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Wealthy & Wise: The Dos and Donts of Estate Planning

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February 15, 2023
Author: NCH

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About the Video: The Dos and Donts of Estate Planning

Estate planning is a critical aspect of financial planning that involves making arrangements for the distribution of your assets after your death. Some of the do’s of estate planning include having a revocable living trust in place, keeping it updated, regularly reviewing your beneficiaries, and assigning a Trustee. On the other hand, some of the don’ts of estate planning include procrastinating, failing to review your estate beneficiaries, and not having a plan in place. It’s essential to have a comprehensive estate plan in place to ensure that your assets are distributed according to your wishes and to minimize the potential for disputes and confusion among your beneficiaries.

Prefer to read? A full transcript is provided below.

CORT:

Hello and welcome to another edition of Wealthy and Wise. I’m your host Cort Christie, CEO of NCH. Today we’re going to be talking about the do’s and don’ts of estate planning. And we have a very special guest with us. We have Mr. Kurt Harris of the Harris Law Group here to talk to us all about the do’s and don’ts of estate planning. Kurt, thanks for joining us today.

KURT:

Thank you so much for having me.

CORT:

Absolutely. And, you know, we always enjoy when you’re on the program, you are thoroughly entertaining, as always. And our viewers absolutely love the content and the way that you give it to them with ease and understanding. So, folks, you’re in for a treat today. Listen to this program on the do’s and don’ts. So, Kurt, let’s talk first about the don’ts. That’s the easiest. You know, what are the wrong things? One of the don’ts when it comes to estate planning.

KURT:

Well, the biggest one I can think of and one of the biggest questions I guess, that keeps recurring over and over is, you know, is there a different alternative for my residence? What should I do with my residence? We always recommend that you put that into a revocable living trust because that will bypass probate. However, a lot of people sometimes will read things on the Internet or get ideas about, what if I just added my child as a joint tenant on my home? Wouldn’t that work? And I sometimes think, yes, that would work. That would work just fine. But you are making a transfer to that child that is not a stepped-up basis transfer. So, there is a tax implication with that transfer, which a lot of people don’t see. Now, whether or not the assessor catches up with you on that or not, I don’t know. Maybe you’ll beat the odds. But in addition to that, you also have now put another person on the trust who can potentially incur liability for your home. You just put a younger child that might be subject to a lawsuit or some other incident that may occur or bankruptcy or something else. And now you’ve put them on your home as a joint tenant, essentially putting them in the same position that you’re in on your home. It’s a little risky, it’s a little dicey, and we certainly don’t recommend it. It is one way to kind of beat the system or to get around the need for a revocable living trust. And you can potentially bypass probate that way. But there is a tax implication and there’s huge liability implications. In many states, they also have these transfer on death, TOD, they call them deeds.

CORT:

Minnesota, my home state, that’s one of the things that you use.

KURT:

Fantastic way to get around it. And we do recommend that if you happen to have that in your state, it’s a good idea. That’s something that works and that effectuates the transfer on the date of your death. It doesn’t subject you to liability and it bypasses the need for probate. There still may be a tax implication there, but we do like transfer on deeds where you can use them, but oftentimes it doesn’t encompass or encapsulate all of your property.

So, you may have fixed one thing, which is the big one, your home, your personal residence, but you may not be able to fix all of your things that way. It’s very difficult to use a transfer on death, on other pieces of property, perhaps in other states or ancillary jurisdictions, as they call them. And so that is one ‘do’ that we like. But it’s also a ‘don’t’ sometimes potentially. And so, we like the transfer on death deed when possible, when you can use it in your jurisdiction. But it’s not an application for all states.

CORT:

That’s great. So, on the home, I mean, really, it sounds like, you know, the simplest pathway is set up a living trust, a revocable living trust. Don’t put your kids on your home with you on the asset with you. Too many issues that go along with that. Maybe some tax implications long term, missing out on a step up in basis and other things that you might not get. And certainly, something you don’t want to do. Very important. So, let’s talk about what you might not want to do with other assets.

KURT:

Okay. Certain other assets like your vehicle, a lot of people think, well, maybe I should put my car into my trust. You know, that is your day-to-day driver and nothing against Honda Accords, but it may be a Honda Accord 1986. Apparently, those Hondas can run forever or a Toyota or something like that. You probably wouldn’t want to put that in your trust. You probably won’t have that on the date of your death. And it’s probably something that you wouldn’t want to put into your trust to potentially mix and mingle with other assets that you’ve put in your trust at that time. And so, we would recommend that you not do that. You keep that outside of the trust. It just makes a lot of sense at times to do that. Other assets that I can think of that maybe you might not or might want to put into your trust. And I flip flop back and forth on this, is life insurance policies or other accounts that have beneficiaries that you can name on them. If you have like a bank account and checking account that allows you to name a third-party beneficiary, you may or may not want to list that as an asset of the trust. You might just want that money to go directly to the beneficiary that you named. A life insurance policy is something else I can think of that’s very much that way. Life insurance policies are one of the few last asset protection type bastions that are out there where you can pass substantive amounts of wealth on to the next generation that’s still tax free. Now the price of that is that you do have to pass away, unfortunately. So, nothing’s perfect, but that is one way to pass assets on to the next generation that’s asset protected and naming individual beneficiaries. That may not work out very well for you. If you have a child that’s quite young because they will inherit all that money on the date of your death. And that may not be an ideal situation for you. You may very well want to name your trust as the beneficiary so that you can put the assets of a life insurance policy into the trust, and then the trust will distribute that by way of a trustee. Maybe over time until that child’s a little older, maybe a little wiser, and maybe in a better position to manage the funds. So, that’s something I go back and forth on, and it’s something that all of us need to make an analysis of who we’re leaving the property to and how we want those distributions to occur. Do we want it all to go out on the date of death or do we want it to be measured out over time, depending upon whether we have very young children or older children can make a very big difference.

CORT:

Thank you, Kurt. Now, you talked to thousands of people every year that are looking at setting up trusts or looking at protecting an asset. Maybe it’s a single purpose asset, like an airplane or a gun. I know there’s gun trusts. There’s just a real estate trust that can be used just for real estate that you worked with. Also, what do you think are just, you know, just overreaching some of the most common mistakes we’ll call them ‘don’ts’ or misunderstandings that you deal with when it comes to the conversations that you’re having with people?

KURT:

Well, one of the big ones is frequently people will tell me, well, why do I need a trust, for instance? Because I really you know, I’m a big advocate of the trust and avoiding probate. I’ve got a will. It’s all there spelled out in the will. And I’ll tell you, nine times out of ten, when I look at the will, it’s not all there and it’s not spelled out. And that Will is destined for the probate process just by means in the fact that most wills have to be probated. And I would say 98% of wills need to go through probate. And so, despite the fact that people think that they have everything encapsulated by way of a will, all that’s going to do is going to put their heirs into the probate courts. Because wills have to be probated and there is a considerable expense that’s associated with the probate of a will. And so that’s a big misconception that you think you’ve got everything managed by way of a will or a lot of times I’ll get the, you know, I really don’t have enough assets. I’m pretty young and I’ve got young kids. Why do I need a trust? Why do I need a will? Why do I need to bother with any of those things? And I think to myself, naming a guardian is a huge thing for someone that has young children. Is there something more valuable to you than your young children? And don’t you want to name a guardian rather than leaving that up to the courts potentially to figure out who the guardian of your children should be, should something happen to you? And so that’s another thing. A misconception I get a lot of times is that, well, obviously the courts will just consider, you know, so-and-so, but the courts don’t know so-and-so.

CORT:

Right.

KURT:

And they have no idea.

CORT:

Yeah, you think immediately the court is going to say, well, my mother, you know, naturally, or my sister, you know, will take over for me or someone else if something happens to me, happens to my significant other, that the mother of the child, if it’s her husband. And that’s not the case.

KURT:

No.

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CORT:

You know, and I’ve got a family member that works in the courts in regard to these types of situations. And it is complicated in generally it doesn’t work out the natural way that you’d expect it to because for many reasons, you know. For one of the reasons that they deal with all the time is just they’re not in a position, have never thought about it, not even ready to take over. Even naturally, they would like to maybe take over or it makes the most sense. But if you’ve never had the conversation, then let’s say it was Mom, I’d like you to place you as a guardian of our children or my sister. I’d like you to place the guardian of my children, or a good friend that you know, and that you’ve decided. Boy, I like how they parent. I like what they’re doing. Can I approach them on this? And I remember being approached on this from a friend of mine, Kurt, and at first, I was like, wait a minute. I’m like, I’m not so sure about that. You know, I’ve got enough going on with my family. But then, you know, once I thought about it, I’m like, what an honor and a privilege to be asked. And that they would entrust me with their children, and they didn’t go to their parents. They went to me because they knew I was still parenting at the time, and I was in that mode. They didn’t want to say, hey, Mom, who was in her seventies, we’d like you to be the guardian of our kids if something happens. Well, that’s nice, It’s in the family. But is that really the best place for your kids? So having that conversation, considering that. Yeah, huge. And I know that that is something that is most often misunderstood, how that works.

KURT:

Yes, it’s very difficult. And it isn’t, it doesn’t make a lot of logic when you go to the court system. It’s, there is a process, there is a procedure. And the way you think it works, it probably doesn’t work the way you think.

CORT:

Well, and then the other side of it is, do you want your children in foster care for six months while it gets figured out?

KURT:

Worst case, the absolute worst.

CORT:

So, think of that. Well, let’s flip it over to somebody. You know, you talked about some of the do’s and some of the don’ts. And I know you’ve got, you know, some things that have been on your mind, like what is the clean path? What is the ‘do’ that you would like everybody listening to just follow this path?

KURT:

Well, one thing, a couple of things. We like the revocable living trust; I just think it’s a no brainer for everybody. And I do think that everyone should consider it. If you have a blended family or if you have children from a prior relationship, I always recommend an additional trust. One to cover your prior family and one to cover the current family because it can get a little difficult if you use a single trust and children from a prior marriage dealing with children from the current marriage or a current spouse, it doesn’t always work out perfectly that way. And you really need to think that out and to really think about what’s best for your children should anything happen to you. And so very much recommend that, very much recommend that you figure out exactly your heirs and who you want to get what. And identify it as much as you can. And if you have a child that you need to disinherit, for instance, a lot of people will tell me, I don’t want to disinherit my kid. I just don’t want to do it. I can’t do it. And the perception by the courts is, if you don’t say anything about a child, that you forgot about the kid, and they will rewrite your trust and put the child in. Because no one would forget their child unless they were specifically disinherited on the paperwork. And a lot of people really push back on that. And I don’t blame them. I wouldn’t want to do it either. But if that is the intention, you need to say the words that you are specifically disinheriting that child. Otherwise, the court will throw out your documents and will essentially rewrite your will and your trust, to name your child.

CORT:

Which creates a lot of complications because most often when you have a child that is off, they’re no longer involved with the family, they’re no longer touching base with anyone else, there’s sort of an expectation that comes from the other children that are engaged in your life that are interacting, and you probably had some conversations along the way that said this is all yours someday. And like my mother-in-law, I used to always do to me, you know, oh, this furniture is yours someday. And I’d like, okay, thank you so much. I don’t really need your furniture, especially if you live long and I live long. But in this case, you know, by not stating it, that child that you haven’t talked to for ten years gets to come right back in the picture and gets the percentage of your estate based on how many kids you have. And the judge is going to deem that. And I think that’s really important that you’re pointing that out just because somebody doesn’t want to say it in writing, you might as well just tell your other children that have been in your life and been around and everybody has been supporting one another, that you’re leaving a third of your wealth to one of your three children that you haven’t talked to for 20 years.

KURT:

Yeah, and it will. It definitely happens that way.

CORT:

I think what’s so interesting when it comes to estate planning is the blocks that we have. Blocks meaning, I’ll get to it later. I don’t want to have to make these tough life decisions like selecting a child or putting it in writing or having to organize my life. And I think it’s one of the most incredibly irresponsible things that anyone who is listening to our program can do to their children or their spouse or the rest of their family by not spending the time to get organized. To get in a place where you save your family the misery, first of all, of dealing with attorneys and judges and the whole probate community that’s out there. And then the time that you require of your family members who may be fighting over your estate now, who have to try to unpackage your stuff, who have to make decisions without having any guidance, is incredibly irresponsible. I think is incredibly selfish. And it’s always shocking to me how many people I come across that just know they need to do it but haven’t done it for a hundred reasons. And I just think it’s really an incredibly selfish act. And I won’t say it. I won’t require you to say it, I’ll say it for you.

KURT:

You know, one of the things, it is hard. We all procrastinate and particularly our own death. You know, it’s ridiculous to think about it and I’m with everyone on that. NCH has an incredible tool called ‘The Final Wishes Document’ that I think is wonderful that way, even if you’re not of the mindset to get in quite to the estate planning documents. This tool called ‘The Final Wishes Document’ causes and creates us to sit down and inventory all of our assets and all of our beneficiaries and where everything’s at. You know, particularly I have this life insurance policy, you know, and it’s in my cupboard over there on the left side of the drawer, whatever the case might be. And it names and identifies all of your things, and it really puts your life organizationally in a in a great place where someone could come along, just pick that up and they know exactly where everything’s at. And they don’t have to go digging or searching for tax returns or any of that type of information. It’s all at their fingertips because essentially, you’ve gone through and inventoried your whole life. It’s a tough thing to do, but when that document is complete, it’s magical. It helps you to organize your life. It helps you to put your mind in the right place and to realize what items you have and what assets are unaccounted for and what you need to do to put everything down into that final wishes document. And after that, that fits perfectly with the estate planning documents and takes that next step in organizing your life should anything happen to you untimely. And it also benefits you to know where things are at as you forget about things that you’ve set aside. It can be very helpful with numbers, names, account numbers and all types of information. We just think it’s a super, super beneficial tool for anybody.

CORT:

Absolutely. And I’ve seen, Kurt, the documentation that you put together, I’ve seen the package, the revocable living trust package that covers health directives and powers of attorney and guardianship and all the things that you need, including these final wishes documents which give guidance and direction to your heirs and also where to find everything. Where is this stuff now that you have listed on the lists, you know how do I get access to it? It’s incredibly important. And I just want to say thank you for all the work you do. It’s serving so many people and really helping their families for generations, hopefully, that they see what an organized estate can look like and how you can make it simple. When someone does pass away the next generation can pick it up from there and it’s a responsible thing to do. So, thank you for all you do.

KURT:

Thank you.

CORT:

And for all of you listening, here’s the ‘don’t’ today. Don’t procrastinate. Do take the next step. Get on top of this. Get your estate plan organized. We don’t care where you go to get this done. There’s plenty of information that you can go to online. If you want it professionally done, professionally supported and managed for you so that you’ve got everything done in one package for your kids, for your heirs, for your spouse, then call us at NCH and we’ll give you a free consultation. We’ll guide you through exactly what we’ll do for you, how much it will cost. You’ll be shocked at how inexpensive it is, but more importantly, how important it is for you and your family. So, take the right step, take some action now and get a revocable living trust set up for you and your loved ones. Thanks for tuning in to another edition of Wealthy and Wise. I’m your host Cort Christie.

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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