has to be incorporated.

That’s why it’s called estate planning, because we have to look at the big picture. It isn’t just one document and we’re done. The last will and testament needs to be coordinated with beneficiary designations coordinated with how things are titled, and possibly coordinated with some type of trust. If you’ve devised a trust either in your last will and testament, or if you have a living trust, that means that you tend to fund things in advance. You can put your property, your stocks, things like that in the living trust in advance. I’m not going to get into the pros and cons for that today, but I can tell you that sometimes it does come in very handy and can reduce a lot of cost and a lot of time if you’re able to put those particulars into place.

So, we’ve talked about guardianship stuff. We’ve talked about that fact that there could be a variety of different ways that we could leave property regarding title, beneficiary, trust. Your last will and testament will dictate whatever is left—things that didn’t get dealt with other places.

The last thing I wanted to go over today is thinking about the big picture. How would things get distributed if it’s a husband and wife? Often, the estate goes to the other person. One asterisk on that is if somebody is going into a second marriage situation where they were widowed before or maybe they were divorced before. Maybe they have kids from a prior marriage. In other words, there may be some particular things that you would do to set up some estate planning that would pay separate amounts to separate people. Sometimes people will have a separate life insurance policy that would be just for those kids from a prior marriage, or it could be that particular accounts have those kids designated as beneficiaries.

If you have a husband, wife, and kids under two parents, it’s pretty straightforward if you don’t have a last will and testament. I think for most States, the stuff goes first to each other and then to the blood children. But in a second marriage, those children of the first marriage are not blood children of that new spouse. Without estate planning, it could be that those kids end up getting disinherited, so it’s something to think about, something to at least ponder. It’s important to ask, “How would this actually flow, and who do I want to benefit from my estate?” So, think about the spouse and think about the kids; maybe think about other family. It’s also possible you’d want to make a charitable donation upon your death. It could be going to some other organization besides a human. Some of that you might do in advance. There are all kinds of different charitable trusts that can be set up, donor advised trusts, donor advised funds. Those are things a Financial Planner can talk to you about on how to set those up in advance.

As you can see, this gets complicated pretty quickly and that’s why estate planning is a thing. It’s a profession. There are people that have their entire law practice or CPA practice or even financial planning practice built around estate planning. This is an area that we cover with clients quite a bit because it is something that’s very important.

And especially when people have a higher net worth, you start to think about tax implications, not only tax implications while we’re living, but tax implications when we pass away. Those taxes could cause some of our heirs to end up paying more in taxes than necessary. I think we can all agree that the government is going to get some money, but that’s a good reason to do some planning, so we can minimize that. You don’t want to pay more than you have to. There’s no reason to make some costly mistakes that would end up having more money go to the government or to attorneys. Frankly, the less organized we are on this stuff, the more likely it is that somebody is going to have to pay an attorney to duke things out in court or to coordinate with other attorneys, which can turn into thousands if not tens of thousands of dollars very quickly, especially if there are disputes and so forth. That’s one of the reasons we want to go through this whole process of getting as organized as possible. We want to organize in a way that maximizes your estate. You want the government to get as little as possible. You want attorneys to get as little as possible. You want your estate to go to who you want it to go to—either your beneficiaries, your loved ones, or to one or more charities. There are good organizations that could end up using the money probably better than the government.

So, from a practical standpoint, if you’re starting from square one I would start with the help of a Certified Financial Planner, and I say that just from the aspect that their job is to be comprehensive and look at your entire financial picture, including estate planning. That’s just one element of the entire planning process. More than likely they’ll recommend you bring in a specialist in estate planning. That person is probably going to be an attorney, someone who can devise legal documents for you, but if you start off with that Certified Financial Planner, they can see the entire picture. Think of it kind of like the head coach of a football team. They know where everybody is coordinated. They’ll have an entire game plan because the owner of the team—and that’s you—wants to win the Super Bowl. It’s the head coach’s job to go in and figure out what’s the strategy. What are the people we need to put in to make this happen?

Certified Financial Planners can be in that role, and if they’re good, they’re not going to be doing it all themselves; they’ll have a team. They’ll pull in other people that you may need to have on your team as well, right? An estate attorney, a CPA trust officer. There could be other people you need to pull into the mix, but the Certified Financial Planner is the one coordinating it all with you, and I say with you because it should never be a completely hands-off approach on your part. You’re on a team together, and really you all want the same thing—your financial success and security.

I know we’ve talked about a lot here. This is a lot of stuff and there are more specifics we could get into, but ultimately, that’s where your starting point should be: to look at this from the aspect of an overall financial plan.

I hope I’ve disturbed you a little bit. If you haven’t gotten your estate documents done, there are some really good reasons to do it, and some really bad consequences if you don’t do it and something happens. So please, do it today and get started. Contact us or contact your estate attorney. Whoever you’re working with, just take action right away. Don’t be among the 70% who don’t have their estate documents done. Be able to check that off your list. And by the way, there is a follow-up process. You want to go back and look at all of your documents at least every five years or if you have a major life change. So get your estate documents done. Don’t wait. Make this a priority year to get done in 2021.

That’s it, I hope you have a wonderful week and God bless.

The opinions voiced in this episode of the Wiser Financial Advisor with host Josh Nelson are for general information only and not intended to provide specific advice or recommendations for any individual. Investment advisory services offered through Keystone Financial Services, an SEC Registered Investment Advisor.