98. The Importance of an Estate Plan, Part 1

Apr 1, 2022

Why is An Estate Plan So Important?

No matter your age, having an estate plan is something we all need to think about. On today’s episode, we’ll explore the importance of having an estate plan and some things you may not be considering when it comes to that plan. 

Over the past few years, we’ve certainly seen that things can change quickly. Keeping our essential documents updated is more important than ever. A will is a legal document that spells out your wishes when it comes to the care of your children or the distribution of your assets. While many people establish one when their children are born, most of us forget to update it later on in life.  

Estate planning isn’t just about your assets, living documents impact you if you become ill as well. It can be costly, time-consuming, and stressful for your loved ones if these documents are not in place. It’s not all about you, don’t leave a mess for your loved ones! Join us today as we explore the importance of an updated will, the difference between a will and a trust, some of the estate planning assumptions you should avoid making. 

Further reading mentioned in today’s show >> 

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https://podcasts.apple.com/us/podcast/retirement-talk-podcast-with-laura-stover/id571347188

 

Links

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Timestamps (show notes):

3:17 – The documents we put off establishing and updating

4:51 – What is a will and why do I need one?

8:14 – Living documents to protect loved ones 

13:13 – Having clear direction with an estate planning attorney 

16:05 – The difference between a will and a trust 

20:36 – Assumptions to avoid making

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Review the Transcript:

Ron Stutz :

Welcome to Retirement Talk, the Redefining Wealth Show, your source for financial information, specifically for pre-retirees and retirees. We are here each and every week to help you better navigate during these economic times. We’re here to discuss thoughts and ideas in the field of finance and retirement, as well as discuss trending topics that can impact your bottom line. We’ll break it all down. These discussions can help you make better informed decisions so you can make better financial choices and live the lifestyle you imagine for retirement. Laura Stover is a registered financial consultant and CEO of LS Wealth Management, as well as founder and owner of LS Tax, a consulting firm. She’s been featured in Forbes, CNBC and The Wall Street Journal. I’m [Ron Stutz 00:00:58]. Our topic for today is the importance of an estate, plan one. Now here’s your host, Laura Stover.

Laura Stover :

Hello, hello, hello, and welcome to Retirement Talk, the Redefining Wealth Show. Boy, great topic in mind today. And I am joined none other by some esteemed guests, me, myself and I. I have a lot to talk about, so I really wanted to share this. It was on my heart. I know we’ve received a lot of questions on this topic from many listeners and I cannot thank you enough. I am meeting new listeners each and every week. Hello to our newest listener in Charlotte, North Carolina. I’ll have to ask your permission if it’s okay to reference first names, new clients from Atlanta, Georgia, client from Butte, Montana, hopefully you all are still listening there. I thank you from the bottom of my heart and that you are listening to the podcast and without further ado, let’s how hop into today’s topic of discussion that me, myself and I want to convey on the topic of estate planning, the importance of estate planning. No matter what age you are, I think this is a very relevant topic.

So a couple of key things. This is the first show of two parts. This is a broad topic that we could spend a good amount of time on, but I want to cover today the importance of having a plan, number one, and some things that you may not have as top of mind. That’s why I wanted to bring it to everyone’s attention. And I think we’ve learned one thing these past couple of years. Nothing stays the same, and in a world that changes so quickly, much has changed in the lives of many, many people. There is a lot of distractions in our everyday lives. Let’s be honest, there’s distractions, we’re all busy people. The headline news shifts from one story to another so it’s very easy to say I’ll get to it. Or I have plenty of time. I have found far too often when it comes to essentials, such as estate planning, that having a will, having that appropriate documentation, for example, regarding who’s your power of attorney, who’s in charge of the healthcare directives? That’s two parts to the power of attorney.

Far too many people have of a lot of disarray because they think maybe I have this already in place or far too often, this is more times than not the case, it’s outdated information. They’ve done documents or a will many, many years ago, maybe when the kids were little, or first married, and then things never really changed or got updated, or the ancillary documents are missing as part of that will, or they were simply just given poor advice. So let’s hop right in. First part show of a two part series, why you need a will and I’ll preface this all. I am not an attorney, but what I am going by is overall from an investment and financial standing standpoint, situations that we see, and we align with a state planning attorneys as part of the team. It is one of the pillars of the six part Redefining Wealth process. And I’ll state that with a caveat, but why do you need a will? And what is a will?

Well, I kind of alluded to this first and foremost, if you have a will, was it written a when your children were little. Let’s tackle this one first and put it into perspective here. If it was put in place years ago, there comes to mind a couple and I’ll just refer to them as Ellen and Carl. And I can tell you from experience and working with clients, how scenarios play out. When their daughters were young, the couple were wrote their wills Like many people probably do. Their primary goal at the time was to just name a guardian for the children. And if something happened to both of them, well, they didn’t even think about it for decades then because it was done. Life goes on, the kids now are adult age. Both daughters are over the age of 40. They each have husbands and kids of their own.

The question, why did they not update their will when the kids became older? Well, that’s probably, maybe if you’re listening, you’re rushing to call your attorney right now. And Ellen, we’ll just go by first names here, she’s age 71 now. And she just said she had went to a seminar about wills and trusts about seven years ago. And they were talking about the advantages of putting your property into a trust. And she realized that she needed to update some things, her and her husband Carl, and make some changes. So in addition to putting their home into what’s called a living trust, they wrote new wills with a provision, if one of the daughters would happen to predecease them. So this was the item that needed change from when the kids were little.

Now they updated this with the provision, if the daughter predeceases them, because the daughters are now in their 40s themselves with their own children, that her portion would go to that daughter’s surviving children, Ellen and Carl’s grandchildren. Our life is not complicated, but it could get complicated at some point. And she proceeded to explain that to me when we were speaking about this. And so it was a practical decision. They wanted to do whatever they could to essentially make it very easy for the kids if this were to happen. If God forbid, the child predeceases the parent. So more so, she also said that she wanted to make sure the grandchildren were protected and also included on that.

I know from family experience myself, my parents would be inclined and they’re both passed away for some years now. And they felt the same way. So it’s a great reason to look at updates in your will alone. You need to establish number one, how old is it? Because like shoes, out of sight, out of mind, it just isn’t an every day adage. It’s one of many reasons why people over the age of 50 and over, they just simply fail to write a will or update a previous one or make other pertinent changes that’s necessary to the overall state plan and decisions along that line.

Now, another item. Let’s just assume that maybe you don’t have children and maybe you’re married. Another item that’s most important for people, is also to have these living documents in place to protect loved ones. Let’s first establish what is a will? Let’s clearly establish what that is. It is a legal document that spells out your wishes regarding the care, for example, if you do have children or the distribution of your assets after death. Now estate planning is not about what just happens to your stuff when you die. The likelihood of you becoming ill is far greater than just passing away in your sleep. Statistics show us that. Living documents, absolutely folks, it has to be in place. There’s a lot of instances. I’ve seen clients that they have to open guardianship. So this would be another example. If you’re married and you don’t have children, or if you child are older, let’s say an elderly parent or a loved one. This could mean several thousand dollars to begin the court process.

There’s some cases that I have seen over the years that can be quite heartbreaking, in fact, and one comes to mind, a female client. She really did not have a good relationship with her father. And she found out he was lost one day, just driving to church. She ended up having to step up and pursue guardianship. Now for him, that meant that she had to come out of pocket several thousand dollars to open this proceeding and it has to take place in court. She had to first, number one, be approved post bond. You have to pay doctors for their evaluation. In this case, she had to pay three doctors to examine her dad. And by the time she was appointed, and that was the time she could actually reimburse herself with dad’s money, assuming that your parent has funds and that they haven’t been subject to a Medicaid spend down or otherwise. And by the time the guardianship opened in this particular case, her father ended up passing away with dementia.

Now, aside from the accounting work, the expense, the time to open and close the guardianship now, the attorney that she had helping her with this, now they have to open probate for her. So a big lesson here, it’s not all about you. Don’t leave a mess to your loved ones. It’s not about just you when you die. You can make a mess while you are here. The same for a spouse. This was a daughter with a father. And I know we have a lot of Florida clients. So for example, now states all have some different laws here, but this was pertinent to clients in Florida. People assume because they’re married, they’re automatically the durable power of attorney for their spouse.

That is from what the attorneys tell me, not the case in the state of Florida. And if you become incapacitated and you want your spouse to simply just be able to sign checks, for example, pay the bills by signing checks, unless you have other arrangements with the bank, or let’s say you want to sell property, which would be a little more sticky because that is encompassing a little broader latitude where things have to be in place properly. Or if they need to pick an assisted living facility and to make final financial arrangements, let’s say to pay that facility. Well, you have to designate your spouse. We’re going to continue this discussion on estate planning, the first show of two. We’re going to distinguish what a will is, why it’s important, reasons that people tend to put things off and what’s better? A will or a trust? We’ll talk about that when we come back. You’re listening to Retirement Talk, the Redefining Wealth Show.

Ron Stutz :

We hope you’re enjoying the show. If you’re uncertain about your estate plan, let the LS team assist you. Begin with the 15 minute strategy session. Review your unique situation. Walk through the Redefining Wealth process. For a review, go to redefiningwealth.info. Click review, learn the steps of this process to help determine that you are on the right track. Schedule a phone or a virtual meeting, go to redefiningwealth.info. Everyone’s situation is unique. Make sure you have certainty. Walk through the Redefining Wealth process. This framework covers six key areas, including estate planning. Now back to Retirement Talk with your host, Laura Stover.

Laura Stover :

We’re talking all about estate planning, part one of part two, because there’s a lot to cover. I want to cover, we’ve talked about thus far, the importance of having a will, updating your documents, a couple of examples pertaining to guardianship. And even if you’re married, depending on the state that you live in, making sure you have the right documents in place, that you don’t take it for granted, that things are working the way they need to be if certain scenarios play out. Because we have learned the last couple of years, things can change very quickly and it is very important to have estate planning and stay up to it with these things. I mean, you really have to sort this all out. You need clear direction, and that often begins with some homework. When we work with clients, with the attorneys that we utilize through my private company, independent company, LS Wealth Management, we utilize … They’re specific with estate planning. We’re not using bankruptcy attorneys to try to do an estate plan, no offense, but that’s not their forte.

And so hopefully you get the point there. They’re basically used for suing people, doing criminal representations, they may not be fluently equipped in the area of estate planning specifics, IRA trusts, different types of trust. We’re going to talk a little bit more about that here now. So make sure, family practice attorneys, a lot of times, they’re generalists, just like general doctors, and there may be some relevance there. It’s important to vet, ask a lot of questions and have a couple of opinions. I’m always an advocate of more than one opinion because bright legal minds, we’ve seen how that’s played out over the years in various topics. Some very large celebrities, Michael Jackson comes to mind. I think John Wayne comes to mind. I believe there’s been a number, Whitney Houston’s estate. Some of these estates have been left in chaotic messes. Prince. His estate was left in a total mess.

And I’ll probably get some more detail for examples on this. But if you Google some of these things and it’s out there to look at, you would presume multimillionaires would have their estates in good order. They didn’t. Celebrities like Anna Nicole Smith. She has a young child, she was involved with her attorney and that did turn out so well at the end of the day either. So you want to try to have clear direction, do the homework that you need. We utilize estate planning attorneys that specialize in estate planning, and we really want to organize clients. Because confusion often occurs between a will and a trust. Which is better? I am asked all the time. Do I need a trust? I think it’s a fantastic question. Many times people assume a trust is just for wealthy people. Well, I think it truly depends on the situation. You have to ask yourself, what do you want to accomplish? How do you want to accomplish this?

If you look at a will, our attorneys will say oftentimes probate, that’s the big issue there. And there’s some differences between avoiding probate that come to mind in determining if you need a trust. If your intention is to avoid probate, they’ll usually say, well, let’s look at the possibility of having a trust. A trust you can think of, and I heard an attorney describe it this way, and it really stuck with me. And I think if I share this with you, you’ll kind of remember the difference. If you think of a trust, think of it this way. You have a deed to your home, you have your financial accounts and all the things that you hold very dear. Think of that trust like a little red wagon, your collectibles, animals, artwork.

If you drop the handle on your little red wagon, that means you’ve passed away or you’ve become incapacitated. If you have a trust, the person that you have designated next takes that handle on that red wagon, waves by to the probate court and is almost like you’re married to a third person. That’s a little unconventional, but let’s just keep it in terms of legalities here. So what you want to do, you are a person that wants to avoid probate, putting the right stuff in the red wagon. Now let’s assume you don’t have a red wagon. Everything you own is in your arms. You’re trying to carry everything in your arms. Your fluffy little pet, the cat is acting up, your artwork and you drop it. And the person that you have designated as far as with a will or not, you may have to go to court and ask the court permission to pick the stuff up off the sidewalk that you dropped to find out who your creditors are to pay them, to distribute your assets.

Now it’s under the guise of the court. So if that’s okay with you, then that’s fine. However, you should know, again, the state of Florida, because we’ve been working with a lot of estate planning clients is state there. Attorneys have told me there’s as many as $1.2 billion. That’s B. $1.2 billion in unclaimed property. You have to hope the person finds everything once an estate’s closed, because then there’s other court proceedings that you have to go through to reopen a closed estate. So another caution. People like to do a lot online these days, and we’re all for keeping these compressed. I think there’s great resources online to really educate yourself and some things that you can learn by all means, but there’s instance. Banks haven’t accepted documents.

There was another instance, a man downloaded documents from an online service. He ended up in the attorney’s office, not too long ago. I think this was last year, wondering why the bank one to accept his document. The man’s wife had been diagnosed with the disease that leads to dementia and he needed to transfer some things, some real estate property, I believe it was in this instance.Well, luckily his wife was still somewhat cognizant, and the call later that they received was that she had fallen down a couple of weeks later, and that injury pushed her into the disease where she became incapacitated all in a matter of a very short time, about two weeks later, it all had changed. Guardianship then became the issue. And that occurred once you need to execute something. So if you live in a different state, you need to establish, what’s called a paper trail. Attorneys need to sort this out based on the state you live in.

Again, Florida is known for the Homestead Act. Why do you think OJ Simpson had about 12 million in a house in Florida? Well, there was a reason for that, with all the legal troubles he was in and it has to do with creditors and things of that nature. So it’s important to understand a lot of the intricacies and I would not be comfortable in some circumstances, just downloading forms online and presuming you have everything in good order. Tax exemptions are also great, but you must understand state laws. So lesson learned. A lot of people sometimes conclude that a will does more than it should. I’ll also go a step further based on your financial documents, let’s say life insurance policies, annuity contracts, or brokerage accounts. The way those accounts are titled, oftentimes people are surprised to learn supersede the titling in a will.

So let’s just pretend my engineer who you can’t see, he’s just the silent partner here on the show. He does all the hard part and you hear me. If he’s married, wife passes away or you get a divorce, I would say, let’s say she passes away. You remarry and you haven’t updated your financial documents. And if your will still had your first wife on, I guess, let’s say a divorce. That makes it more interesting. You’re married, you get a divorce, you remarry and you died. So we’ll kill you off Dan and the will was not updated. Well, the first wife could still be the beneficiary, or even if you updated the will, financial documents from the custodians have not been updated is what I’m trying to say. It would go to the first wife. And we see estate planning mishaps like this all of the time. So I think it’s important to have a team around these things, that’s why we utilize CPAs, attorneys, the investment advisor, contract law, typically supersedes just a will in terms of state law.

Again, check with the state you’re in and check with an attorney. But I do know this to be fact. Some people think that you only need a plan or a will if you’re wealthy and those with complicated assets need wills. However, there’s many good reasons that you need an updated will. And just to summarize, you have to be clear about who gets your assets, who decides, who gets what and how much, who can keep your assets out of the hands of people you don’t want? Maybe you don’t like them, maybe you have an estranged relative. Nowadays, there’s a lot of people, people don’t like. You can identify who should care for your children. Without a will, the courts are going to decide. Your heirs will have a faster and easier time getting access to your assets and you can plan to save your estate money on taxes, you can also give gifts and charitable donations, which can help offset the estate tax.

So things to watch for that I want to address in next week’s show, part two of this. We’re going to step into some estate planning concepts a bit more, not just from a tax perspective, which is a large component of estate planning and how to mitigate that, but tools that you can utilize to accomplish having an efficient estate planning. I ask all the time, how do we keep Uncle Sam out of our estate planning. Some types of trust. We’re going to go deeper into the discussion of trust on next week’s show, to keep in mind some like charitable or dynasty, most people are familiar with living or revocable trusts, but not so much with other types of trust. And we want to distinguish a few different types, perhaps not as familiar that can help you with a discussion that you can have if you have an attorney, an estate attorney, or if you need to use an expert that we have on our team.

And with everything going on, inflation, we have very volatile geopolitical issues going on in the world, COVID here and there, a number of market volatility. There’s some proposals that people forgot about before all of these events occurred. And if you recall, President Biden said during his campaign, he wanted to tax unrealized capital gains at death, regardless of whether the heirs sell the asset at that time or not. We’re going to talk about that. How to lower the estate tax exemption, which also went along with that thesis, the Biden campaign proposed reducing the estate tax exemption. And then changing the stepped up in basis, that was also part of his promises on the campaign trail. They’ve just been sidestepped here at the time and that had to do with the basis rules at death. And I think people have been trying to tax death or tax events around death about as long as they’ve been taxing anything. And we want to cover that in more detail, kind of distinguish some different types of trust.

Then you can hopefully have an engaging conversation with an expert to determine what is the path that you need to go to better put this in perspective and make sure you have a good handle on everything that’s involved. I hope you’ve learned something from today’s show. For more resources or to schedule a 15 minute strategy call, I had one just this morning, a great gal from North Carolina. Feel free to go to the calendar link at redefiningwealth.info. That’s redefiningwealth.info. Click review. Thank you for listening.

Ron Stutz :

Redefining Wealth is a registered trademark of LS Wealth Management. Take advantage of a complimentary plan. Know where you stand, regardless in the market. Walk through the Redefining Wealth process and have a clear picture of the key risks you likely will face. Achieve a deeper understanding of how to properly plan for these risks with the Redefining Wealth framework. Schedule a strategy session today by going to redefiningwealth.info.

Redefining Wealth as a registered trademark of LS Wealth Management. Investing involves risk, including the potential loss of principle. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products. Never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This show is intended for informational purposes only. It is not intended used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual situation. LS Wealth Management, LLC is not permitted to offer, and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the US government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable. But accuracy and completeness cannot be guaranteed by LS Wealth Management, LLC. Investment advisory services offered through Optimize Advisory Services, an SEC registered investment advisor. LS Wealth Management is a separate entity.

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