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- [00:00]
A
You don't get along with like a sibling anymore. And they were named everywhere. Do not forget to check your advanced healthcare directive financial power of attorney, because they might still be named there. And I have seen so many attorneys, like, be so focused on just the trust and the will that they forget to check the other documents.
- [00:33]
B
All right, what is up? And welcome back, everyone, to another episode of the Practical Planner Podcast. I'm your host, Thomas Koppelman, and here with me is Ann Rhodes. And how you doing?
- [00:41]
A
Good. How are you?
- [00:43]
B
I am good. This is actually, you know, we're recording this before, but this is now probably two months after I have my first child. So I'm probably a lot more tired. My brain isn't clear. So if you guys see me come back for the episodes after this, and I not as quite there. There is a reason for that. We'll. We'll get through it. But I'm excited. You know, this is our last recording before that happens, and I think this is a really good one. Just talking about, you know, I think a lot of our pod, you know, the podcast, we go from, like, basics to really advanced to back to the middle to basics. I think this one is, you know, really important for advisors because what we know is that advisors are the central point for pushing people to get their estate plan done. You know, I can attest to this. I think I've now worked with maybe 200 some clients in the last five years. Not. There hasn't even been 10 of them with their estate plan done. All my clients that get their estate plan done have gotten there because I pushed them to do it. And, you know, one part of an advisor's job is pushing them to get it done. Then it's getting it in forks, then it's updating beneficiary designations, and then it's pushing them to update their estate plan at different times of life. And so this episode's gonna be all about when to update your estate plan, why you might wanna update your estate plan, what reasons, et cetera. So, you know, Ann, where do you think that this starts? Like, what's kind of the first nudge for people to say, like, I need my estate plan?
- [02:02]
A
You know, truthfully, I think it's. It's a family holiday most often. So, you know, coming into this episode, your clients have just spent, you know, two major holidays at the end of last year, meeting up with their family members. Their kids come back from college or grad programs, and they get to, you know, hang out, and then all of a sudden realize like, actually, you know, there is a change that I want to make to my estate plan. And I think for a lot of my clients, there comes a moment where they always kind of wanted their own kids to be their fiduciaries if something happened to them, but the kid just wasn't ready yet. Right? And then there comes that moment where they come back from, you know, their master's program whatever whatever. They're 25, and the client's like, whoa, my kid's actually pretty decent person.
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B
Like.
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A
Like, they know enough about the world, they care enough about, you know, whatever's happening that I would feel comfortable if they made decisions for me at this point. Right? And then that tends to happen right around the same time as. And if you think about, you know, human generation here is about 30 years, kids 25. That means the client is in their 50s, late 50s, 60s. Their own parents are probably at this point in their 70s and 80s. And so the client's like, I also saw my mom and dad, and they're not doing so. You know, like, they're worries that I have for them and their own ability to manage their affairs and their health. So is this truly the person I still want taking care of me if something were to happen? Right? And so there comes that, like, critical moment, I think, for a client where they're like, ooh, I should, like, review my estate plan again.
- [03:46]
B
Yeah. So the most popular, you know, first reason is changing people, right? And so there's many areas of that. One is executor. Like, I know, hey, I'm my parents executor, but I also know a lot of people, their parents are their executor. So maybe your parents are aging and you're starting to realize, like, my parents definitely can't be my executor. I need to potentially change that. It could be, you know, your financial power of attorney. Maybe you got married and before you weren't, and now you want to your spouse or your healthcare directive, right? Like, there's all these different people, and there's very good reasons to change. And I was thinking about your example example there of like, hey, my kid, they're 25. I'm ready to change them. I could also see the flip side, right? Like, hey, I thought my kid would be ready. They're 25. They are way overconfident. They don't know as much as that they. They think that they know. And this is actually really scary to give them the ability to manage the investments in our trust or, you know, all these other Big decisions. And we actually might want to take them off because we thought things would be differently at this time than. Than it actually has.
- [04:44]
A
Exactly. So the second most common reason that clients would come back into my office to change things was control. And you're starting to see patterns in your beneficiaries and how they conduct their lives. Right. So think like a beneficiary in their 40s, and they already, you know, have had some issues, you know, maybe holding down a job or being able to, you know, like multiple marriages or something like that. The way that they care for their, you know, your grandkids from that child. Like, there are certain things that you can start seeing about how they're conducting their lives where you're just like, oh, like, I'm not sure that someday I want them to have, like, all this money outright or even, like, in a trust that they can fully control, where they can just, like, appoint their best friend who's also, you know, not doing so well, and rubber stamp all their decisions. Like, that doesn't seem like a good idea. And so I did have a lot of clients come back and say, I actually want to impose more kind of control over this trust or make sure that it's still, you know, an uncle or an aunt who's controlling that trust. And so, yeah, you do see a lot of those requests as well.
- [05:50]
B
Yeah, I. I feel like I could see that one being super common. I mean, that is a dangerous game, right? Like, you have a substance abuse issue or something, and you have the ability to point whoever you want who's just going to basically be like, yes, whatever you want. Just keep paying me to run this. I'll do whatever you say.
- [06:04]
A
Yeah. The worst part is when you have one of these old school trusts. I consider them to be pretty old school, where they're mandatory principal distributions at, like, 25, you know, 30, 35. And that first distribution or loss distribution is about to happen, and the client's like, oh, my God, this kid is really not ready. And you're trying to, like, change things at a certain point. Right? Like, so all of that is to say, like, I actually had a lot of clients who came in and realized that trusts are actually better structured. If they're lifetime trusts for all their kids, it carries asset protection. There's tax planning that can happen through those trusts. And the client hasn't died yet. Right. So the client, the kid is like, not necessarily gonna get the money right away, but it's that they're realizing, oh, my gosh, if I die today, the kid has already arrived at, you know, one of these threshold ages, like, milestone ages. And I'm not sure I would want them to get, like, two thirds of what they're supposed to get. And so the clients come back and they say, you know what? I get it now, like, trustees have plenty of flexibility. If this is a kid who, like, has a really great reason for wanting those distributions, they can find a way to get those. But for those kids that, like, they need the asset protection, they need kind of help over the course of their lifetime, I'd rather put in place a more restrictive trust to start with and let the trustee over time decide, you know, what's right for that child.
- [07:28]
B
That makes sense. And I mean, that's why it's really important to hire a good trustee. And, you know, this might be a reason that somebody might change their estate plan is simply in having a different trustee.
- [07:36]
A
Yep, exactly. So those kind of go hand in hand.
- [07:39]
B
Yep. And what I saw with my client, you know, one of my clients basically had been doing yearly gifting since they were young. They're very wealthy. To a trust for both their kids. Now, their kids are older. Right. Both of them are out of college. One's just starting out, going to be way lower income than the other. And what they ended up realizing is one of them is not going to need the trust for a very long time. The other one, they're probably going to help a lot throughout life. Like, they want their kids to be able to pursue whatever they want, you know, focus on enjoyment, focus on careers that they love and find meaningful, and they will help on things that are needed. And so what they realized was, we need to make a change here, and we actually need to split these trusts because, you know, going from one trust to, like, now do we have to keep track of what was taken out by her to make sure that the other child gets the same amount? They realize it would be so much simpler if they just split these trusts. And, you know, they continue to seed them over time, and each person got to choose how and when they use them as long as they felt like it was, you know, obviously a good reason. And so I think that was one change that I thought was warranted and made a lot of sense.
- [08:37]
A
Yeah. Oftentimes when, like, younger parents with younger kids think of, you know, if they were to pass away, what they would want for their kids, they think pot trust, pot trust makes sense because that's the way that you and I spend money on our kids. Right. You're not saying, like, oh, because, you know, this one child has medical needs or is going to college and has like all these like financial needs, or right now I'm going to like stop and limit what I'm spending on this child because I want to leave something to the other kids. Right. And they all need. I don't spend my money equally on each kid. Right. And so the pot trust kind of like is the best at kind of being a proxy for like one big purse. And then the trustee makes decisions on, you know, how to spend on each child. But that being said, once children are a little older, Right. And maybe it is because of that first college bill where like, there needs to be something left for the other younger kids so they have the same opportunities. Usually estate planners will put in a trigger point where that pot trust does separate into separate trusts. But if you don't have that trigger point, and that is a good reason to come and kind of revisit your estate plan.
- [09:46]
B
Yeah, yeah, that makes sense. Okay, so we've talked about people and, and kind of, I guess, changing distribution rules. What are other reasons?
- [09:54]
A
I mean, for me it's just, yeah, stuff like funding. So you may have done a lot of homework on the front end to start funding your brand new revocable trust. Things are going well, but over time you're not perfect about it or you've had to take things out of the trust and now you need to kind of review to make sure that you didn't leave anything out that needs to be funded back into the trust. So a very typical example of this is refinancing on a property that has a mortgage. Some folks actually think that it's so annoying to have to like take a property out of the trust, put it back in, you know, every time you refi or touch the mortgage, that they might actually leave the real property just completely outside the trust and say, yeah, I know I'm not funding it and I'm going to live with that risk. But maybe if your state allows for it, have a transfer on death deed attached to that property so that it automatically goes into your trust if you were to pass away to kind of take away the probate risk. But anyways, so a lot of people realize that they want to touch a mortgage their property and take the property out of the trust now every three, five years, you might realize, oh, shoot, now I need to put it back into the trust.
- [11:07]
B
I mean, that's a good one. That makes sense. Have you found that most people have to do that just because of interest rates on buying it within a trust or why, why do you feel like they can't just go directly? Yeah.
- [11:17]
A
So part of the reason why sometimes people need to take things out of the trust is because it's not usually mortgage rates. Because if it's your primary residence, you know, that interest rate should just be lower. It's really just the speed at which the title company might want to move or the bank wants to, you know, like, so you didn't get a chance to put it into the name of your trust to begin with. So this happened actually to me, I was closing in a house and I was like, you know, because I'm an estate planner, I was like, it needs to be in the name of my trust. It needs to be in the name of my trust. And title company was like, we don't feel that comfortable doing trusts right now. Like if you want to move within 19 days, like keep it simple. So it's like, okay, well if compliance, you know, is going to throw a wrench and increase it by like two days, then I don't have that kind of time.
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B
Right, yeah, that makes sense. I don't see interest rate differences with it. And most times it's, you're right. If it's a rush, they have to do that. You know, I've had a lot of clients who buy a house and then they move it in because they just didn't have their trust set up. But generally if you work with a good broker and team, I feel like it's doable.
- [12:24]
A
Yeah. When you don't have the nice convenience and time or something like that. So. Yeah. And then the other thing that I will say, speaking of, you know, documents out there that you might not think of as part of like an estate plan, but you should still revisit every three to five years are things like your directives and your beneficiary designations on retirement accounts. So think of like the first example. We said your kids are getting older, they're getting more mature, they can handle the money. It's a perfect time to look at your beneficiary designations on retirement accounts because you might have made the sub optimal choice as the client to name the sub trusts of your kids, thinking, you know, yeah, I'll take the income tax planning hit, but at least it'll be inside their trust versus now my kid is actually kind of able to handle that amount of money and to give them the max flexibility, especially with secure acts. 1.0. You know, actually I just want things to go out right to my kids. So it's time to change that beneficiary designation form, too.
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B
That makes sense.
- [13:26]
A
And if you don't get along with like a sibling anymore and they were named everywhere, do not forget to check your advanced healthcare directive financial power of attorney, because they might still be named there. And I have seen so many attorneys, like, be so focused on just the trust and the will that they forget to check the other documents.
- [13:45]
B
Yeah, yeah. I think other times too, like, you know, if you have divorce. Right. Make sure beneficiary designations change or appointed people, if somebody passes away, obviously do that. You know, let's say you're, you know, my client lives in Texas and they have one house and maybe, you know, no real estate. And then they move to California and say, great, we're keeping our Texas house as a rental and now we live in California. Right. That's probably a pretty good time to update your state plan, maybe add in, you know, a trust. I think moving is a very common one that we end up seeing as a nudge to update your estate plan or potentially change the documents that are needed or just, you know, hey, client is, you know, started a business. I have a client who they have an S corp that's converting to a C corp and they're going to get QSPs eligibility. So now thinking about adding trusts and, you know, trust stacking is a good opportunity. Anything else you think that we haven't hit on?
- [14:35]
A
No, I mean, we have an earlier episode about all the, like, big life changes that might prompt someone to change the estate plan. Right. So, Thomas, you mentioned, mentioned some of those kind of greatest hits. This episode is a little bit more focused, I think, on just like, as life goes on. Like, you may not think that this is like a critical moment for your client to update their estate plan, but why do we say three to five years, please come back and take a look. It's because I guarantee you, after five years, there is something about that estate plan that is slightly suboptimal at this point.
- [15:07]
B
Most likely people. Probably people.
- [15:09]
A
Exactly.
- [15:11]
B
Okay, cool. I feel like this was a really informative episode and appreciate your time, everybody. Thank you for listening. Please don't forget to rate and subscribe. And if you have any topics or questions you want us to answer, feel free to submit them to us. We'd love to help. All right, see you guys in a couple weeks. It.