Estate Planning

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This is the Truth Network. Welcome to Finishing Well, brought to you by cardinalguide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now, let's get started with Finishing Well. Well, welcome to Finishing Well with certified financial planner, Hans Scheil.

Today's show, how fun, or maybe not, may not be something you want to think about, estate planning. And so I couldn't help but think about where God had me this year, because I often, in fact, every year I ask God to take me on a journey and kind of order my steps in your Word. And when I asked him for that for 2023, he told me he wanted me to start studying the book of Habakkuk.

And I was like, whoa, God, I don't know that I heard you right. I mean, wouldn't the Gospel of John something be fun? No, Robbie, I want you to study Habakkuk. Very clear on that. And as I was getting into the study of that and the 20,000-foot view of Habakkuk is here's this prophet that got this horrible vision of what was going to happen to his people. And it wasn't real pleasant. And honestly, the people didn't want to face that vision. And the prophet really wasn't all that excited about seeing the vision. In fact, it starts out, it says the burden of the prophet of Habakkuk. But interestingly, much of what Paul wrote quotes Habakkuk. And as he would say, you know, the righteous live by faith. And actually, I understand that Jerry Falwell, many of his sermons were based on things of Habakkuk. So it's important that we face up to some of these things. And as I began my study in Habakkuk, I couldn't help but see how God was showing me how important, what all is at stake.

You know, we live in a Christian world sometimes where we're blessed by God in so many different ways, but we don't see the stakes of not following God and being disobedient to God and what all that might look like. So here's our opportunity today to face something that maybe you don't want to talk about. And oh, what I've learned along these lines, and again, today's show is state planning.

And the only way that you need an estate is if you die, man. Well, yeah. Well, and so what you're talking about here, and the lesson is looking at things you don't necessarily want to look at.

I mean, you'd probably rather watch football games than look at Habakkuk. And I think what God's telling you, if I'm hearing this right, is there's some things we need to evaluate here, and this isn't necessarily going to be pleasant. And so an estate planning is not on the list of things that people want to do on a Saturday morning. And so we can put it off to another time, or I thank you for listening to us for 30 minutes, and I'm just going to try to give you some high-level guidance, and there's no time better than the present to get started thinking about this.

Maybe you already have. So just getting ready for this show, I decided I was going to look outside of the stuff I read for a definition of estate planning. And pretty simple. Arranging for management and disposition of money and stuff for incapacity and after death. Where did you read stuff in that?

I inserted the stuff in there for all the other stuff that they put in there. And it just really boils down to that from a financial perspective. What we're going to do is we're going to plan all of our money and stuff. What's going to happen to us? What's going to happen to the stuff and the money when we die?

What do we want to have happen? Or incapacitated, which when you read that definition, that jumped out. I wouldn't necessarily have thought, wow, I got a plan for what happens if I become incapacitated, but that's part of the estate plan.

Well, it sure is. So if you manage your money now, you decide what goes out, you pay your bills, you decide on your purchases, you decide where you're going to go to eat, who you're going to pay, who you're going to pay, what insurance you have. I mean, all those kinds of things change if you reach a point of incapacity.

And that can go on for years. So we're going to include that in estate planning is that everybody's going to die. Not everybody is going to have a period of incapacity. And if the people that do have one, it's going to be of greatly different lengths.

So we're going to include that in the definition. We need to plan for that, plan for incapacity. And then we ultimately need to plan for after we die. Now, if you're married, the first benefactor of your estate is your spouse, your wife or husband. And when I'm talking to both of you doing estate planning, you don't know which one of the two of you that's going to be. And you don't know that you're not going to die at the same time. I mean, that's statistically that doesn't happen that much.

But more than likely, one of you is going to go first and you don't know which one that is. And so let me reiterate that you really don't know which one that is because my father's wife was. And she might have been 18 years younger than he was. And she developed brain cancer and died suddenly. And his estate plan, it just rocked all their world because they never dreamt that that was a possibility.

But it clearly is. Well, yeah, and so he was the benefactor of their joint estate. And then it was up to him now to do estate planning. But the more important issue is it was up to him to live off of however they left things. And if they, you know, a lot of people just don't have the money to go given a bunch of money to the next generation and the grandkids before both of them are gone. I mean, if if my wife died before me, I mean, she needs to leave most everything to me because I need it to continue on. And vice versa is if I die, most of what I have is going to go to her. And then it's really after death where it's going to go to the kids and the grandkids is after she's gone. The real priority here is if you're one of these people that says, oh, the kids will just get what's left.

Okay, that's fine. But don't put that on your spouse, you need to plan this because your spouse, for one thing is going to become a single taxpayer. So it's only the year of death that you get to file a tax return or your surviving spouse gets to file a married filing jointly tax return. After that, it's an individual taxpayer. So you better plan for that survivor to pay more taxes or do your planning to get them paid before this first death happens.

So and you're also going to have one social security check the surviving spouse because the smaller check disappears after the first death. So there's several things that happen that that's an area that we want to think about and we want to plan for and we want to plan for it both ways. So now let's talk about now let's talk about incapacity.

How do we prepare for incapacity? Number one is we have PO doc POA documents in place. So power of attorney. And so we're going to want to make sure that we have somebody preferably younger than us, like one of our adult children, who can make decisions about our health care, about our finances, about if we need to go into assisted living, which one we go into. Somebody that they need to sell the house is going to handle that. Just a whole variety of issues can be taken care of with the power of attorney. And sure, when you're married, it's fine to have your spouse.

That's who it should be. And if your spouse is alive and of sound mind, that's who you want making those decisions. Both of those situations could be first your spouse could be gone and deceased. Secondly, you're when you're incapacitated, your spouse could be incapacitated too, or incapable of making those decisions.

So you really need to plan during this period of incapacity, if it happens for both of you, who's calling the shots, who's making the decisions. And then and that's part of that plan. You know, because I know we did it.

Thanks to the goat over here. Sure. Well, you know, was talking to, you know, once we decide that child, you know, here's where the stuff is, here's what you need to know. You know, because again, when that happened with my dad, and oh, man, we had done all these documents, thanks to you. And I had access to this power of attorney, all that stuff became just absolutely critical. So, you know, we did that in our own case and had those discussions with our children.

So they know exactly where the documents are exactly what to do with them, and exactly why. And, and, and man, I mean, believe me, this is a huge, huge discussion that again, you don't want to have this discussion on a Saturday afternoon with your children. Now fine, you know, but it's nonetheless, you know, something that really saved our bacon when we needed it. Well, it did. And here's the thing, I bet you haven't talked about it much since then.

No. Once you get all this stuff decided, then you just only need to get it out every five years and look at it. That's the beauty of it.

If it's on your mind, and you're avoiding it, then it's just haunting you. And then let's just go ahead and get something done about it, make the decisions. And this is all part of the financial planning process. I mean, we're not actually going to draw up those documents, we had to send you to an attorney, which was pretty convenient, she's right next door.

But nonetheless, a period of a period of incapacity is part of estate planning, and documents are part of that. The other thing is where, where's the long term care money? So a lot of folks say, Well, I'm not bothering with that long term care insurance. I'll just pay for it if I have to.

Well, okay, so what money are we going to go to for that? Or are we going to reconsider in your case, long term care insurance? That's what we did is we just got a policy in place for both of you. Okay, so now let's talk about after death, what are you doing in estate planning to prepare for after you die, you're going to have a will, you're going to write up a will. But keep in mind, again, for a married couple, most of what's in your will, you're going to give to your surviving spouse, I mean, you're not gonna start giving away the household, if he or she still needs to live there. And most married couples make identical wills, not everybody, sometimes they're a little different. And then many people in their will, they give certain things that they're passing to their kids.

But like I said, a lot of them, they may be more sentimental things. Generally, the money needs to stay in the marital arrangement until the second one's gone. Then beneficiary designations are a wonderful way to avoid probate. I mean, you, you just name the person that is to receive it. And it never goes through probate and wills and delays and expenses. It just goes directly to them.

Right. But for those poor people out there, like me, the first time I heard that idea of probate, I thought it was something that used at brass pro shop. But the world is probate. And so, you know, when my father died, I found out what the world probate was, as you know, it's this period of time where you go through all these hoops, essentially, to make sure that, you know, everybody gets a chance to ask for what they need to do.

It's just a bunch of hoops. What Hans is telling you here about these designations on financial documents like that, where you don't have to go through probate, like man, this is because when people when these things happen, you need access to that money. And it would be really helpful not to have to wait a year or six months, you know, depending on the complication of the estate that you got to go through. So this is, this is a big deal. And of course, it's also a pretty good time to go to a break. So I want to remind you that the show today is always is brought to you by CardinalGuide.com. That's the website CardinalGuide.com. And that's where you're going to find how to connect with Hans and Tom, as well as the Seven Worries tab, which again, we'll have estate planning today. And Hans has booked the complete Cardinal Guide to Planning for and Living in Retirement. So we got more of this conversation you get to have today, but then you're done with it. So listen up, we'll be right back. CardinalGuide.com.

That's CardinalGuide.com. Welcome back to Finishing Well with Certified Financial Planner, Hans, Shyle and Stacey show estate planning. And we're getting into some really cool details, I think that really help your family. And so when we left our hero, we were talking about probate. And this isn't something you get it past brass pro jobs. No, it's not. It's something you actually want to avoid. But when we say that probate, it's a very necessary thing. I mean, it is the court. It's the state that has a need to distribute things for people that died. I mean, when, when, when, when you're deceased, and properties in your name, and their taxes do and assets are in your name, and you have you don't have a will, you actually do have a will, because the state has their intestate laws or laws of intestacy, which says who gets what, but it's not that simple that you just read the will and start passing it out. When somebody dies without a will, it leaves a real problem. And so you've got the probate court needs to decide who gets what is what it really boils down to according to the laws. And when there is a will, you still got to go to the probate court, and you got the court probate court tests and then enforces the will.

So they make sure that people get whatever they're entitled to, and the wrong people don't get it. So it's a very necessary thing. But there's ways to avoid it. It's, you know, and the way you avoid it is one way to avoid it is trust. So when you put things in a trust, then it stays private. And then the probate court doesn't get involved as the trustees just distributed according to the ways they want to do it. But the reality is trust are expensive. And sometimes the trust can become cumbersome, it can become work in the exact opposite the way it was set up.

So trusts are fine only when they're necessary. And there's this thing called a beneficiary that works so well. And it completely avoids probate is that money transfers after death at by operation of contract. So if you have a life insurance policy, and you've named your two children, the beneficiaries 50% each, and then when you pass away, they somebody that's handling your affairs sends your death certificate into the life insurance company, and your heirs just receive a check right after that.

It's really that simple. So it's possible to put a beneficiary designation on a lot of different financial documents. So again, that's all part of the estate plan. Now let's talk a little bit about second marriages, children and stepchildren. And so we have so many people that come in to us that are in a second marriage. And then they have children from the one side of the marriage, and they have children from the other side of the marriage. And then this seems like the grandchildren are always belong to everybody, because the grandchildren have come about since the marriage. But it gets a little complicated with the state planning, because people when they get married, for the second time, they generally are trying to protect the kids from that prior marriage that they receive at your death, what they were entitled to that your mother, their mother or father has accumulated all of their life. So it gets a little complicated and people start writing wills and trusts with all good intentions. But it works out many times to be a mess years later.

And so what I do in a lot of those cases is first of all, I sit down with a couple. And many of the couples that I work with, they need to leave everything to each other just so that the survivor can go on living and go on and do well and thrive. So that means writing the kids, the stepchildren out of the will or the children and the stepchildren of the survivor, that gets complicated.

So I'm not making any recommendations on the air here. But if you come in to see me, and this is your situation, I'm going to raise it. And we're going to think through it because the first person we got to look after is the surviving spouse of the marriage, the person that outlives the other and needs the assets to live on. Then when that person passes away, then we need to make sure that things get distributed properly.

And that gets a little complicated, because we don't know how the order of how this is going to happen. Which brings me to my next topic is that life insurance can be a can be a great equalizer. When I run into this, number one is if this one spouse needs to leave this money or these assets to the kids of their first marriage, then we buy some life insurance and we leave that to the spouse.

And it's pretty simple. The spouse has their money to keep on living. The kids get what you want to leave to them and they're happily thereafter.

Or we can do it in the reverse. Sometimes to take the life insurance many times for a smaller amount and leave that to the stepchildren or to the your children and her stepchildren. And you know, I can tell you that five or ten thousand dollars, the difference between that and zero is a lot. Is that when people attend their mom's funeral or their or their father's funeral and there's their stepmother and she's getting everything and maybe they don't resent that. But it's kind of like, well, dad didn't think of me. And so if there's a life insurance policy that leaves them as a beneficiary, even something as small as a twenty thousand dollar life insurance policy that left ten to each of them, it just it's wonderful.

It's just it's a blessing that goes to them. So there's all kinds of ways we can set that up, leave beneficiaries, make sure people are taken care of. And what I've done in a lot of these situations I've recommended and the people have followed up with is we get a small life insurance policy and we leave money to all the kids, kids and stepkids. We just leave it all equally and we buy equal amounts of insurance on both sides of the marriage.

Again, a small amount. So if there's two kids on each side, total of four kids and we buy a forty thousand dollar life insurance policy on each and when either of them go, there's ten grand that goes to each kid. Now there may be more money at the second death and other things and something small like that.

I even have people do it for grandchildren. So it's a it's it's a way to take a small amount of money and spread it around and and send the love. So really the last topic that we want to jump on is taxes for the heir. Okay, it's kind of important because Uncle Sam is going to stick his hand out and he's going to take whatever's coming to him. Now if you've got less than six million bucks when you die, I'm going to make it that simple.

That's an oversimplification. You don't really have to worry about estate taxes and if you're a couple, if you've got 12 million or less and you give things to your spouse properly and you set it all up with somebody like me, you don't have much to worry about. And it's even larger than that if you die in the next few years. So estate taxes are for people the multi-million dollar estates and frankly if you're anywhere near those thresholds, we might want to do some estate planning around estate taxes simply because you may be around for 30 more years or one of you or the two of you maybe and this may grow into a substantial thing or they may reduce the estate tax thresholds or the exemptions. So it's not it's not a subject we're going to go into detail because it doesn't affect a whole bunch of our listeners. Now what does affect our listeners are our income taxes that are due on IRAs and 401ks that go directly to the kids or go to anybody where the taxes haven't been paid. Big issue, another show, but if you're if you've got a good bunch of money in an IRA or 401k and you're planning on this going to your kids, just either prepare them for the taxes or come see me and we can tax proof this thing and really work on it so that they'll at least know what to do and how to spread those taxes out over several years. Now when we get into benefits for the heirs, taxes for the heirs, one overriding question that we ask everybody with estate planning is how your kids are left, your money, is that real important to you? And with a lot of people the answer to that is yes.

A lot of people or some people it's no. I mean they don't really want to do any planning around the kids, they're just saying the kids can deal with that. Whatever they get out of me is just a bonus and so I'm not trying to put words in anybody's mouth it's just my job as an estate planner is to learn where you are with that and what I would say is if you're married then you better then plan for your spouse because your spouse is actually first of all going to have to live off of what you leave them for the rest of their life and they're going to need to deal with the kids at the second.

Well I guess they're going to be gone too but then it becomes a factor of their estate so this isn't something you can avoid. It's something I'm a big believer in planning and being thoughtful and we have a lot of different financial vehicles that we can set things up pretty easily that things go smoothly for your family. Yeah and we always want to mention on this as well that you have beneficiaries if you have an IRA or a 401k or a Roth IRA any of those have a beneficiary there's also instruments with your bank account that you know a transfer on death that needs to be done but all those things are part of the careful looking at of all those documents making sure your beneficiaries are who you want them to be because especially in the case where you got children in a couple different marriages or different spouses you know what's on that what's on that document is where that money's going. Yeah these people buy life insurance if you're in a second marriage where you have children and stepchildren and then get real clear who gets what and you know if you come to me for suggestions I go through lots of these cases and it's just you know what's great is then we can quit talking about it we can just lay it out and then you get comfortable with it and when we quit talking about it's just there whenever that happens everybody's going to get their money. And great show Hans and we want to remind everybody that all this information they have a video that they did at cardinal advisors on youtube of course it's at cardinalguide.com with show notes and all sorts of information as well as the seven worries tab there at cardinalguide.com on estate planning and Hans's book the complete cardinal guide for planning the complete cardinal guide.

The planning for and living in retirement. I haven't messed it up in a long time. It's six years old it's time for me to write a new edition. Well again thank you so much for listening you guys make all the difference and we're so grateful for everybody that that listens to this show and so when you reach out and contact Hans you maybe have a subject or something you would like him to talk about on the show feel free to do that at cardinalguide.com thanks for listening.

Thank you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future result. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.