Not sure when to start creating your estate plan? Take this as your sign.
This first episode of season five provides an overview of estate planning and highlights the importance of protecting your assets and loved ones.
Jayson McGinnis joins the conversation and discusses some of the misconceptions around estate planning, the key elements to consider, and some practical tips for those not knowing where to start with their plan.
Zacc, Laura, and Jayson discuss:
[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor. These episodes will help you break down complicated financial topics into practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome to The Financial Call. This is season five. This is the first episode of Season. All about estate planning. So this episode is meant to be fairly short. We have Jayson McGinnis with us. He's been here before. We've talked about Jayson trying to get people to get divorced before Oh boy. And uh, Social Security Planning. You'll have to go back and listen to that one. That's a while back, but it's a weird situation that has to do with marriage and social security. But today we're talking about estate planning and in particular estate plans that everyone should. So let's go into that. We have Laura as well as always. So the end goal in estate
[00:01:00] planning is to really prepare you and your affairs for two things, either death or disability. And in that process, sometimes there are competing interests. And what I mean by that, You want two things to happen and they both can't happen, and so you have to sacrifice one for the other. I find oftentimes people are so concerned about taxes that they forget about relationships, meaning they put crazy restrictions or do some crazy things with their estate planning to save on taxes, not realizing that that's going to make two siblings hate each other for the rest of their lives. And that's a problem. That's a huge problem. So you, you really want to make sure that you prioritize the right thing, and usually that's relationships first. And it may cost you a little bit more in taxes to save your family in terms of their relationship, or it may cost you. By maybe not being able to control as much after you pass away or, or things like that, that you have to have the right
[00:02:00] perspective on estate planning. So it's really preparing you and your affairs for death or disability. And then I just want to throw that out there of, you really have to think about, okay, what is most important to me? Is it that my kids still talk to each other after I'm gone? Is it that the government gets as little money as possible in the process? Which by the way, a lot of people don't realize that they don't have much of an estate tax problem anyway. Most people. But they get overly worked up about that. So let's talk a little bit about preparing you and your affairs for death and disability. So you want to make sure that the right people have the guidelines and the authority. So sometimes, sometimes people will have, they know what you want, but they don't have the authority to make those decisions. So for example, let's say that you have a child that you know that that person would know whether you want a dnr, right? Do not resuscitate. Or whether or not they want to provide extra lifesaving measures, but if they're not the person that is in charge
[00:03:00] of making that decision for you, then you're, you're in a tough spot and the right person doesn't have both the guidelines and the authority. So that's important. And the opposite is true. You know, maybe somebody has the authority to make decisions for you, but they don't know what you want. I think it provides a lot of relief for people to have your wishes listed, especially when it comes to ADNR. You know, someone doesn't want to make that decision to not resuscitate or to pull the plug on you. So having it clearly written out in your will know this is what they want. It takes that responsibility off of the person and allows them to make that decision. Yeah. And some of the examples of complicated relationships that come up, we'll talk about this next time, but second, marriages are a really complicated family dynamic, especially when that second marriage is of a shorter duration later in life, right? And that can be really problematic because the couples look at each other like, well, don't you love me? Don't you want to take care of me and the kids?
[00:04:00] Mom or dad, all those assets were built with the previous spouse. Are you really going to just give it all to your current spouse who's only been here for a year? You know, and she might pass it on to her kids and completely write out the other kids. That's very easy to happen. It happens for sure all the time. Yeah. So avoiding confusion, saving relationships, avoiding probate. We'll talk a lot about that next time when we talk about will and trusts and protecting the right beneficiaries. Okay, so what comes in a starter estate? So this is where we want to dive a little deeper into the basic estate plan. I call them five things, but it's really four documents, but oftentimes the last one gets forgotten unless you call it out separately. So it's, we'll go through this, but you should have a trust if you have any real estate whatsoever, like a primary residence. Trust is needed, and we'll talk about that next time. A trust is a document, it's a living document that you can write in what you want for your financial needs. A power of attorney is item number two.
[00:05:00] Power of attorney allows people to have power over your financial affairs as well. This is a little bit different, the trust versus the power of attorney. We'll go into that a little bit more in detail as well. But power of attorney is a document that you can say to any institution and say, Hey, I'm in charge of these assets for my mom. For example, if I had the power of attorney trust is saying I've been entrusted to take care of anything that the trust owns that's inside that trust. A little bit different, but the powers are very similar. So we've talked about trust briefly, power of attorney, healthcare directives. We've hinted at that a couple of times. You know, who's in charge of making your healthcare decisions, and oftentimes that's not the same person. Like sometimes you want somebody who's really good with money to take care of you. But maybe you want somebody who's just the kindest soul ever to take care of your healthcare decisions. Or maybe if you're like my mother-in-law, she's like, no, I want the one who's got ice cold veins. So they have no issues pulling the plug when it's time. Like
[00:06:00] everybody's, everybody's a little bit different on that. Right? And then Will, so I, A Will is a set of instructions for a judge to read in probate if you do it right with a trust. We'll talk about this next. That will is just a, it's more of a formality and it just moves the process along really quickly. Inside the will you name who should get your kids. And so for those of you who are younger, like in, I say younger, under 55, you know, and you still have kids that might be 20, 18 years or younger. This is really important. Guardianship is really important. So these are the five. You have a will. And then as part of that guardianship. So those are your first two, trust, power of attorney and healthcare directives. Most estate planners will put this all in a package together and quote you one fee to knock it all out, and you knock it all out at once and they make it pretty easy for you. You just either fill out a questionnaire about who gets what and when. Or you just talk to them about
[00:07:00] it and they take notes. But that's the basics. What would you add? I mean, Jayson, you've run into this a lot. What would you add, or maybe what would you say about the starter estate plan that we're talking about? Yeah, because a lot of times you run into, I talk to people that maybe don't think they have an estate planning issue or even a need, or they think that estate planning is for the super, super wealthy. I don't have an estate. Yeah, I don't have an estate. You know, I don't, there's no hedge bushes down my driveway. I don't have an estate, but everybody has an estate. If you have assets, you have an. And you have a need for estate planning and then distinguishing the difference between the will and the trust. I think that's really important. I usually, and this is obviously an oversimplification, but will is for people and a trust is for assets. A will is a really good document to, to your point, designate who would care for your children if you have young children at home. So basically, if you have real estate, you should have a trust to avoid probate. And if you have kids, you should have a will. And so even, you know, people that are younger, maybe they're thinking, well, the chances. Me passing away and my spouse passing away is probably not very
[00:08:00] high. Don't really need it. But in reality, you know, do you want to leave the decision of who takes care of your kids up to the court? Probably not. And so it's really important to get that done and to have the whole package. Yeah. I know of a family where this was not listed out very well, the kids. There was a big fight over who got the kids and the kids. Actually, it's my understanding that they were more interested in staying with one family and ended up going with another, so Oh, interesting. Heartbreaking for them. Who knows, maybe that's the right thing. I don't know the whole story, but the point is it wasn't clear. And if those who passed away could have listed it out with more clarity, then not only would both families understand and at least know their wishes, but the kids too. I was going to say, that's an emotional storm for the kids. They've just lost their parents and then not knowing where they're going, especially if they wanted to go with one family and ended up with another. Yeah, it's, it's brutal. It's a big deal. So, It's all about preparing well
[00:09:00] so that those you leave behind don't have to feel the weight of those decisions. To me, estate planning is an act of kindness. Yeah. It's an act of kindness to everyone you love. It's, yeah, it doesn't really affect you. It's the one thing that you do for somebody else completely, cuz you're gone by the time it comes into play. Well, not always. There are a lot of tax savings that you can do with will and trust. Mostly trust while you're here, and we'll get into that more talking about complex trust and how you can, you know, save on taxes and whatnot later. But the basic starter estate plan, you know, really is for. Your family, your friends, and I think 99% of people, it's the starter estate plan that is that simple, the starter is the end for them, right? Yeah. Yeah. They don't need much more. No. And so when you think about estate planning, and it sounds really complex, but it really, it's assigning proper beneficiary and designation of who is inheriting your assets and if you have children who will care for your children. So it's something that when you go through and have a conversation with somebody that is an estate planning attorney, that good at
[00:10:00] directing those conversations, it actually ends up being pretty simple and straight. It's a lot more simple than folks think, and I think the issues that arise are actually very avoidable for those that don't go through the process of making sure that their bank accounts, their retirement accounts have beneficiaries. To your point, Laura, their home should, their primary home or any real estate should be in a trust. That is, I think, one of the most avoidable pain points that people can actually yeah. Handle before. And a lot of people have legal benefits through their employer. They can sign up for a legal plan and meet with an attorney who's covered under that legal plan and get this whole package done for a very reasonable cost. So something to look into, you know, see if you have those benefits that you can enroll in and, and get it done for a low. This is something that I really enjoyed. I actually enjoyed the estate planning process. It was something my wife dreaded, and so if you, if you're anything like my family in that way, and if you're like me, be sensitive to the fact that your partner or spouse or whomever you're planning with may
[00:11:00] not be as interested in having these discussions. It's a hard thing to talk about. You know, it may not be as morbid. Is that what you're saying? Yeah, exactly. Well, to me, it wasn't a big deal. It was just like, this is reality and Right. And my wife is super practical and reasonable, but it was for whatever reason. Became a very emotional thing for her to think about if I passed, which is great, I guess, you know, she likes me that way. She cares about you. But yeah, I think that that's a hard thing for people. So if you have to go into this carefully and make sure that you're not too insensitive to your partner's feelings as you approach it, it also gets really tricky if you have a disagreement about who the kids should go to, or if you're thinking about who should be in charge of the money and thinking about that dynamic. Geez, I'm not sure I want your brother telling my sister. Or, you know, something like that, like about how to handle the money for the kids. And anyway, you, you just have to think through that stuff very carefully after you got it done. Did Michelle feel better? I feel having a plan, I think going into it, it's not fun to bring up, but once you have a plan in place,
[00:12:00] it can help bring that piece. That's a big deal for me. Yeah. I wanted it in place so that I felt comfortable and I just felt so exposed without it. So that was a big deal for me. So the last thing to talk about today, this is what I call the two big what ifs. You have to solve for the two big what ifs. It's what if you die or what if you become disabled. I think we talk about what happens if you die a lot. And we don't cover what if you became disabled, when in reality for a lot of people, and even the statistics show that a lot of people will go through disability and then a later in life diminished capacity for many. I was working with a gentleman, obviously won't share specifics about the person, but I worked with him every year. We talked multiple times a year, helped him with his assets, and then between, gosh, it was within six months, I talked with him once and I got a feeling. He's being a little different this time, and I'm going to call him Fred just so that I'm careful not to say his real name,
[00:13:00] but just like Fred, he's acting differently. And then within a few months after that, he didn't know who I was and didn't know who most anybody was. So it came on fast. And at that time he had assets at multiple locations. And this gentleman was in his eighties, so he was somewhat reluctant to open up the conversation of changing things around because at that stage in life it's, I can't imagine, I'm assuming you're just like, it's gotten me this far. I don't need to do anything different, you know? But I'll give you a quick example. He had IRAs with us and he had non IRAs elsewhere. At that age, you have to take out a big distribution. So he already had to take out a pretty good size taxable withdrawal from his account. His wife always felt like she didn't have enough money, so we would do extra withdrawals. Now, in the other account over there that I, I was having a hard time getting Fred interested in, like
[00:14:00] he let me help him with it because he had completely neglected that account, but it had a couple hundred thousand dollars in cash just sitting. And that's the money they needed to go because it had a zero tax cost for them to get to. But the way the estate plan was structured, their son stepped in and their son did have access to be able to help with the IRAs through a power of attorney. But their trust documents hadn't been updated to authorize their son on the trust, and that money over there was trust, so they hadn't updated their trust. But they did update the power of attorney. And so basically what I'm saying is they paid a ton of extra taxes because the easiest money to get was the money that they could just call me and say, send us $40,000. And there were a couple times where we called the other institution together and I'm like, just, this will save you thousands of dollars if you can just spend this cash so much better for you. And then after he passed away and after he passed away, we cleaned everything up for his wife and now it's,
[00:15:00] now it's a whole lot easier and we're taking it from the right buckets for taxes and things like that. So anyway, that's just an example of. If you don't spend a little bit of time reorganizing it, you can put your kids in a world of hurt and then also make your spouse have to pay way more taxes than is needed. Yeah, that's a really good example of a family that did put some effort into making sure that things were buttoned up, but just didn't capture all of the, all of the assets I had. A similar experience where I was working with the child and her mother passed away. Her mother named her the joint owner of this brokerage account, not the beneficiary. So in an attempt to make it easier for her daughter to help with those accounts and you know, make it able to access them. How old was her daughter at the time? Roughly sixties. Okay, so we're not talking about like a young kid, right? No. Yeah. We're talking about an adult daughter in her sixties and when her mother passed away because she was a joint owner. And not a beneficiary. She didn't get the automatic, clean, full step up and all of the, and it was a bunch of
[00:16:00] individual stocks that had appreciated significantly. I was able to get involved at that point and we were able to help her at the other brokerage firm, fix it and get a full step up, but it was painful. So just having a POA would've been better than naming someone as a joint owner who really isn't a joint owner of the assets. Yeah, that makes sense. So that's a nuance that we'll talk about a little bit in estate taxes. It's called a step up in basis. That's episode four of this season. Jayson mentioned that that's where you can save some taxes by not having to pay the capital gain on all the growth of an asset that your parents experienced, for example. We'll also cover some of the concepts of naming beneficiaries incorrectly in episode three, and that has to do with. What Jayson just talked about, like putting an owner on the account instead of naming them as a beneficiary and giving them power of attorney. So it sounds like not that big of a deal, but if you hadn't been able to get that all worked out, that's again, thousands of dollars in Taxe. It costs a lot. Yeah. And they would've had to pay. And this
[00:17:00] is basic stuff, when you think about estate planning, it's naming your beneficiaries properly and power attorney properly and, and not not doing it incorrectly. So a summary on the estate plan that everyone should. We talked a little bit about this, but we're just going to go through it again. And you could also call it the starter estate plan. And again, like you said earlier, for most people, that's also the finisher estate plan, right? That's it. Get a will if you have kids. Put guardianship in there. That's two out of the five. Have a trust power of attorney healthcare directives. And if, if you have those five pieces in. And then you look at them periodically. That's also, that's also important. Maybe depending on if you've had big changes in your life, you've added children, maybe a marriage change. Of course, that's a big deal. You want to look at that. But if no major changes have happened every three to five years, and you're pretty good. Unless you have a really, really big estate, we're going to cover a lot of that later in this season, but most, most normal people, that's it. All right. Episode
[00:18:00] two, we're having Greg and Courtney join us. They are a married couple, both got into estate planning. They're the only ones I know. Yeah, it'll be fun. Very unique. That'll be great. Thanks for joining us, Jayson. Yeah, thanks for having me. This podcast is intended for informational purposes only and is not a substitute for personal advice from Capita. This is not a recommendation offer or solicitation to buy or sell Any security past performance is not indicative. Or for future results, there can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, it should not be assumed that future performance of any.
[00:19:00] Specific investment or investment strategy, including the investments or investment strategies recommended or proposed by Capita will be profitable. Further Capita does not provide legal or. Tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies discussed during this podcast, certain of the information discussed during this podcast. Is based upon forward-looking statements, information and opinions, including descriptions of anti anticipated market changes and expectations of future activity, capital beliefs that such statements, information and opinions are based upon reasonable estimate eight and assumptions. However,
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