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- [00:00]
Ann Rhodes
Foreign.
- [00:10]
Thomas Kopelman
What is up? And welcome back to another episode of the Practical Planner podcast. I am Thomas Kopelman, co founder of Allstreet wealth, and I'm here with Ann Rhodes, chief legal officer of wealth.com and glad to be back here with you learning some estate planning.
- [00:24]
Ann Rhodes
Yes, always a pleasure. Thomas, what do you have for us today?
- [00:28]
Thomas Kopelman
I'm really excited. I think one of the common ones, and I think honestly, honestly, a big reason why wealth.com is so valuable is that people just get estate plans done. They get their trust set up, they get their will set up, but they never update it. Right. Like I will say, I have now worked with hundreds of clients. I've had, first of all, three people have their estate plan done when they came into me, which is kind of baffling. And two of them are attorneys. So really one person who's not an attorney and one of them who was has one kid on there, and they have four. Right. So it's like, even though they get it done, it's not necessarily reflective of their true life now. And so I think a really important conversation, if we know that financial advisors are kind of that point of contact to push people into doing their state planning. I think advisors have to know what those points are to help push their clients into doing that. So my goal of today's episode is really to dive into those main times in life where an estate plan needs to be updated.
- [01:29]
Ann Rhodes
I think that, you know, the rule of thumb. And of course, you know, we estate planners gave that rule of thumb. So it may seem like it's the. It's too frequent, but we used to say you should really look at your estate plan every two years and think about at least updating it, like, for real, like, redoing the thing every five years. And so that's our rule of thumb right there.
- [01:55]
Thomas Kopelman
I love hearing that, because in our client process, what we do is like in Q3, we meet with everybody and do insurance investments in estate planning review, but we flip them. So like, every other year, we do insurances. Every other year, we do the estate planning. So it's good to hear that that's kind of the cadence that you guys would recommend.
- [02:12]
Ann Rhodes
Yeah, I love that. And, you know, one practice pointer here, because this is called the practical planner at the end of the day, is don't forget not only to review the estate planning documents, which are like, you know, the will or the trust, but actually also beneficiary designations. So we'll have an episode about that as well, because it becomes part of that comprehensive review of where all the assets go. But I love that you said life insurance because that has beneficiary designations on it too.
- [02:40]
Thomas Kopelman
Yeah. And that's actually, I just have a new full time hire starting and he's going through our financial planning software right now, looking at everybody's insurance statements, getting all the beneficiary things filled out. Because that's one thing that I want to get really good at. I think it's an easy thing when you're a financial planner to be like, there are more important parts. Right. Like, obviously making sure where your assets go is important, but like your cash flow and your investment planning and your tax plan, like, those are like top of mind, Add the most value and more fun to talk about, so it's easy to forget about. Like, hey, you know, you didn't have any kids before and now you have a couple. Or hey, you know, you have no contingent beneficiaries on any of your accounts. Like, we were just looking this week. That was one of the projects I gave him. And we realized like 75% of our clients not have a contingent beneficiary on any of them. They just had spouse. And it ends right there. It's like, you know, you don't want to go morbid. But like some. One of my cousins in my family, like both her parents passed away when they were. She was like 14. Right. And like, this would be an issue that would not be fun to deal with that financial planners, we could just help avoid by simple, just bringing up the conversation and why that's valuable.
- [03:44]
Ann Rhodes
Yeah, absolutely. You know, Thomas, and it's easy sometimes to think, oh, well, does this really have to do with me? It's upon death. Like, you know, I don't. But it. You are bringing value by thinking through those things. Because if you're not thinking about them, who is? You know, like, your client needs you for that reason to bring up some of these points. And so, yes, I love that cadence that you've established.
- [04:11]
Thomas Kopelman
Okay, cool. So let's hop into some of the times in life where this makes sense.
- [04:16]
Ann Rhodes
Big life milestones that have been reached. Marital status. Let's start there, right? So a client getting married, getting separated, getting divorced, all of those things will affect the estate plan, particularly because spouses tend to have default rights over that client's assets if the client passes away under law. And so this changes a little bit based on the state where they live. But, you know, I'll just give you an example. I guess Georgia has actually the least amount of rights for a surviving spouse. But some states will say, well, at least the spouse has a right to the marital homestead. Right. Like where you lived, so that spouse doesn't end up on the street. Some other states, like New York, will have an elective share so that they have basically, you know, a third of the assets at their disposal if they choose to exercise it. So if you have a client who gives less than a third to their spouse, then why would the spouse not just say, I'm gonna exercise my elective share right here, you know, and get everything in my own name? Yeah, exactly. So, you know, those types of. The marital status changing is changing huge.
- [05:34]
Thomas Kopelman
Yeah.
- [05:35]
Ann Rhodes
Yep. And then as you pointed out, kids. Kids change a lot for people, partly because before you had kids, you know, you might have thought, well, my spouse is fine on their own. They are able to, you know, earn money for themselves. So I have other beneficiaries that I'm thinking of. But once you have kids, then how you think about who your dependents are changes completely. And you're also thinking about guardianship, and that's huge for people.
- [06:04]
Thomas Kopelman
That's the big one is. Stands out to me. Right. Like, every time that. That's my selling point to. To clients when. When we're talking about this, they're like, do your state plan done. They're like, yeah, yeah. And you're like, do you realize if something happened to you, like, there would be. The court would decide who takes care of your kids? They're like, you know, yeah, the parent card I get. I love my kids. I'll do that, I guess.
- [06:23]
Ann Rhodes
Exactly. So there are three big things to look out for when you have younger kids. Number one is, do they have a guardian in mind, Ideally with a backup guardian as well? Because sometimes people don't want the responsibility of taking care of your kids. If your client is not prepared to have a conversation with the person they named, at least have a backup.
- [06:42]
Thomas Kopelman
That's the big recommendation there, though I have is like, please make sure when you do this that you alert the people that that is there. Like, you don't want all of a sudden, like, they didn't think about this. All of a sudden something happened to you. And they're like, I have your four kids. Like, I don't know about that.
- [06:55]
Ann Rhodes
I will tell you, Thomas, like, there are a lot of rom coms out there with that line. So we don't want to reduce the number of people who fall in love because they end up with your four kids. But. But anyway, so guardianship number two is Having an estate plan where that builds out a sub trust, an irrevocable trust that will give a more powerful vehicle for whoever is going to be in charge of the money for your kids to continue controlling that money. And I keep saying your kids, but it's really the client's kids. Right. So. So think about having the trust for descendant or trust for a child built into the will or the trust that your client has. And then the third thing that is very important as well is just making sure that you have a plan of action for, you know, the. The retirement benefits, so. And the beneficiary designations. So basically, what often happens with your clients who just have kids is they have existing, you know, accounts, and they may have designated parents or spouses, but not thought to designate the child. And the beneficiary designation doesn't update automatically just because you have kids now. And so I was one of those people who a few years back, you know, my daughter's two, and I just went through, you know, my fidelity login, et cetera, et cetera, and just like, changed all of those from my parents to my child.
- [08:23]
Thomas Kopelman
And a lot of people just have spouse. Right. And again, we're going back to this contingent beneficiary side. Right. Like, make sure that flows through the way, the right way that you want.
- [08:31]
Ann Rhodes
Yeah. And for retirement accounts, I will say we can talk in a later episode about who to name. Like, what's the best practice there? Maybe your client's considering, like, hey, instead of naming my spouse, I should just name my kids outright. There are actually some tax implications about that, so we can talk about that later.
- [08:46]
Thomas Kopelman
So kids is another one. What other times in life, big moves.
- [08:49]
Ann Rhodes
And this is in particular moves across state lines or to other countries. Right. So anytime where you're crossing into a new jurisdiction or your client has crossed into a new jurisdiction, you should update that estate plan. And can we go into why?
- [09:07]
Thomas Kopelman
I actually was posting about this and I was posting about a feature of wealth being like, hey, the API to Zillow, they sell the house. You know, we proactively reach out and say, like, did you move to a different state? If so, we need update your state plan. But I've had people challenge that. They're like, oh, it's not that big of a deal what state that you live in. Like, you still have an estate plan.
- [09:25]
Ann Rhodes
The baseline is you should keep your existing estate plan. So what those comments commentators are probably referring to is, let's say I am in California, but because of the state income taxes here, as Many of my friends ended up doing, you know, I'm moving to Washington or Florida because, yes, it's, it's friendlier to my, my pocketbook. And so if you make that move and you pass away with a California document in one of these other states, that other state is going to still, you know, put in place the things that you wanted. However, they're not optimized for that state. So all of sudden if there's a question of interpretation, like what does, you know, the law say? They'd have to like this Washington court or this Texas court may have to come to a California court and say, what does your law actually mean about this thing? Which by the way means that the costs are going up for your beneficiaries or your executor to like, figure out what your plan meant. The other thing that happens is you may not take into account certain features that are different about the state regarding default rights of your spouse. So again, right, like think about the fact that you could be moving from, I don't know, Georgia to New York, and all of a sudden, like in your old plan, you gave less to your spouse thinking, oh, my spouse is independently wealthy or whatever. But by moving to New York, all of a sudden, your plan doesn't take into account the, the fact that your spouse has new default rights under the new states laws. Another typical example is community property versus non community property, or what we call common law states. These terms don't sound familiar to you? We're going to have a whole episode dedicated to kind of unraveling some of these terms. But basically certain states, particularly like the west, are what's known as community property states. And it's like this old school way from like French law or Spanish law, European law. Um, and this is where if you are married and you acquire assets or you earn money during your marriage, then you are considered to have an undivided interest with your spouse over that asset. So both of you need to control the asset together.
- [11:44]
Thomas Kopelman
And that's community property.
- [11:45]
Ann Rhodes
You're saying community property. Exactly. So California, Washington, Texas are community property states. And then like the rest of the states in the nation are by default common law states, which is from English law. And this is where the title on the asset really matters. And it like whether it was earned by a spouse during marriage is a little less important, but it's the titling. So, so all of a sudden, like the titling of assets, the way you've earned the assets could have a huge effect on what you get to pass away versus what ends up being in the hands of your spouse at your death. So let's take a typical example because I'm sure, you know, some people are a little confused. Now this is my favorite example. So I own wealth.com stock. Right. I'm in a younger company. This is part of my compensation. I live in California and my stock options are titled in only my name. That's a titling on them. It's just Ann Roads. You know, my company issues them to me. But because I'm married right now and I'm earning that stock with my efforts, my husband has a right to control my stock options by default law, which is crazy for people to think about. Right. But actually that's true under community property. So if I die, half of my wealth stock will go through my will or my trust, but the other half actually ends up in his hands. Whereas if I were to pass away in New York, that's not necessarily true because New York is not a community poverty state. Exactly. They're looking at, oh well, this is Anne's asset. So Anne's will gets to, you know, determine where that goes.
- [13:23]
Thomas Kopelman
So in the first situation, what you're saying is if you're titling said all that goes to my dad or whatever they say. Well, you know, that doesn't really matter. Half goes here, the other half goes here at most.
- [13:34]
Ann Rhodes
Exactly. So if my Will said 100% of everything I know own goes to my dad Michael in California, my husband would be like, wait a minute, half of that wealth stock is actually already mine because it's community property, whereas probably in New York. I mean, it depends a little bit on how we own our assets. But yes, all of that could potentially go to my father. That's a huge difference.
- [13:54]
Thomas Kopelman
Yeah. Okay. No, that makes a lot of sense. What, what other times in life do we have? So we got kids, we have moving between different states, marriage. What are the other ones?
- [14:06]
Ann Rhodes
I'm going to talk about a couple of factors that are like, seen as a little bit more like kind of negative, but impact your estate plan for sure. Right. So the first is death, and it's the death of people you've named in your plan or that your client has named in their plan. Right. So it's either decision makers and there it's actually also about age. Right.
- [14:29]
Thomas Kopelman
Like my dad's doing mine, but eventually my dad's going to be 92 and not going to be able to read the documents. I need someone.
- [14:35]
Ann Rhodes
Exactly. And for sure, at the point in time where somebody has passed away, like they should probably not be named in that document anymore. So. So then that is one. It's also about the beneficiaries passing away. You know, nobody ever wants to think about this. But like children or whoever you named as your first level, like at the point in time where that has happened, that person is probably thinking so differently about their lives, honestly, like, especially if it's the death of a child, that you just want to make sure that, you know, they're thinking about their estate plan as well. So a little bit more, you know, sadder circumstances. The other is that you just don't get along or the client doesn't get along with the people they've named. So think about people they want to disinherit or people like a sibling relationship that has soured and so they don't trust them to be executors anymore. And so that's the type of thing where unless you have the estate plan to review with them, your client may not even volunteer that information, particularly the kind of sadder moments and the more tense moments in their lives. But you as a financial advisor, through just simply reviewing the estate plan, you do not need to ask that question specifically, can pick up on some of those cues from your client that like, things have changed in their life.
- [15:52]
Thomas Kopelman
And maybe it's just, you know, you have the visualizer look you show people and like, hey, is this still how you want it to be? Right? Like, is it? You're right. It's hard to have that conversation. Like, you still friends with Johnny? Are you still friends with this? Like, you maybe don't do that. Be like, here's how your estate plan looks. This was done five years ago. Is this still the way that you want? And I think that's actually a really interesting point that I don't think about often. Like I my mind, and I'm sure all financial planners mind goes to financial events. Like marriage is financial advance. Like kids happen. Like those are there. But I don't often think about the, like, hey, you know, maybe who's taking care of your kids in your estate plan is your sibling. And maybe you and your sibling don't get along anymore. And that's not the best case. Like, like those are really important things to review that I think we probably do. We don't bring up as often as we should.
- [16:37]
Ann Rhodes
And then to kind of bring it back to like a lighter mood, something a little bit more positive is actually your clients having children who are becoming more responsible, who are becoming older. And I'm not talking about just like, oh, they've become 18. There's like a couple of points to me be made about children becoming adults, but this is really talking about like, you know, that cycle of life where their trusted people become slightly different. Particularly with kids becoming older. You can start thinking about a couple of things, right? Starting to name those kids as trusted decision makers, the executors, the trustees. Right. Like maybe the eldest child, right, That's a stereotypical example. But like can step into that role. They can maybe even become guardians for their younger siblings. Because at the end of the day, like I think parents always are struggling with like nobody in their families are ever perfect for raising the, the their own children. But actually older siblings, at a certain point, like parents are like, yeah, if something happened to me, like I'd want, you know, my eldest child to take care of the younger kids and then also start thinking about removing some of those restrictions that are around control. Right. So a typical example here is it's not the best thing to name a trust as the beneficiary of a retirement account if it's inherited, you know, because of income tax reasons. And again in a later episode we'll talk about that. But as your, that child ages, then all of a sudden you know, the control reason for having the trust recedes and instead you're thinking, oh, the income tax advantages of naming somebody outright become stronger and that that child should just inherit all the retirement accounts outright. And so changing the retirement account designations to remove trusts and put the kid in their own names on the form is a good idea.
- [18:33]
Thomas Kopelman
Yeah, those are super good ones. Those make a lot of sense. What, what else do we have? Any other times that come to your mind?
- [18:40]
Ann Rhodes
So one that comes up quite often is, you know, liquidity events or some, you know, winning a lottery, some really huge, a net worth jump and actually net worth decreased too. But we can talk about that later. But like a change in net worth. So here, what I would say is, well, for sure that person should just update their estate plan because all of a sudden the gifts that they were making before, they might be thinking about them a little bit differently, right? So if you've like come into a lot of money that, you know, couple of thousand dollar, you might want to make more specific gifts to like charity. You might think more broadly, you know, about who your beneficiaries are because you have more assets. So that's something to think about. But it's also to do more tax planning. So if you're getting to the point where you know that client's net worth is has really, you know, undergone a significant change. Then you want to think about doing the sub trusts that are going to create family piggy banks, you know, that credit shelter trust to do some of that tax planning for your client.
- [19:46]
Thomas Kopelman
Yeah, that's a good one. I mean, we work with a bunch of people who are like, you know, three years ago their business was worth zero, and now they're doing 20 plus million and the valuation is, you know, around there. And you're like, okay, well, you know, your will that you got put in place a couple of years ago probably needs add in a few changes, some trust, you know, all of it stuff. So that makes a lot of sense.
- [20:07]
Ann Rhodes
And a lot of people also hate talking about this. But you could also have a change in net worth in the other direction, where somebody, you know, went bankrupt or who knows, you know, huge judgment against them, like a big creditor issue. And there it's definitely, definitely worthwhile to look at the estate plan because that person may be making gifts that they can't afford to make anymore. So, like, a perfect example of this is, you know, if you have a client who was thinking of making like, oh, you know, like a $10,000 gift to charity, and then the rest to my spouse, let's just say very simple. If they're worth Less than 10,000 at the moment they pass away, then their spouse may receive literally nothing because of it. Because specific gifts, and this is just a term of art, you know, like a concept for the audience to know is that those specific gifts of like, cash, real estate, whatever it is, they take precedence over the remainder. So the remainder is like what's left behind. And a lot of good, I mean, good planning usually is, you know, leave. The remainder should be what it sounds like, which is the bulk of your assets, but your specific gifts could completely reduce that remainder down to zero. And so all of a sudden, you know, reviewing those specific gifts with that client are very important. And then of course, you know, asset protection planning, maybe, you know, there are all sorts of things there that can make it more complex.
- [21:35]
Thomas Kopelman
Perfect. I think the only other one that I could think of is I think when you start a business is another good time to probably go update your estate plan too.
- [21:41]
Ann Rhodes
That's right. And you should have a succession plan for your business, which then becomes this interesting, like these puzzle pieces that need to be fit together. Your estate plan, it also covers your personal assets, right? Like is the default, but your business plan meaning. Or like your, your legal documentation for your business. So, like, bylaws LLC agreements, whatever else that needs to be coordinated with your estate plan. So that way there are certain, like, rights over the interest, the stock options that you have, whatever it may be that that also may pass, you know, in a different route if you pass away.
- [22:19]
Thomas Kopelman
Love it. Super good. And thanks again for always hopping on with me. I think this was another super valuable episode for advisors, and I think for advisors listening, it gives. It gives us a lot of good things to take away and understand and bring into client conversations every single year or every other year, how the estate planners recommend just to make sure that everything is still coordinating together. Right. I mean, that's like the biggest complaint I hear from everybody I work with is, like, we have all these professionals. Nothing's coordinated. And I feel like it is our job to make sure that things are continuing to be updated and stay coordinated.
- [22:52]
Ann Rhodes
Exactly. Exactly.
- [22:53]
Thomas Kopelman
So, yeah, thanks for the time and everybody. Thank you for listening. Please rate, subscribe and we'll see you back next week.