Transcript

Wiser Financial Advisor – It’s Time to Have the Talk

Hi everyone, welcome to the Wiser Financial Advisor show 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, founder and CEO of Keystone Financial Services. Let the financial fun begin!

We are diving into a topic that’s often avoided. Sometimes it’s really awkward but it’s critically important—and that is to talk about estate planning with your family, with your loved ones, especially parents, grandparents, other people that you might be responsible for as they get older. Trust me, your financial future and your family’s well-being could depend on it. I tell you this from years of experience as a Certified Financial Planner. I’ve seen many examples of estate plans that have been done really well, and there are lots of horror stories too. (In fact, someday I’m going to record an episode of the Wiser Financial advisor entitled Estate Planning Horror Stories. Hopefully it’ll motivate a few people to get off the dime and start having these conversations and putting some things into place.)

So, why is estate planning such a big deal, and why do many of us tend to avoid it? Well, kind of like The Talk, a lot of people dread it. The subject of estate planning touches on two things that we’re uncomfortable discussing, which are death and money. However, avoiding this crucial topic can leave your family in a tough spot, and leave your hard-earned assets distributed in ways that you might not want. Ultimately, at least in Colorado, if the estate planning completely breaks down and there are no beneficiaries that can be located, the estate goes to the State of Colorado. You do not want the government to be your beneficiary, so if nothing else, that’s a good reason to make sure things are well organized.

Let’s start with the basics. What is estate planning? Simply put, it’s a strategy for managing your stuff, managing your assets if you become incapacitated or if you pass away. I’m not just talking about a will. Often, people think, “I have a will,” or “I need to get a will.” That’s an important part of this, but not all of it. The estate plan is an entire process of looking at all your stuff, making sure that your affairs are in order if something were to happen to you. We’re going through this right now in our family with an older family member. We’re looking at the powers of attorney, trusts, healthcare directives and yes, also the will, which is known as the last will and testament.

Estate planning isn’t just for the wealthy. You don’t need a mansion or a yacht to make estate plans. If you have any assets like a home, a car, real estate, even just a savings account, you need an estate plan, you’ve got stuff. We’ve all got stuff, and regardless of how much that is, we do have things that need to be managed and organized, not only because we want to make sure that there isn’t any undue cost, but also we want to make things easier for our loved ones.

It’s an extremely stressful position to be in anyway, when you’ve just lost a loved one or your loved one is incapacitated. If, on top of that, you have to deal with a mess, it’s worse. We’re trying to avoid a mess here. Why bother with all the paperwork of going to attorneys and all the complexity? More often than not, I hear people say, “My stuff is simple. I don’t need any of that.” Well, if you pass away without an estate plan, that’s what we call dying intestate, your states laws will dictate how your assets get distributed. Every State has laws that dictate how things get distributed when someone dies intestate. In some cases that might work just fine, but in others it might not align with what you want or what your family needs.

Also, courts are often slow. The process can drag on, be very expensive, and cause a lot of stress and strife among loved ones. Often, we’ve heard our clients say, “I just don’t want my kids to fight. I don’t want to create this situation where they’re all fighting over my stuff or my house or whatever it is.” And the longer this process goes on, the more that’s likely to happen. Going to court can also eat up more of your estate, because now you probably have to pay attorney’s and legal fees to go to court. It could also result in some extra taxes that you probably wouldn’t have had to pay.

So what should be in your estate plan?

#1 at a minimum you should have a Last Will And Testament. That is your letter to the probate court judge that outlines how you want your assets to be distributed after you pass. That’s also where you would name a guardian for any minor children should the parents pass away or become incapacitated. It makes it clear who you want to take care of whoever you’re responsible for. That’s critically important because it’s a real mess if something happens and now the family is fighting. If the Guardian wasn’t named, you’ve got grandparents, aunts, uncles, other people that might be fighting over the kids. And that is really, really sad and stressful for everybody. To get your wishes written into your last will and testament, it’s probably best to visit with an attorney, somebody who knows how to get it done correctly.

#2 is a durable Power Of Attorney (POA) that designates someone you trust to handle your financial affairs if you are not able to, even if it’s a situation where you’ll have a major surgery or something like that and you’re going to be out of commission for a week. If you’ve got a POA, somebody’s gonna be able to pay your bills and take care of your financial affairs. That could be a spouse and often, if you’re married, that is who you would name as your durable Power Of Attorney. Then you probably would have a backup as well.

#3 is healthcare directives. This is called different things depending on what jurisdiction you’re in. Sometimes it’s called a healthcare directive or a medical power of attorney, healthcare power of attorney. A living will is part of that and sets out your wishes for medical treatment, if you can’t communicate. In Colorado, the living will is just a one page document and it designates what you’d want to have happen if you’re completely unresponsive and a couple of doctors have signed off on that.

With healthcare directives or medical power of attorney or healthcare power of attorney, you’ve designated somebody (and it could be the same person that is your durable power of attorney). Medical power of attorney gives them access to be able to make decisions on your behalf. It also gives them access to medical records, and that’s really important too. Estate planning attorneys will include language about HIPAA, that waives HIPAA rights in the medical power of attorney, so people can get access to records.

#4 beneficiary designations. This is too often overlooked. If people haven’t checked life insurance, retirement accounts, etc. to make sure beneficiaries are up-to-date, they might be thinking everything has been attended to because they made a will. But if you leave something to someone in a will but don’t remember to change beneficiary designations accordingly, the beneficiary designation takes precedence over the will. The custodian of the beneficiary account assets, whether that’s Charles Schwab or Fidelity or whomever, is going to comply with what’s on their beneficiary form. They don’t care what your will says.

Sometimes people will do a trust, which is another type of document. Sometimes it’s for privacy reasons, or to avoid probate. It can also be to exercise more control after that person has passed. For example, my wife Sarah and I have a children’s trust set up because our kids are young. Actually, we’ve got a couple in college right now, but still, do you really want to give a bunch of money to a college age student? I know I would not have made the wisest decisions when I was 20 or 18 years old if I got a bunch of money piled into my lap. So people will do a trust or something else to manage those assets, at least for a period of time. It could also be a special situation with maybe a special needs child or something where ongoing management would be needed. There are definitely reasons why you would want to look at a trust.

All of those things that we just mentioned about estate planning are deserving of their own podcast episodes and their own books, believe me. There’s a lot of information out there, so this is not to make you an expert. I’m certainly not an estate attorney, so please consult other professionals.

I called this podcast It’s Time to Have the Talk. So if you’ve got an older loved one that you’re approaching on this topic, how do you approach them?

This is how I’ve seen it happen successfully in our family as well as in client situations. #1, Resolve to do it anyway. This is almost certainly going to be uncomfortable, so resolve to do it anyway, because the consequences of not doing it are far worse in the long run than the awkwardness of making this happen.

#2 Choose a place where everybody can be open and comfortable. Get into a situation where people can really be honest and ask honest questions about some of the things that I’ve covered here. “Hey, have you done any estate planning yet?” A really easy way to bring this subject up is to start with yourself. “Hey, we just went through this whole process with a Certified Financial Planner. We did X, Y & Z, and I just wanted to let you know, we’ve got our stuff organized if something would happen to me.” Then the next question is, “I’m just curious, have you gone through that process yourself?”

You want to find out if you’re being named as Personal Representative or POA. What are their wishes? Encourage them to talk to a professional, sit down and make some decisions on this stuff. It could be that they do have a will but maybe it’s 20-30 years old, or an old trust or something like that. This process is not a “set it and forget it” type thing. You really have to review this stuff at least every five years. Go back through, double check your beneficiaries, actually read through your documents, read through your trust, your Last Will And Testament. Some things may not make sense anymore because of family situations or maybe somebody you named before is no longer in a position to be able to execute stuff, or you’ve named somebody and they might not even be alive. We see this with younger clients. They don’t know who to name, so they name their parents. Meanwhile, it’s 20 – 30 years later and their parents have passed away.

Estate planning is one of these things that we put off because we don’t feel it’s relevant yet. Maybe it’s not urgent, but almost every situation ends up becoming urgent eventually. Then it’s too late, because they can’t speak for themselves or sign off on documents. Could even be a situation where somebody has developed Alzheimer’s or dementia that diminishes their capacity to be able to communicate or understand what’s going on. At that point, it gets very awkward and difficult, much more awkward than having the conversation to begin with and getting well organized. As financial planners, I can’t say “guarantee” very often, but I guarantee that the initial awkwardness about the estate planning talk will be far less painful than the consequences of not having the talk at all.

That is my encouragement to you today is to take a look at your own stuff. Make sure that your own house is in order. You will be a lot more credible approaching your family member saying, “I just checked on my own stuff.” That breaks the ice a bit.

One last thing is to get professional help. I can’t stress this enough. The likelihood that you are a financial planning expert or tax expert or an estate expert is really low. Often, we think we can do things ourselves and it will cost less. I can use the example of myself, with house projects or trying to mess with the car, things like that—it often ends up costing a lot less just to pay somebody who knows what they’re doing to begin with.

State laws are complex and constantly changing. So even if your estate plan was done a long time ago and it made sense at that time, it may not anymore. And frankly, that’s a lot of why I have job security. As Certified Financial Planners, our job is to keep up with this stuff. We are also well networked. As a firm, we cover things comprehensively. We look at all the stuff with our clients and we consult with attorneys and with other advisers, accountants, tax experts, trust officers. There are all kinds of different people that we have access to on your behalf. And so we really want to pull a whole team together to make all this happen. That’s what gets us up in the morning. That’s what gives me a huge sense of fulfillment.

Thank you for joining me today on the Wiser Financial Advisor. I hope this was helpful to you. Please consider sharing it with somebody who needs to hear it. Stay tuned for more episodes aimed at making you financially wiser. I hope you have a wonderful week and God bless.

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, get updates on episodes and help us promote the podcast.

The opinions voiced in the Wiser Financial Advisor show with host Josh Nelson are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult your attorney, accountant, financial or tax advisor prior to investing. Investment Advisory services offered through Keystone Financial Services, an SEC registered investment advisor.