MIKE: Good morning, and thank you for listening to Decker Talk Radio’s Protect Your Retirement, a radio program brought to you by Decker Retirement Planning. Today, we’re discussing wills, power of attorney, trusts, and other documents for your estate planning to make sure that you’ve written yours correctly. The comments on Decker Talk Radio are of the opinion of Brian Decker and Mike Decker.
MIKE: Good morning, everyone, this is Mike Decker and Brian Decker on another addition of Decker Talk Radio’s Protect Your Retirement. Brian Decker from Decker Retirement Planning, with offices in Kirkland, Washington, Seattle, Washington, and Salt Lake City, Utah. We’re very glad to have him here on the show, and as promised, we’re going to be finishing some conversations about wills, power of attorney and documents. Brian, should we just dive right in?
BRIAN: Let’s dive right in. We don’t have any… I don’t have any stock market data for today because last time we started with stock market data, Mike, it went to the whole show, do you remember that?
BRIAN: We’d intended to talk about wills, power of attorneys, living wills last week, and we never got to it.
MIKE: Just to stay on track this time. [LAUGH]
BRIAN: All right. So this is very important in the financial planning part of our process at Decker Retirement Planning, is to make sure that your documents are all in order the way that you want them. We’re not attorneys, we work with your attorney. And let’s start with your typical document.
BRIAN: So in any estate, there are directions on how to pass assets to your beneficiaries. Some of the directions come from your retirement account, so for example, any IRA, SEP, ROTH accounts, they have beneficiary designations where spouses are primary beneficiaries so that if there is a death of the spouse, then the surviving spouse can present a death certificate to the bank or to the brokerage firm, and upon presentation of the death certificate, it’s immediate, it’s very easy to transfer assets to the stated beneficiary, and no problem.
BRIAN: The other part of people’s estates with transfer instructions are their will. So when there’s a will, there’s a death of a spouse or a surviving spouse, there are transfer instructions, usually primary spouse to spouse, or if there’s a surviving spouse and they pass, then there’s directions on how to pass assets to your beneficiaries.
BRIAN: What we’re going to talk about today are a lot of common-sense issues, and again, we’re not attorneys, we’re not giving legal advice, but we do want to point out some of the problems that we see in typical documents that I think are common sense. So for example, on the will, the will is a document where, in our opinion, it divides families in a very difficult way because of an easily fixed sentence two-thirds of the way down page one, and it says, “Regarding tangible assets.”
BRIAN: And by the way, tangible assets are your house, your car, your jewelry, your artwork, your guns, your coin collection, your stamp collection, your furniture, all your stuff. That stuff are tangible assets. So what typically happens is there’s a line that divides families where they won’t talk to each other for the rest of their lives, and we’ve seen this so often, Mike, you know what I’m going to say.
MIKE: You’ve the countenance go dark.
BRIAN: Mm-hmm. So we’ll have happy, fun meetings for four and five meetings, and then when we talk about this, their face turns from happy to sad, and they say, “Yep, the assets weren’t distributed fairly in my family, I got ripped.” So this one sentence is responsible for this. In the will, under “Tangible assets,” it says very ridiculously, quote, “All tangible assets are to be equally divided.” You can’t do that.
BRIAN: So Mike, if you have, let’s say that you have three piano players, and one Steinway, how can you possible do that? This is common sense, right?
MIKE: Yeah, I mean, you’re not going to take a chainsaw to it and divide it three ways, so you have to liquidate it, and everyone loses if you liquidate a nice asset or family heirloom.
BRIAN: Yeah, and how do you compensate with three piano players and one Steinway, so one person gets the Steinway, how do you do that? Rock-paper-scissors? I mean, how do you do that?
BRIAN: And do you offset one Steinway with five casserole dishes and some artwork? So this is really difficult. So here’s what we recommend. We recommend that while you’re alive, you have a conversation with the kids when they’re over at Thanksgiving, or Christmas, or even sending a message over the internet, your email, to your children saying “Hey guys, we’re not going to be around forever, anything that you have your eye on, we’d like to have these discussions and start these discussions while we’re alive.”
BRIAN: No, you can’t put your name on the house, or the Corvette or the Porsche, those things will be automatically sold. So let’s talk about this, Mike, when we settle tangible assets, if the goal is to have the children still love each other after they die, it doesn’t make sense to have them put their name on things that are of huge value. So let’s say that you have three kids, someone puts their name on the front door, they get the house. Is that fair?
MIKE: Well, no.
BRIAN: How about your Corvette?
MIKE: Unless you have three Corvettes, doesn’t make any sense.
BRIAN: Right. So when it comes to tangible assets, we recommend, and again, we’re just, we bring up in discussion, should some things be automatically sold? So there’s a liquidation clause in your tangible assets stating that it is the will and the intention of the husband and wife or individual, for their estate, that when it comes to passing assets, the house will automatically be sold.
BRIAN: I want to spend some time on these tangible assets, Mike, because some people say “Oh, the kids love our house…” Let’s say that they have a vacation house. Let’s say that, Mike, you have three kids and you’ve got a vacation house that everyone loves to go to growing up, you’ve got great memories, how can you possible sell that?
MIKE: Yeah, that’s a tough decision. Now, before you get into it, is the house paid off, or…
BRIAN: Let’s say that it’s paid off.
MIKE: Okay. So it’s already paid off, it’s just an asset.
BRIAN: Okay, I’m going to tell you what happens without exception, when we talk to our clients about this, those three kids grow up, and are they equally, are they earning equal money after they graduate from college?
MIKE: Not normally, no.
BRIAN: No. One of the three, I’m just painting a picture, is doing very well, one is doing fine, the other is struggling. Typically, when there’s families, you have some that are doing well and some that aren’t. So, and by the way, that’s one factor, is economic disparity. The second thing is geographical location, diversification. So let’s say that your house is in, I don’t know, let’s say that it’s in the San Juan Islands in Seattle.
MIKE: Beautiful place.
BRIAN: Right. One of your kids married a teacher and is living in Texas. One of your kids became a doctor, and they’re living in Salt Lake. One of your kids is working as an engineer at Boeing, and they’re right there. So there is inequality as far as use, because the one kid might use the vacation home so much that guess what, they might move in. Is that fair?
MIKE: No. Proximity of convenience, though.
BRIAN: Right. And they’re there all the time, they’re using it all the time, they’re upkeeping it all the time, and they feel entitled, “Hey, since I’m doing…” Can you see the problem?
MIKE: Mm-hmm.
BRIAN: Okay. The second problem is economic. One kid that doesn’t have the money wants to sell that house, because they could really use the money. The other two are saying “Hey, we just want to use it.” So these are problems that divide families. We talk to them, and usually the husband and wife see the light, and they will put in a sell provision on the real estate, if it’s a vacation home, the residents, and their cars, and then the proceeds are divided equally. Does this make sense?
MIKE: What about boats?
BRIAN: Boats fall in that same category. But you can put in right of first refusal, so that if one of the kids wants to buy it, the other kids want… But see, that…
MIKE: That can create a situation, who’s going to buy it?
BRIAN: Yeah. And it’s unfair that Jim or John has more money, and they get to buy the boat.
MIKE: But you can create a situation beforehand where you say “If only one of you wants to buy it,” then we can have a situation, but if multiple wants to buy it, well… I mean, you can have a conversation beforehand, instead of a surprise at death.
BRIAN: Right. Here’s the point, we’re bringing up the topic while the parents are still alive, so the kids can’t claim that it wasn’t fair, number one. We at Decker Retirement Planning, our planners are having the conversation about their children to make sure, because life isn’t fair, but to make, to try to create a situation to where the chances of lifelong separation and problems are minimized in passing assets.
BRIAN: So some of the tangible assets should definitely have sell provisions, we talk those through, and the proceeds are equally divided. Some of the tangible assets should be invited by the children to go through Mom and Dad’s house and their stuff and see what they want to put their name on, so they put a yellow sticky for Susie, a blue sticky for John, a green sticky for another child, and they all decide what they want. If they all put their same sticky on something, then they have to work it out.
BRIAN: But now, while you’re alive, you’re having the discussion, and you’re creating, quote, “Appendix A,” that’s referenced in your tangible assets section, now the chances of your children claiming that it wasn’t fair are almost eliminated. Fairness has been discussed and they’ve worked it out, they have time, so that’s… That part of people’s will is usually the divider, the nuclear divider of families, unless it’s reconciled while you’re still alive.
BRIAN: So that’s an important point. The other point is if you have three children, Mike, who do you decide to be your contingent executor? So, you and your wife are going to pass assets to each other, 100 percent of a spouse’s assets go to the other spouse, those are primary beneficiaries. And your executor too. But if one of the spouses dies, and you are a single person or you’re a widower, now which children is the next in line to be your executor of your estate in your will?
BRIAN: Some people, the reason we’re talking about this, Mike, is some people think “Oh, I don’t want to pick one, so we’ll have all three go in there.” Do you know that’s a disaster?
MIKE: [LAUGH] That’s a terrible situation.
BRIAN: Yeah. Because under stress, first of all, you have some kids that are out of state, what are they expected to do, fly in? And to take care of transactions. The things that typically happen when the surviving spouse passes, so now both Mom and Dad are gone, now you’ve got a house full of clothing, jewelry, furniture, artwork, gardening tools, I’m just saying the whole house is full of stuff.
BRIAN: You know what we recommend people do? Call the Salvation Army, call Value Village, call… Call these places that, for free, they will come in, happily take all your stuff that you want ‘em to, and they’ll be sold in consignment for, you know, to help other people.
BRIAN: But that helps move out all the stuff. Anything that you don’t want sold on consignment that are… And by the way, when we talk about what Johnny and Sally and Mikey and all these sons and daughters will choose and put their sticky on, what surprises me, Mike, a lot, is that sentimental value will surprise you. It’s not… Hold on, let me finish this thought. It’s not the artwork or the bling, typically what the children want of their parents is, number one, Mom’s wedding ring, number two, Mom’s wedding gown, number three, any old pictures, number four, Dad’s guns, Dad’s wedding ring, Dad’s memorabilia, then on this list is the family casserole dish. Does that surprise you?
MIKE: No.
BRIAN: That’s the stuff that you… And usually there’s some artwork that brings back great family memories. Those are the things that typically the kids want.
MIKE: If you’re listening right now, this is Decker Talk’s Protect Your Retirement, we’re talking about estate planning and documents to go over your wills and power of attorney. You’re listening to Brian Decker from Decker Retirement Planning, a safer approach to retirement. So, Brian, let’s keep going on with…
BRIAN: Okay, so we covered the will. Now, let’s talk about power of attorney documents. Power of attorney is, like Monty Python said, you’re not quite dead yet.
MIKE: [LAUGH] The black knight. “I’m not dead yet.”
BRIAN: “Just a flesh wound.” So here, you’re incapacitated, and we look at three very important things in your power of attorney documents. One is the common sense transition to… the common sense transition. So if you have a spouse that is incapacitated, then the other spouse usually is your primary agent. But what if one spouse has already passed away, and the surviving spouse is incapacitated? Common sense, same discussion that we had in the will for who your executor, your contingent executors are.
BRIAN: Which child should it be? It’s not a good idea to put all your kids in there, again, because in a high-stress situation, Johnny, Sally and Mikey and Stevie might have a problem working together, and might, if some of them can’t work together, then you’ve created a situation where there’s resentment and bad feelings, and separation of relationships for the rest of their lives. Don’t create that situation
MIKE: Brian, I’ve got a question for you about the power, or not power of attorney, but the executor, do you tell the executor beforehand, or is it better to be a surprise, or do you want to tell all the family “Hey, this is the person that’s going to be the executor after we pass,” what kind of discussion would you typically have?
BRIAN: Yeah, that’s a good point. And we just bring it up to the families. A lot of the generation, the greatest generation, Mike, that was the World War II people, they’re very private with their things, and they don’t want the kids to see what they have, so they don’t want to share, other than telling the child that they will be the executor, that’s all that they’ll say. Most of the time.
MIKE: That’s good, to at least prepare.
BRIAN: Yeah.
MIKE: Because it is a stressful situation, but does the rest of the family know who the executor is?
BRIAN: Usually not. Because they don’t want to have bad feelings, “Oh, why didn’t you choose me?” All right, so now we’re at the power of attorney documents, and there needs to be a logical succession of agent, so surviving spouses are agent to each other, and then if you have two or three children, we recommend you pick one. Now, in certain times, we just have the conversation, some of the people, the families that we have at Decker Retirement Planning in our planning offices, they will convince us that “Oh no, it has to be this way, the kids always work together, we can’t choose just one.”
BRIAN: So I would say that’s five percent of the time, 95 percent of the time they pick one. Okay, now let’s talk on power of attorney documents, usually they’re separated in power of attorney, finance, and power of attorney, healthcare. Power of attorney, finance documents gives the agent powers to perform, to file taxes, to buy and sell land, to buy and sell securities, to pay bills. It’s to continue with the financial aspect of the disabled person’s, incapacitated person’s estate and life, that agent steps in.
BRIAN: So, the agent has something called a compensation clause. Mike, guess how often the compensation clause is abused?
MIKE: Probably almost every time.
BRIAN: Almost every time.
MIKE: It’s almost a blank check.
BRIAN: Yeah. So, the compensation clause, and we have no problem with the reimbursement clause, the compensation clause, quote, says “Reasonable compensation is due to the agent for their efforts.”
BRIAN: And “Reasonable compensation” is vague enough to be, just like you said, it’s a blank check. There’s no oversight, and typically we see those checks of “reasonable compensation” being 20-, 30-thousand-plus-dollar checks.
BRIAN: No one sees, and they stroke those checks, and we recommend, or we talk to the people about scratching that out, and they’ll decide, but we just have that conversation. Now, reimbursement is another thing. We leave the reimbursement clauses in there, because that’s something where if Johnny or Sally have to fly out to perform their duties as agent for their Mom or Dad, then they should be reimbursed from the estate for those costs.
MIKE: Now, what’s the difference? Because essentially, there money’s still going there. Is there permission before the reimbursement happens? Is that the filter? Or is it just…
BRIAN: Reimbursement is totally different from compensation. Compensation, reasonable compensation is what?
MIKE: That’s true, but you could say “I need to get reimbursed for my time and efforts, being thought about this.”
BRIAN: No, that’s compensation.
MIKE: That wouldn’t come through?
BRIAN: No. So this would be plane tickets, rental cars, hotels, things like that.
BRIAN: All right, now the biggest, in our opinion, the biggest problem that we see when it comes to the power of attorney documents… And by the way, when we talk about succession of agent and compensation and reimbursement, those apply to both power of attorney documents, your power of attorney, healthcare, and your power of attorney, finance. By the way, this is kind of funny, Mike, of all the documents, your will, power of attorney, finance, power of attorney, healthcare, and your living will, there’s one document that needs to be notarized. Guess which one.
MIKE: Is it… It’s got to be the finance, because people are more worried about their finances than anything.
BRIAN: Yeah, power of attorney, finance. So I’ll never forget a meeting I had, Mike, where these clients were arguing and bickering through the whole planning process. At the end, we talked through their planning documents, or their estate documents, and found out that the activation clause on their power of attorney, finance, was on signature.
BRIAN: That means that it was enforced. They had bazookas, loaded bazookas, pointed at each other, to where at any point, one could clear out the other and call, make a call from Cabo San Lucas and say “Hey, honey, see you later.” So that is a notarized document, and we recommend that the activation clause of both your power of attorney, finance, and power of attorney, healthcare documents, that they say just two doctors.
BRIAN: And let’s talk about the different options, they’re all good, you can make a case for each, but we want to have a conversation with how these documents should be activated. Typically, what we see is that their primary care physician makes that call. So, Mike, what it you crash up at Whistler and you’re incapacitated, is your primary care doctor easily contacted?
MIKE: No, not even close.
BRIAN: Right, and usually it’s on a Saturday. Anything bad that’s happened to me happens after Friday at 5:00. Has that happened, I don’t know if it’s just me.
MIKE: [LAUGH] I think it’s just you with skiing. But [LAUGH]
BRIAN: Okay. So when it comes to…
MIKE: Actually, no, last Saturday, you remember, I threw out my back, and it was Saturday morning. It’s always, it’s the weekends.
BRIAN: Yeah. So if I ever get sick, and I can’t remember the last time I got sick, it’s always after…
MIKE: [LAUGH] Knock on wood.
BRIAN: It’s always after Friday at 5:00. Okay, on the activation clause for your power of attorney documents, it doesn’t make sense to us to just have your primary care physician. We say, generically, two doctors, because in anywhere in the world, you can find a hospital where there’s two doctors. Why two, why not one?
BRIAN: Well, what if you go into emergency room and you’ve got a-a haggard emergency room doctor that’s been awake for 20 hours? Is he going to give you a good opinion?
MIKE: No, I mean, he’s exhausted.
BRIAN: Right. So we say two doctors because one doctor, when they see the “Two,” they will stiffen up, sober up, and give a good opinion, knowing that their opinion is going to be reviewed by another MD.
BRIAN: All right, so one idea, one thought to activate your power of attorney documents, is just plain two doctors. Here’s another thought, is to have two doctors on your power of attorney, healthcare, but… No. The thought is, some people can make a logical case to have your power of attorney, healthcare be a family counsel. So, who knows Mom and Dad better than the spouse and the children?
BRIAN: And by the way, let’s… We always throw the Dad under the bus. So when Dad starts to show clear dementia, and you’re going to drag him in to two doctors to activate your power of attorney, guess what Dad’s going to do what he’s reviewed by two doctors? He’s going to put on his best show, making it very difficult for the two doctors to claim that he has dementia, he’s going to put on his best show because nobody, no human being, because of pride, wants to give up their… Their life, you know. This is really tough.
MIKE: That’s a terrible thing to happen to people.
BRIAN: So an idea for an activation clause for power of attorney, healthcare, is to have the family counsel intervene and say “Look, we’re around you all the time, Mom and Dad, this is an intervention, we are going to take control, we’re going to use our power of attorney activation clause and we’re going to take over the finances. And if you get better, and you show that more clarity, less dementia, then we’ll give it back to you.
MIKE: Now, what would stop the family from mutiny?
BRIAN: Oh, it’s very hard. It can be very hard, it needs to be a loving intervention. But these are all hard things.
MIKE: It’s a bit of an impossible situation, but they’re conversations you should have.
BRIAN: Yes. So we talked about a couple ideas for activation clauses on their power of attorney documents.
MIKE: Before we leave this point, I just want to say one thing. On the radio show, Brian, you can only be general with people. When people come into your office, you can get a lot more specific with their situation, so take that with a grain of salt, that we’re having to be general here, but for those that are going to be coming to the office…
BRIAN: We can get a lot more specific.
MIKE: A lot more detailed, yeah.
BRIAN: Okay, now power of attorney, finance, again, we don’t recommend two spouses have it activated on signature. It’s a loaded gun pointed at each other. You just don’t need that stress. We recommend either two doctors, or when it comes to power of attorney, finance, family counsel is also a good idea.
MIKE: Is there a third?
BRIAN: I was going to go there. I decided I’m not going to bring up the third.
BRIAN: All right, now let’s move on. We’ve talked about the will, we’ve talked the power of attorney, healthcare and the power of attorney, finance. Now let’s talk about the healthcare directive. The healthcare directive is the pull-the-plug document. So, Mike, when it comes to…
MIKE: Which, this is a very tough side, we want to be sensitive with this topic because people have different views on it, different religious backgrounds, different ways things are going to happen. So…
BRIAN: I’m going to tell a story that happened a few years ago that changed everything in how I view healthcare directives. Couple years ago, client had a stroke, incapacitated, was actually in a coma. Wife called 911, she was told to grab her healthcare directive, hopped in the ambulance, rode with her husband to the local hospital, checked him in, they grabbed the copy, made a copy of the healthcare directive, and that’s the last time she was consulted regarding how her husband received his healthcare.
BRIAN: Because if you think about it, the hospital now has a signed and dated document by the incapacitated, comatose husband on how he wants his healthcare delivered, why would they talk to the spouse? Now, do they inform the spouse? Yes. Do they ask for guidance and direction? No, they don’t. The healthcare directive stipulates what is going to be done. So, following the guidelines, two doctors came up, gave their opinion to the wife that her husband was a vegetable and they were going to pull the plug, so gather the family.
BRIAN: She gathered the family and they pulled the plug, and 80-plus percent of the time, it ends there. This time, he lingered. His lips started to crack, she asked for ice chips. Now, I get it, hospitals are very defensive on this subject, they have what’s called comfort measures. This hospital, they go “Nope, it says right here ‘No artificial hydration.’” He went fetal the next day with pain, she asked for morphine and they pointed to the healthcare directive and said “It says no pain meds, our hands are tied.”
BRIAN: So what I have done is my wife Diane, I have appointed her agent of course in my healthcare directive, I’ve told her that as long as two spouses, husband and wife, exist and are alive, that when one spouse goes into the hospital, you don’t give the healthcare directive. You give power of attorney healthcare. Now I’ve appointed my wife as agent, signed and dated by me, they roll me in, I’m comatose, I’ve told the hospital that all decisions are going through my wife. That’s how I want it. So we bring this up in conversation to decide, with surviving spouses, how they want it.
BRIAN: We have that discussion. Now, when one spouse dies, and there’s a surviving spouse, now we counsel that surviving spouse, that their agent, which is one of their children, when they take them to the hospital, if they are taking them to the hospital, that the hospital now have on file a healthcare directive. Why? Because you don’t want to put on your children that decision to pull the plug on Mom or Dad. You don’t want to do that.
MIKE: And in the healthcare directive, that’s when you stipulate that you can have comfort measures, and that you can make sure that if you pull the plug, that it’s more comfortable, or is the healthcare directive the same…
BRIAN: That’s the last part of this discussion, is making sure that you do have comfort measures in your healthcare directive, you’re right.
MIKE: Excellent. And another question just to follow up, and that is, this might sound terrible but the only term I can think of is “Conflict of interests,” is the, well, the healthcare directive takes people out so the executor doesn’t have to make any decisions, it’s simple, it’s just, when the surviving spouse is incapacitated, that their kids don’t have to make decisions, they’re just there to support.
BRIAN: Right. So it removes the issue from… It’s the person making their own decision, and not putting it on someone else. By the way, there are cultural and religious reasons why you would want to shift the agent and, there are some spouses who will never pull the plug. And so you would have a healthcare directive, because of religious…
MIKE: And that could bankrupt you.
BRIAN: Or… Right. Religious or cultural reasons, there are people from certain countries who will never pull the plug, there are certain religions who will never pull the plug. So those people, even with spouses, you want to make sure that you have a healthcare directive in place. Okay?
MIKE: Absolutely.
BRIAN: All right. And when it comes to comfort measures, be wise, always make sure you have drugs and water.
MIKE: [LAUGH]
BRIAN: I’m just saying, drugs and hydration, so that your body’s allowed to shut down, but in a painless, humane as possible way. All right, so now we’ve talked about will, we’ve talked about power of attorney, healthcare, power of attorney, finance, we’ve talked about healthcare directives, now let’s talk about the community property agreement.
BRIAN: So in Washington State, Washington is a community property state, and that means that there is an assumption that everything that is one spouse’s is another spouse’s, they share in assets. And if there is no will, the assumption is that when one spouse dies, the other spouse gets everything. It’s interesting that in a community property state, the community property agreement is redundant and not needed, in our opinion, because it’s already assumed.
MIKE: Now, how about for those people in states that are not community property states?
BRIAN: Then in a community property state, if you… Or a non-community property state, you use the community property agreement to say what share, what assets you share, and what are separate.
MIKE: For those that have not looked into the community property documents, this is something they should consult a lawyer, this is a simple thing that you can do, this is something that you can just do through your assets. I mean, how do people go about that?
BRIAN: Okay, we’re going to talk about that, let’s talk about that right now, actually. I was going to talk about this at the end. When we talk about all their documents… The attorneys aren’t going to be happy when I say this. But we are…
MIKE: [LAUGH] Fiduciaries.
BRIAN: Loyal fiduciaries. We’re loyal to our clients. It used to be when we uncovered changes, needed changes to people’s documents, that they would go back to their attorney, and gosh, to draw up these documents, initially if was 1,500, 3,500 dollars, sometimes 5,000, 7,500 dollars, to draw up everyone’s documents initially, it’s a lot of work.
BRIAN: Especially, and we haven’t talked about the trust documents yet, but we will. Next, years ago, there was something called LegalZoom, now attorneys, to their chagrin, have the people in their own industry drafting documents and putting them online. These are legal documents, these are boilerplate legal documents. Now, do you think CPAs were bummed out when TurboTax was created?
MIKE: Oh, yeah.
BRIAN: But CPAs use TurboTax.
MIKE: Do they really?
BRIAN: Yeah.
MIKE: [LAUGH]
BRIAN: A lot of CPAs use TurboTax, and so now we can buy TurboTax, and it’s consumer-friendly, and it prompts you, asks you questions, takes you through all your… But that’s a problem for a lot of CPAs, the same problem exists for attorneys. We’ve had an attorney come to our office in Redmond and say that their law practice has been gutted because of online documents now, everyone has access to will, power of attorney, living will, and any documents that are needed, these are good, high-quality documents that are now online, and we highly recommend WillMaker.com.
BRIAN: WillMaker.com, like TurboTax, will ask you questions, name, address, social, date of birth, your spouse’s name, address, social, date of birth, your children’s name, address, social, date of birth, how do you want assets divided? And it creates a will for each spouse, that’s two documents, a power of attorney, finance for each spouse, that’s now four, two more documents, power of attorney, healthcare, which is now, we’re at six documents, a community property agreement, now we’re at eight documents, a living will, now we’re at 10 documents, for 65 dollars.
BRIAN: WillMaker.com, we’re not advertising, we’re not paid, but we’re just throwing it out there.
MIKE: It’s a great deal.
BRIAN: It’s a great deal.
MIKE: Now, when should people consider actually sitting down with an attorney? Is there, like, a threshold of complication?
BRIAN: Once you have the document the way you want, you can have an attorney friend review your document, but attorneys are like artists. They like their own, they are critical of others, and they have their own way of doing things. Now, some attorneys pride themselves in the volume of the document. Some attorneys pride themselves to make it as complex and complicated as possible.
BRIAN: It’s self-serving in our opinion, because no one can figure it out, and you’ve got to call the attorney to have them interpret the document that they created. We don’t think that that’s smart, so we try to make it simple and easy so that when an executor comes in to help process Mom or Dad’s estate, they can understand what to do. All right. Back to the community property agreement. The community property agreement is something that, let’s say, Mike, that you and your wife, and I’m not saying that you have a wife, but if you did, that you and your wife, she had her parents’ inheritance go to her, and although they like you, they want it held as separate property.
BRIAN: You would be respectful of that, right?
MIKE: That makes sense.
BRIAN: Okay, so that inheritance, they would want to flow per stirpes, bloodline only, down through to their grandchildren so that if something happened between you and their daughter, that those assets are kept separate.
MIKE: That makes sense.
BRIAN: You keep separate property through a community property agreement, and the day that she co-mingles those funds with you in a joint account, that separate property status is gone forever, so it’s very important to keep them separate in a single, individual account, separate property, listed in the community property agreement, and never co-mingled with the spouse.
BRIAN: All right, now let’s talk about trust documents. We’ve got 20 minutes. We’ve got 17 minutes. Do you need a trust? Again, we’re not attorneys. We’ve seen, in our opinion, which is not legal, an abuse…
MIKE: Not legally binding.
BRIAN: Well, we’re not attorneys.
MIKE: We’re not attorneys.
BRIAN: We can’t offer legal advice. There’s three general reasons why you’d need a trust. One is that you’ve got children from separate marriages, so let’s stop on this for a second. So that’s how our family was.
BRIAN: I had three children, Diane, my wife, had three children, we married, had a Brady bunch, and then we had two more. So let’s use my example. I tell Diana “”Oh, I love your kids,” she says “Oh yes honey, and I love your kids.” By the way, I’m going to use my example to create the narrative that we see constantly, commonly. “Honey, I love your kids…”
MIKE: This is the narrative, but not what, actually, you did, is that right?
BRIAN: Yeah.
MIKE: Okay. [LAUGH] Or else all your kids are going to be listening to this show… [LAUGH]
BRIAN: Yeah, they’re not going to like this.
BRIAN: Okay, “Honey, I love your kids, love ‘em forever,” she says “Honey, I love your kids too, love ‘em forever.” So then she dies, let me make myself the bad guy. She dies, and at the funeral, her kids make me upset, and I write them out of the will. That happens all the time. So, what happens is, commonly, there is a family-revocable trust, it’s a living trust. It becomes irrevocable when the first spouse dies. So now I can’t write her kids out of the will, those assets are in the trust, we agreed on the transfer instructions that they be equal, or whatever we decide, but we decided that, if she predeceases me, those transfer instructions are in stone.
BRIAN: That’s a major reason to have a trust, family-revocable living trust, is to make sure that transfer instructions for a blended family are honored.
MIKE: Now, what about if you remarried after she had passed?
BRIAN: Oh yeah, this is a problem. Those assets that I’ve accumulated, I might have to sign a…
MIKE: A prenup?
BRIAN: A prenup. You’d want to keep those assets separate, and mark the assets separate, because my wife and I, we decided on how we would divide those assets.
MIKE: At the end of the day, it’s staying organized, and that’s, and being fair to the kids, and to your deceased spouse.
BRIAN: Correct. All right, now let’s talk about the second reason to have a trust, and that’s if you have assets outside of Utah. Utah is counted as a friendly state to process an estate. So when it comes…
MIKE: So it’s a good place to die, is that what they’re saying?
BRIAN: Yeah. What if you had a vacation property in California? Do you, in California, that probate in California… Let me give a side-by-side, a parallel.
BRIAN: If you probated an estate in Utah or Washington, there’s a reasonable period of time, usually two to three months, to probate the estate. And the dollars are reasonable too, it’s not prohibitive, it’s not really expensive, it’s reasonable. So reasonable in time, and reasonable in cost. Do you know in California, the rules go out the window, and a probate attorney, it’s like a commission. Their fees go, they get a percent, I’m not exaggerating, a percentage of the assets go to the probate attorneys. And so they drag it out, it takes forever, and it’s very expensive.
BRIAN: Every piece of property that is in California, we would recommend having at least that piece of property in trust. Why? Because when the parents die, the trust doesn’t die, so there’s no probate. Instructions are there to pass assets, and how to handle assets through the trust. So that’s the second reason to have a trust. Okay, the third reason to have a trust, any questions on that?
MIKE: This is a revocable, which becomes irrevocable trust, we’re not dynasty trusts or other versions of trusts correct?
BRIAN: That’s coming up.
MIKE: Okay.
BRIAN: We’re going to talk about dynasty and generation-skipping trusts, and… Yeah.
MIKE: There’s a number of trusts out there.
BRIAN: So the third general reason, the first reason to have a trust is if you’ve got a blended family, children from different spouses. Second reason is if you’ve got assets held in probate-unfriendly states. The third reason, generally, and again, we’re not attorneys, to have a trust is because your estate is large, and you’re dumping lump-sum assets on your children. So this is called the lottery effect. There are four things that you can take to the bank and count on if you drop seven figures on your children lump-sum.
BRIAN: Number one, and you can look this up, Google “The lottery effect.” It is as predictable as the sun coming up tomorrow. Number one, you dump three or four or five or six million dollars on a kid lump-sum, spouse says “Thank you very much, I am out of here.” So they take half. Second, Johnny or Sally quits their job, they think that they’ve made it, they don’t need to work anymore. That’s number two. Number three, their friends find out that they’ve got this inheritance and they all have business ideas they want to share and want you to fund. You don’t fund them, you lose your friends.
BRIAN: So in five years, typically, and this is item number four, you spend through all your money. All your remaining money. That’s called the lottery effect. What we highly recommend that people do is you use a trust for distribution that makes sense. Let me give you some examples. One is just delivering a large amount of the estate, 25 percent at a time over five-year increments. So, 25 percent of that three million dollars comes date-of-death, right away.
BRIAN: Another 25… And by the way, Johnny and Sally will blow that. Just need to know, that first distribution, it’s gone. It’s like a signing bonus in the NFL, it’s just spent. Then, five years later, they get another 25 percent. Will they be more accountable and responsible? Yes, but they still won’t do well. The third and fourth distributions, they’ve learned their lesson. So that is a responsible way to dole out a large sum, not lump-sum, you use a trust for distributing common-sense ways to your children, so that they receive the assets.
MIKE: Now real quick, if you’re just tuning in, this is Decker Talk Radio’s Protect Your Retirement, and we’ve got our special guest, Brian Decker from Decker Retirement Planning, a safer approach to retirement, and we’re going over wills, power of attorney… a lot. I mean, we’ve covered a lot of ground here, Brian, today on estate planning documents, and so for those that are tuning in late, feel free to go to their website, www.DeckerRetirementPlanning.com to catch this show or past shows, if you want to catch it or listen to it again, take notes.
BRIAN: There’s a lot of information here. Okay, now, my favorite part of a trust for distribution, for distributing large assets, is called the beach bum trust.
MIKE: That’s a clever name.
BRIAN: The beach bum trust is genius. I just love this. Because a lot of the recipients of large assets are called “Trust babies.” Their incentive to live a normal life is gone, they don’t need to wake up in the morning, they don’t need to go to work, their live essentially have been destroyed. Just saying.
BRIAN: It’s not logical to realize that by distributing through an inheritance a large lump sum, destroys your kids. Wasn’t the intent of the parents to do that, but we see this all the time. So a beach bum trust is genius, because you can distribute assets based on W2 or 1099 income. Here’s what that means, if they don’t work, they get…
MIKE: Nothing.
BRIAN: Zero, nothing, nada. So you can deliver 4X, 3X, 2X, you can deliver any multiplier off of their W2 income. Should it be equal? No. What if you have one girl and one boy, one female and one male. The female is married to a wonderful person, and she’s a stay-at-home mom. A beach bum trust would have to account for that differently. You want to incent the behavior that you want to see.
BRIAN: Another aspect of the beach bum trust is to deliver X amount of assets when they get married, and for their honeymoon, X amount of assets for their first home, for the down payment. X amount of assets when the first baby comes. You can incent from the grave, you can incent behavior through how your trust is distributing assets. Mike, we only have 7 more minutes, right?
MIKE: Yep.
BRIAN: Okay, dang. Okay, now I’m going to go on to other trust documents. Other trusts, and I want to have time for estate planning, and we might not get there, shoot. There’s… If you want to… This is hard. Let’s say that you have your son, Johnny. Johnny married Sally. Sally, you don’t like very much, because Sally spends a lot of money that Johnny… Ugh, I don’t want to get stuck and say something politically incorrect. Let’s say that Johnny is making the money, Sally is a stay-at-home mom, but Sally spends a lot, and has been shown to be financially irresponsible.
BRIAN: So the parents of Johnny write into their will that if Johnny pre-deceases the parents, that the share of Johnny’s estate bypass Sally and go to the grandkids. Now is that unfair?
MIKE: You can create a…
BRIAN: Wait a second. Sally… Johnny’s parents aren’t responsible for Sally’s inheritance, Sally’s parents are responsible for Sally’s inheritance, I’m just saying. Then, Johnny… Johnny’s parents want his portion of the estate to go to the grandkids. If they do, that’s called a generation-skipping tax, it’s 49 percent and it’s prohibitive. Or, they use part of their exclusion, so let’s talk about what their exclusion is. Darn, I’m not going to get through this.
MIKE: In… The exclusion that you have in your estate is for estate taxes, so in Washington State, there are estate taxes. It’s two point two million per spouse, so that you can use your exclusion in your will, so you can have a decedent trust created.
BRIAN: Let’s say, Mike, you and your wife pass away in Washington State, let’s say that you die first, then your portion of the estate flows into a decedent trust, where your surviving spouse has access to it through income, and it’s not like it’s out of bounds or anything, she has access to it through income, but you preserved your two-point-two-million-dollar exclusion.
BRIAN: Federal, you have an exclusion of five point two million. It’s very important to have language in there to include your exclusion language, because let’s say that you have a three-million-dollar estate, and you’re in Washington state, and you have two point two million state exclusion benefits written into your will. You die, two point two of your three-million-dollar estate is excluded,
BRIAN: Your wife eventually dies, the rest of the estate is excluded because of the language in your will, and all of your estate flows, estate tax-free, to your beneficiaries. So that’s story number one. Now I’m going to tell you tragic story number two. You had a will incorrectly drafted, doesn’t have any exclusion language in it, and when you die, nothing happens, but everything that you have goes over to your spouse.
BRIAN: When she dies, Mike, all of your three-million-dollar estate goes to your children, but wait, there’s a two-million-dollar exclusion, now there’s 800,000 that is taxed at 16 percent, and now you have… Now you have estate taxes due, where all you had to do was add one paragraph to you will for the exclusion, and it could’ve saved you many tens of thousands of dollars.
MIKE: Just one paragraph.
BRIAN: One paragraph. That’s called your exclusion, and it needs to be part of your will, and it’s a reason to create a decedent’s trust.
MIKE: Is that something WillMaker.com does, or is that something you want to take your WillMaker.com document and then have an attorney edit it?
BRIAN: That’s where… now we’re getting on the bigger estates, it makes sense to… It makes sense to have an attorney draft the trust that you want and the will you want. Your will should have exclusion language. I can’t imagine an attorney not including that.
BRIAN: Okay, Mike, we have one more minute. We talked about how Johnny married Sally, Sally was irresponsible, and you had assets to pass. There’s something called a dynasty trust that’s per stirpes, and it goes bloodline only, and this is 100 plus years in duration for the trust. Typically, it’s created while you’re alive. When you pass, it’s a beneficiary of funds, and it holds usually education money in the trust to pay for your children’s children’s children’s children, flows all the way down, and it pays for their education.
BRIAN: And it pays for books, tuition, things like that. Mike, we’ve only got a few seconds left. We covered a lot of information.
MIKE: We covered a lot, but we’ll continue on this topic with much more next week on Decker Talk Radio’s Protect Your Retirement. You were listening to Brian Decker, special guest from Decker Retirement Planning, a safer approach to retirement, and myself, Mike Decker here, the host of the show. Tune in next week, KVI 570 if you’re in the greater Seattle area, or tune in via podcast, we post the show every Friday afternoon if you want to listen before Sunday.
Take care, have a great week, we’ll talk to you next week.
