Understanding Estate Planning: Trust Mistakes And Issues (Part 4)

On This Episode

We’re excited to welcome back estate planning attorney Bill McQueen of Legacy Protection Lawyers! This episode dives into common estate planning mistakes, the nuances of trusts versus wills, and strategies to protect your assets and heirs. From funding trusts correctly to understanding step-up in basis, Medicaid planning, and safeguarding inheritances from creditors, Bill breaks down complex topics in a clear, practical way.

Learn more about Bill and Legacy Protection Lawyers

Contact info: www.legacyprotectionlawyers.com
Phone 727-471-5868

Subscribe On Your Favorite App

More Episodes

 

Check out all the episodes by clicking here.

Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

Marc:

It’s time once again for another edition of Retirement Planning Redefined with John and Nick, Financial advisors at PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com. And we’re excited to have our guest speaker, Bill McQueen, back with us to continue our conversation about estate planning, and trusts, and probate, and all these pieces that we need when it comes to our retirement strategies. And, of course, Bill is from Legacy Protection Lawyers based out of St. Petersburg, Florida, and we appreciate your time once again. Bill, welcome in. How are you?

 

Bill McQueen:

Doing wonderful. Thank you.

 

Marc:

Absolutely. Good to have you back. Nick, my friend. What’s going on this week? You doing all right?

 

Nick:

Oh, yeah, just fighting the Florida heat.

 

Marc:

Well, if you picked Florida, right, it’s hot.

 

Nick:

I will lose. Yeah, I will lose, for sure.

 

Marc:

I mean, versus Buffalo, right? You got your choice there.

 

Nick:

Yeah. Rochester, yeah, close enough. But, yeah-

 

Marc:

Oh, yeah. Okay.

 

Nick:

… for sure. This time of year, I’d rather be there, but it’s understandable.

 

Marc:

Par for the course? All right, I got you. Well, we’re happy to have Bill back. And, of course, if you guys have questions about estate planning, definitely reach out to he and his team at LegacyProtectionLawyers.com. That’s LegacyProtectionLawyers.com. And Bill, we were talking a lot about, obviously, trusts and funding them, and all the different kind of pieces that go in there. So, on this final episode, this part four of the series, we want to talk about some of the common mistakes and things that you guys see as professionals, then try to help people avoid these or highlight some of the things. So, we talked as we finished off about the funding issue of a trust. What are some other common mistakes that you tend to see?

 

Bill McQueen:

First off, I would say it might not be considered a common mistake, but a common misconception. A lot of people who think that, “Well, hey, I’ve created this revocable trust, and so my assets aren’t in my individual name. Now they’re held by my trust. And so, if something were to happen and I were to be sued, for some reason, my wealth is protected inside this trust.” And unfortunately, that’s not the case with a revocable trust. Again, the revocable trust just acts as a substitute for your last will and testament. And because the person who creates it has so much control over those assets, they can do anything they want with those assets. If somebody were to sue them, there’d be a lawsuit of some sort, and a judgment was entered against that person who created that trust. Those creditors can get at those assets that are inside the revocable trust no differently than if they were held in the person’s individual name. So, that’s something that we always need to advise clients that they’re well aware of. There may be other ways to protect their wealth from creditors, but putting them in a revocable trust does not give them credit or protection from that standpoint.

 

The other thing that comes up fairly frequently is, I have real estate, and should I put it in my revocable trust or not? If that real estate is something that’s not your primary home or your residence here in Florida, we would definitely say do that, and especially if the clients own real estate outside the state of Florida. They might have a vacation home in North Carolina or something like that. If they own that home in their individual name and they die, and we’re using a will-based plan, not only are we going to have to do a probate administration down here in the state of Florida, but we’re also going to have to do one in the state of North Carolina as well, a second one, because each state’s very protective of their real estate. Whereas if they go ahead and deed that real estate into the revocable trust, then we avoid probate both in Florida and in North Carolina.

 

The issue, though, as to the primary residence, because under Florida law or Constitution, that’s considered your homestead, and there are certain benefits that come from that, like a tax break, and it makes your home creditor protected, there are some restrictions on where your homestead can go, who can get it after your death if you’re survived by a spouse or minor children. And so, that comes into play as to can we put that home into the revocable trust? And it used to be we would usually advise people not to do that if they’re married because of these restrictions that were involved. Now we can do it if it’s done properly, but there needs to be some special waiver language and things that are included in the deed. And unfortunately, if somebody puts it into their trust and they don’t do the deed properly, then when they die, it’s considered what we call an invalid devise. And that home may be going to people other than where they wanted it to go underneath the terms of their trust. So you can do it, and we do it for clients, but you definitely want to make sure you’re getting good advice when you’re setting something up like that.

 

Nick:

Yeah, I would say that’s one of the most common questions that people have. Oftentimes, what leads people to act, obviously, hopefully, it’s from working with advisors and stuff like that, but people talk amongst themselves. A lot of times, it’s friend or family that are like, “Hey, my brother just retired and they got a trust put into place. Do you think I should do something like that?” And sometimes, the answer’s like, “Well, hey, we’ve been telling you to do it for the last 10 years. But also, yes, there’s things that can make sense to do, but you need to make sure that you work with somebody to understand the nuances.” Because I would say one of the most common mistakes that people make is when they do talk with their peers, siblings, etc., that oftentimes they don’t understand the dynamics between the differences of their situations. And so, somebody like Bill and the people at Bill’s team can help walk them through how that works. And the majority of people, no matter what the situation is, when they’re working with an advisor or an attorney, they have some sort of real estate holding, and so that’s often one of the most common questions.

 

Marc:

Yeah. No, it makes sense. With you asking that and talking about that, Nick, Bill, what’s your thoughts on people who say, “Well, who should draft this?” Right? Or, “Can I just go on to one of these, for lack of a better term, robo-advisors or robo-lawyers?” Right? I mean, you should be sitting down with an attorney in your area because state to state, law is probably a little bit different. I’m sure there’s some things that are probably the same from place to place, but you want to make sure you’re getting advice on your specific situation, not one of these cookie-cutter type deals.

 

Bill McQueen:

No, a really good point. Estate planning is specific per the state where you’re residing, and that’s the laws that will apply at the time of your death, so it is important that you’re talking to an attorney who is licensed in that particular state where you live. But I would definitely advise against a do-it-yourself estate plan.

 

Marc:

Right.

 

Bill McQueen:

And there are a lot of, especially with the internet nowadays, various online programs where you can draft your own will or trust. The big problem with that is you’ll never know if you’re the drafter of a do-it-yourself will or trust, whether you did it right, because we won’t know that. We won’t implement it until after your death.

 

Marc:

And you won’t know until it’s too late. Well, it’s too late for you, obviously, but your heirs are suffering. Right?

 

Bill McQueen:

So, if there’s problems with it, we can’t go back and correct it or change it. So that’s very important. I also always tell people it would be … I highly recommend you go to somebody who specializes in the area of trust and estates planning. You wouldn’t want me to handle a criminal law matter for you, and you probably don’t want a criminal lawyer to try to draft your will or trust.

 

And just to show you what the problems can be, as recently as within the last decade here in our state of Florida, our Florida Supreme Court had a case, that’s our highest court here in Florida, where a lady drafted her own will. Actually, I think it was pre-internet. It was a form will or whatnot, but she left out of that will what we call the residuary provision, which is where the remainder of her estate goes, and that’s where the bulk of her estate would go. And it was very clear, the court said, that her intentions were to leave it to her sister, but that’s not what the will said. It was done improperly. And so the wealth went to someone else, and the court said they felt really bad about that, but they have to go with what the will said. And the will was validly executed and everything. It just wasn’t properly constructed, and so, unfortunately, her estate went somewhere other than where she wanted it to go, and we don’t want that to happen.

 

Marc:

Yeah. In a world where we can turn to the internet for so much stuff, there’s just certain areas where I feel like it’s just not a good idea. Right? Legally has got to be one of those. It’s got to be the tops for a lot of those things. Nick, what else?

 

Nick:

Yeah. And these things tie together a little bit. I was having a conversation with a client the other day, and I’ve seen this in other instances, where clients in their 40s, the parents of the clients are in their 70s, and there’s some concern on future healthcare planning. And from the standpoint of the transition potentially to Medicaid and/or titling assets, whether it’s a home, whether it’s other types of assets like investments, so obviously non-retirement, putting the kids on accounts to try to protect those assets per se and the future inheritance while somebody to qualify. Now, I know this is a long, convoluted thing, but I guess, just in general, especially in the state of Florida, maybe helping people understand is that primary homestead residence protected and/or just the definition or an explanation of step up in cost basis and how big of a deal that can be to somebody down the road. I know it’s a lot there, so break it up and down, whatever.

 

Bill McQueen:

That was a lot, Nick. The issue regarding Medicaid, what I would say there is if we have clients where somebody, a parent, has maybe been diagnosed with early onset of dementia or something like that, so there’s a high likelihood that they are going to need long-term care in the future. When that arises, they’d like to qualify for Medicaid as soon as possible. We can help them do that through using a trust. It’s an irrevocable form of a trust where we can move assets that otherwise would be what we call countable assets, meaning that the government says you have to spend those assets first before Medicaid will take over and start paying for the long-term care. And we can move them into this irrevocable trust so that when they do reach that stage that they need the long-term care, hopefully, they can qualify right away. And this wealth that’s in this trust will then ultimately still be there and able to go on to their kids rather than go to pay for the nursing home care.

 

That, though, has to be done well in advance of qualifying for Medicaid or trying to, basically, five years in advance. So, this is definitely a very proactive, forward-looking planning-type procedure. And it’s not something that can be done once they need to get on Medicaid right away or on the near-term standpoint from that part of the equation. Here’s my basic advice. Whether it’s Medicaid or anything else, people will say, “Hey, well, what I’m going to do, I’m going to put my children’s names on accounts with me in joint names, so one, they can maybe help pay my bills and stuff like that. Two, when I die, that asset will just pass by operational law to my child, so it won’t go through the probate process, and I don’t have to worry about probate.”

 

I highly advise clients typically not to do that. One: when you put your child’s name on that account with you jointly, at least as to regards to the bank or the brokerage house, that child now has the right to take all those funds that are in that account. Hopefully, they won’t do that while you’re still alive, but that could possibly happen. But two, the child might get sued or go through a divorce, and somebody else now might be trying to take those funds that are in the parent’s account. So we would highly advise against that and instead, let that child maybe be given a durable power of attorney that I think Nicole spoke with you about in one of the earlier episodes so that they can help pay bills and do stuff like that, but they have no ownership rights in those accounts that maybe somebody else could get at those accounts that the parents will need before their death.

 

One big thing for estate tax or death tax planning purposes, the amount of wealth now that people can leave at their death or give away during their lifetime is at an all-time high watermark. Very few people pay federal estate taxes anymore, less than one-tenth of 1% of the US population. And here in Florida, as a Florida resident, all we’re concerned about is the federal estate tax laws. So, instead, what we focus on is income tax planning for our clients. And so it would be much better for actually those parents not to, for instance, give away assets before they die to their children because what happens is if the parents die owning assets that have a lot of appreciation in them, that’s been unrealized, and by example, maybe they’ve got a house that they bought for $200,000 30 years ago that today is worth a couple of million dollars here in Florida, if they give that house away to the child before their death, the child gets what we call a basis in that asset that’s a carryover basis. It’s equal to the $200,000 the parents paid for it.

 

And so, if the children ever sell that house, maybe after the parents die, they’re going to have to recognize income tax or capital gains tax on that million eight of gain. If instead they hold onto the home, the parents, and when they die, they leave it to the children, that home then gets a step-up in basis for income tax purposes to what the house is worth at the time of the parent’s death, the $2 million. So if the children sell the house soon after their parent died, they’re going to pay no income tax, no capital gains tax, they get the full $2 million, and Uncle Sam doesn’t take any of it in the form of income taxes. So, it’s very important that people be cognizant of what the potential income tax effects could be if they’re talking about giving away assets prior to their death versus holding onto them and passing them to their beneficiaries after death.

 

Marc:

Yeah, tax efficiency, right? It’s just as important when we’re no longer here, and our heirs would certainly appreciate that as well. Any final thoughts or anything that I didn’t cover, Bill, that you’d like to share with folks when it comes to estate planning in general and what you guys do at your firm?

 

Bill McQueen:

Sure. I guess one thing I would just mention, and we’ve talked a lot about probate avoidance, but with a trust, a trust can do a whole lot more. And I guess I would just give one example. It’s not uncommon for us to have families nowadays that are often blended families, so it’s a married couple and they have children from earlier marriages. For those of my generation that grew up watching The Brady Bunch, a family like that. And by using a trust properly, what usually most married couples want to do, one thing we don’t know from an estate planning standpoint which spouse is going to die first. And usually, the spouses want to make sure the surviving spouse is well taken care of for his or her remaining lifetime, and then the assets go down to all of their children from both sides of the family.

 

So, one way to do that is just when the first spouse dies, they leave everything outright to the surviving spouse, with the hope and understanding they’re going to leave everything to all six children in this example. But what can happen is when they do that and they leave the assets to the surviving spouse, that now becomes his or her assets. And again, they can change their estate plan after that first spouse died. Instead, what can be done through that revocable trust is we leave assets into a new trust, a marital trust for the benefit of that surviving spouse, so he or she’s well taken care of for the rest of their life, but that trust, that marital trust, is irrevocable. And so, the first spouse to die knows their surviving spouse is going to be well taken care of, but they also know when the surviving spouse dies, where the assets are going to go, and it’s locked in that it will go to their children as well and not just maybe the surviving spouse’s children.

 

And then the last thing I would say is when we pass the assets to the children, often, most people think the easiest thing is just to leave assets to the children outright. And that can be done that way, but it’s often not the most effective. Often, nowadays, we will leave the assets to the children in a trust, and we’ll let the children be the trustee of their own trust so they get their share of the inheritance. They have it in their own trust that they’re the trustee of, but this type of trust does give that child asset protection. So, if the child ever gets sued during their lifetime, be it age 25 or 85, a creditor can’t get at the inheritance inside that trust.

 

Also, if the child is married or gets married and unfortunately goes through a divorce, their former spouse has no rights to the assets inside this trust either, because legally, the child does not own those assets individually. They’re owned by this trust that the child controls and the child’s the primary beneficiary of, but it’s insulated from what I’ll call bad people being able to get at their inheritance from that standpoint. So, that’s really how we try to protect that inheritance and pass it down to the people we want and keep those creditors and predators away from their inheritance from that standpoint.

 

Marc:

Got you. Yeah. I’ll ask you this final question, and I set Nicole up with this as well. Just in general, I think, mindsets have changed through the years, but people often, many years ago, thought, “Well, you have to be really wealthy to A, have a financial advisor, and B, have a trust. You must be a Rockefeller or something like that.” And that’s just not the case anymore. So, are you seeing more people starting to realize or understand that this could be a useful tool for them in working with someone, and not just something for the ultrarich?

 

Bill McQueen:

Oh, definitely. We serve clients of all different sizes and net worths, and I tell my clients there is no bright line test as to when it makes sense to have a trust as your primary estate planning document versus a will. But if I had to use a rule of thumb, I would say if somebody has assets that are over a couple of hundred thousand dollars, it probably is more beneficial to use a trust as the primary estate planning document rather than a will because, again, looking back to my youth, there used to be a commercial, the Fram oil filter commercial, that they always said, “Pay me now or pay me later.”

 

Marc:

Right, yeah.

 

Bill McQueen:

Yes, putting a trust-based plan into place is probably more expensive than a will-based plan, but it’s not that much more expensive, and all the benefits you get far exceed the cost of when they do die, what it’s going to cost going through the probate process. So, just looking at it from a cost factor alone, I would say most anybody would pretty much benefit from having a trust-based plan versus a will-based plan.

 

Marc:

Bill, does that include the home value as well? Obviously, those have skyrocketed the past few years, so it’d be pretty easy to get to a couple of hundred grand.

 

Bill McQueen:

It would, yes. And I would include the home value in that as well, yes.

 

Marc:

Okay. All right, Nick, any final thoughts from you before we go?

 

Nick:

Really, I think the takeaway, and a lot of things have been pointed out, and something that we try to emphasize with people, whether it’s financial planning, whether it’s legal planning, is that strategy and how just a couple of decisions can make a dramatic impact on somebody’s overall situation and plan. Oftentimes, and Mark, you alluded to it, where people, for many years, had this perception of, whether it’s an advisor or an attorney, it’s something that only people with really substantial amounts of money have. And if anything, people with substantial amounts of money, they have a bigger buffer. You know what I mean? And can make more mistakes and recover, but really, a handful of decisions for a typical client that’s worked hard their whole life, saved a whole bunch, paid off their house, want to enjoy their retirement and hopefully pass on some money to their kids, they can really benefit from strategy planning and adapting to what’s going on.

 

Marc:

Yeah. For lack of a better term, Middle America, right? I mean, a lot of folks in Middle America could certainly use a team, a financial and legal team. And so, if you need some help, reach out to, of course, Bill and Nicole and their team there at Legacy Protection Lawyers. That’s LegacyProtectionLawyers.com. That’s where you can find them online, Legacyprotectionlawyers.com, or call 727-471-5868. We’ll put a link in the show descriptions of this week’s podcast as well. And you can also, as always, go to Pfgprivatewealth.com to get in touch with John and Nick. Don’t forget to subscribe to the podcast, Retirement Planning Redefined, on Apple, or Spotify, or whatever podcasting app you enjoy using. Bill, thank you so much for your time. Great information. We really enjoyed having you here.

 

Bill McQueen:

Thanks for having me, Mark and Nick, appreciate it very much. Enjoy it.

 

Nick:

Thanks, Bill.

 

Marc:

And we’ll see you next time here on Retirement Planning Redefined with John and Nick.

 

 

Understanding Estate Planning: Trust Types with Bill McQueen (Part 3)

On This Episode

This episode, we welcome estate planning attorney Bill McQueen of Legacy Protection Lawyers to break down the essentials of trusts and why they matter. Bill explains the key differences between wills and trusts, clears up common misconceptions, and highlights the importance of properly titling assets to avoid probate. You’ll also learn why beneficiary designations can override your trust, the pitfalls of leaving your trust unfunded, and how working with both financial advisors and attorneys ensures your plan truly carries out your wishes.

Learn more about Bill and Legacy Protection Lawyers

Contact info: www.legacyprotectionlawyers.com
Phone 727-471-5868

Subscribe On Your Favorite App

More Episodes

 

Check out all the episodes by clicking here.

Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

 

Marc:

Time once again for another edition of Retirement Planning – Redefined with John and Nick from PFG Private Wealth. We’re continuing our conversation, our great conversation, with the folks from Legacy Protection Lawyers. Nicole Cleland was on the podcast, and Bill McQueen is going to be joining us now on this episode as we talk a little bit more in-depth about what they do, and some of the differences when it comes to getting these financial and legal documents into place. As always, Nick’s here with me. Nick, my friend, how are you doing?

 

Nick:

Doing great. How about yourself?

 

Marc:

Doing pretty good. We had John on the last episode, so good to have you here with us, and Bill McQueen is joining us. So Bill, welcome in. Thanks for being here.

 

Bill:

It’s my pleasure. Thank you all for having me.

 

Marc:

Absolutely. Looking forward to chatting with you. And again, you guys are from Legacy Protection Lawyers, and you can find you guys online at LegacyProtectionLawyers.com. That’s LegacyProtectionLawyers.com. Give us a little background on you, Bill. You’ve been doing this for how long, and all that good stuff. Tell us a little bit about you first.

 

Bill:

Certainly. Well, I’ve actually been an attorney for almost 40 years, but I sort of had a circuitous professional career. I was a CPA for my first few years out of undergrad and then I went back to law school, practiced law for about seven years, but then I actually ran a family business. My father died when I was getting out of law school, so I took over a family business and ran that for about 15 years, and then came back to the practice of law about 15 years ago now, after I got a Master’s of Law in Estate Planning, and so that’s where my full focus has been over the last 15 years or so.

 

Marc:

Nice. Gotcha. Yeah, I mean, so obviously you’ve been doing this for a while, and you guys work with Nick and John, occasionally helping them out with some of their client situations as well?

 

Bill:

Yes, yes. We work closely with Nick and John and they help our clients out with financial planning and wealth management, and we help out in the estate planning arena when his clients need that.

 

Marc:

Nice. Nick, how long have you guys known each other?

 

Nick:

Bill, when you said 15 years, I was thinking about that, so I think it’s got to be close to 10 years, something like that? Around 10 years?

 

Bill:

Been at least that, because I started the firm back up in, I guess, 2013, so too soon after that. I met you through your other former partner and we started doing seminars and stuff together.

 

Nick:

Sure [inaudible 00:02:11]

 

Marc:

We all lose time in that COVID era, right? It seems like everybody always does that. We’re thinking about time and we’re like, “Oh, man, there’s like a three, four-year window I’ve lost when trying to think of some things.” Well, let’s get into our conversation today.

 

When Nicole was on, we kind of left off, Bill, where she was talking a lot about probate. She went through a lot of great topics and kind of broke some stuff down for us, needing an estate plan, what makes an effective estate plan, things of that nature. We kind of wrapped up a little bit on the probate conversation, and then we started to get into trusts, and she said you were the man when it comes to talking about trusts, so we thought we’d kind of kick things off there. So, tell us a little about what is a trust and just kind what some of the, I guess, misnomers that come with that conversation, or with that word.

 

Bill:

Sure. Well, actually, technically or legally, a trust is actually a relationship where legal title of the assets are held by one individual or an entity for the benefit of somebody else. But I tell people, “The easiest way to think of a trust is more analogize it to like creating a corporation or a limited liability company.” Again, technically it’s not an entity. We typically use trusts so that, as Nicole mentioned, I’m sure during the episodes that she was on with you, a last will and testament only controls where assets that are titled in somebody’s individual name go.

 

But in order to get those assets to the desired beneficiaries after the owner dies, we have to go through the court system to do that. And so many, if not most, of our clients instead use a substitute for a will, which is a trust, or a revocable trust, which allows us to take assets that are in somebody’s individual or joint name and retitle them into this trust while they’re alive so that when they die, the trust is basically still alive and it can direct where the assets go, but we don’t have to get the courts involved, which obviously saves a lot of money, time, and keeps everything private.

 

Marc:

Yeah, I think that’s a big piece for people too is the difference when going through probate … And I was telling Nicole, she said she was going to steal this from me and use it, and I said, “Hey, go ahead.” But I was like, I was always taught that a will just means you will go through probate, and she’s like, “Oh, I like that.” And obviously that’s public record, whereas if you do a trust, you can kind of keep those things private from creditors and things of that nature, correct?

 

Bill:

Yes. Oftentimes people think, “Well, I have a will, so because I have a will, I’ll avoid probate,” and that’s not the case. It’s all how the assets are titled. So, if they have a will, they’re executing their privilege to sort of personalize their estate plan where assets go. Otherwise, if they have something in their individual name and they don’t have a will, then Florida law basically gives them a will and says where the assets will go. But in either instance, we got to go through the court system.

 

With a trust, we don’t, and the trust definitely does remain private, so we do not have to posit a trust instrument if things are done correctly with the court system, as we do with a will. When somebody dies, by law, at least here in Florida, whoever has their original will or comes across it is required to posit it with the court in the county where they were residing at the time of their death, and at that time it becomes a public document. So, anybody, be that the nosy neighbor or the newspapers, reporters or whoever, could go down to the courthouse and read your will, see where you’re leaving your assets, maybe who you’re not leaving assets to, and even get some sense of what your assets are. That’s not the case when we use a revocable trust. All of that remains private.

 

Nick:

And just for clarity, for most of the people listening, the terminology, and correct me if I’m wrong, Bill. But the most popular or frequently used sorts of trusts are either living trusts or revocable trusts, which oftentimes are the jargon or the terminology goes hand-in-hand with each other, just from the standpoint of sometimes we’ve had clients confused between the difference of the two, or if there is a difference between those.

 

Bill:

Right. That’s right, Nick. Actually, when we talk about trusts, there can be trusts that are revocable trust, also revocable trust, I guess potato, potato, but a trust that’s revocable, which also sometimes is called a living trust or even a living revocable trust. But then there can be trusts that are irrevocable, and those are much more often used for more advanced planning type techniques, be that asset protection or estate tax minimization, or planning for nursing home care in the future, Medicaid planning.

 

But when most people talk about, “Oh, I have a trust as part of my estate plan,” we’re talking about a revocable trust. And so like a will, when somebody creates a revocable trust, they keep a lot of control over that, and they have the ability to amend the trust document at any point in time in the future. So, if they like their son-in-law today, but maybe they don’t like their son-in-law somewhere down in the future, they can change the trust and take the son-in-law out. They can even revoke the trust in its entirety if they want to, and if that were to happen, the assets would come back into their individual or joint name. So, when we’re typically talking about estate planning, we’re talking about a revocable trust, which again is just really a substitute for a last will and testament, because it’s going to direct where the assets go once you die.

 

When you have a revocable trust, sort of to give a little more clarity on it, typically, when someone sets up a revocable trust, the person who creates the trust serves as the trustee of the trust while they’re alive. And the role of trustee is sort of similar to being the president of the corporation, if we’re thinking of it like an entity, so that trustee has the authority to deal with those assets in the trust. What the trust says is that while the person who created the trust is alive, they can do anything they want with the assets in that trust, so they can consume them, they can give them away, they can put other assets in the trust, they can make loans or sell assets, just like they could if they were in their individual name.

 

But then the trust goes on to say, “If the person becomes incapacitated or they die, here’s what happens to the assets now,” and that’s when we put the same types of terms that we would normally put it in their will into that trust document. And so, the fact that when they die, they don’t have any assets in their individual name, hopefully they’re all in this trust, or they have beneficiary designations that put them into the trust, then those assets will go to where they want them to go, but we don’t have to get the court system involved again.

 

Marc:

Gotcha. Yeah, when you started talking about that, I was going to ask you, sometimes people … For folks who don’t deal in this world, or very often, we hear about being the executor of an estate, right? Is that different when you’re kind of in charge of the trust? Are those terms interchangeable, or is that different?

 

Bill:

No, good question. The executor is the common name for who would administer a probate estate or be in charge of a probate estate if you had a will and the assets were going through the court system. Here in Florida, we call that role something else, but it’s the exact same thing as an executor. We call it the personal representative of the estate.

 

A trustee is similar to that role of executor, but the trustee is in charge of assets that are in the trust or owned by the trust, and so they’re not assets going through the probate. So, both the trustee of a trust-based plan does pretty much the same types of things when someone dies as the executor or personal representative of a estate would have to do, a probate estate, if we’re using a will. And what I mean by that is, your revocable trust is responsible for paying any and all valid creditors that the deceased individual might’ve had at the time of their death, just like what happens with a probate system. And the trustee is also responsible to make sure that the deceased individual’s, all of their tax returns have been filed and taxes have been paid, things of that nature. So, they do a lot of the same sorts of things like an executor.

 

But again, they’re handling that initial administration outside of the court system, and so we can start right away. We’re not waiting for a court to appoint the person as trustee. In fact, on the day the individual who created the trust dies, we could appoint the successor trustee on that day even, because again, we don’t have to get the court involved, and we can start paying creditors and making sure all the tax returns are filed and taxes are paid, and we’re not waiting on the court system to handle all this. So, things go a lot quicker and smoother from that standpoint.

 

Marc:

Gotcha. Okay. Do you set up beneficiaries kind of the same way you would do with other things, and I guess you’re putting all the different assets under the trust umbrella, and then you have beneficiaries for individual items? Or is it like an overview in the trust, if that makes sense?

 

Bill:

I mean, what happens is, again, it sort of could mimic what’s in somebody’s will if they’re using a will.

 

Marc:

Okay. Gotcha.

 

Bill:

But what happened would be ideally, we’re either going to put all the assets into the trust during the person’s lifetime, or there’s some assets we can’t put into a trust. They have to stay in the individual’s name during their lifetime. The most common one for that would be retirement accounts. IRAs or 401k plans have to stay in the individual name of the owner or the participant under the plan up until their death, but we can direct those assets by a beneficiary designation into the trust once the individual dies, so we avoid the probate process by doing that.

 

Marc:

Gotcha.

 

Bill:

We may very well name individual beneficiaries, and occasionally, there might be specific assets that people want to leave to certain individuals, and so we would put those specific provisions in the trust document. Maybe they want to leave this house to somebody, their boat or some other piece of real estate or something of that nature. There might also be specific cash gifts they want to make. And then ultimately, we have what is typically referred to as the residuary of the estate, everything else that’s left over, where does that go?

 

We more often use percentages of somebody’s estate when we’re putting together an estate plan rather than specific assets or specific dollar amounts. And the reason we advise to do that is because whenever we’re doing an estate planning, I tell people, “We’re taking a photograph or a snapshot of what your life looks like today, what your assets are, what the current law is, who do you want to benefit, things of that nature. But hopefully, we’re not going to have to use these instruments until somewhere far out into the future, and we just don’t know what your estate might look like when that day comes, your death, that we have to now implement the plan.”

 

And if somebody is making a large gift, let’s say today their estate’s worth $3 million or something, and they’re going to give away $1 million to somebody, and then the rest they want divided among their children. If due to healthcare or other reasons, their estate goes down in value before they die to maybe it’s only $1,000,001 when they die, that individual’s still going to get the million dollars, and then their children are only going to split $100,000 versus the $2 million that they thought they were going to split when they put the plan in place. If instead they use percentages rather than specific dollar amounts, then it doesn’t matter as much whether their estate goes up in value or goes down in value. At least regarding the relative size of the gifts, they’ll be the same, and so that’s usually an approach we would prefer to take, really, than using specific dollar amounts for gifts within a trust.

 

Nick:

And I’ll jump in on that a little bit too.

 

Bill:

Yeah, please.

 

Nick:

Just because oftentimes, from a front line standpoint as an advisor, we’re sitting with clients and they’re adjusting beneficiaries. So one example of a conversation I’ve had with a client is, so maybe they have a 401k at a previous company and maybe it’s a couple hundred thousand bucks, and they have a beneficiary listed there. And then they have a second 401k that they’ve had at their current employer for the past few years, and there’s less money in there, and so people tend to segment accounts in their minds. And so they’ll say, “Well, I’ll put this other person on this one, because I have my sister or my brother or …” on the first one.

 

Just them not thinking that, “Well, hey, later on in life, things may be consolidated,” or you may spend from one account before you spend from another account, and using the percentage kind of strategy tends to be much more effective for people. And just to kind of jump on that beneficiary side of things too, because I know that you guys run into this and we run into it, but I think one of the things worth mentioning is, and you can kind of walk us through it more thoroughly, Bill, is just the conflict between beneficiaries listed on an account and a trust, and how one can supersede the other, because maybe somebody didn’t update their beneficiaries or things like that.

 

Bill:

Sure. When somebody dies, how assets can pass are in one of three ways, but one of the ways is by contract law, and those are assets that you can put a beneficiary designation on. And I mentioned earlier, retirement accounts are common accounts that you really need to put a beneficiary designation on. But on a lot of financial accounts, be that a bank account or a savings account or a brokerage account, if somebody wants to, they can hold that account in their individual name, but they can put a beneficiary designation on those that are referred to like a pay on death designation if it’s a bank account, or a transfer on death designation if it’s a securities or brokerage account. And what that means is that when the owner of that account dies, by contract law, the institution agrees to pay that account to whoever their named beneficiary is. All they have to do is take a death certificate to the institution, and that becomes that beneficiary’s account.

 

The issue that people need to keep in mind, though, is sometimes people put beneficiary designations on assets, and yet let’s say they have three children, and then through their will or their trust, they say, “When I die, I want to leave everything equally to my three kids,” but for whatever reason, they put a beneficiary designation on an account that named just one of the three children. Legally, that one child will inherit that account, because that’s what’s going to control that account, that beneficiary designation. And it doesn’t matter what their will or trust says, because it will pass outside of going through the probate process, and it also won’t go through the trust if it’s an account that was in their individual name with a beneficiary designation in favor of one individual.

 

And so, people need to make sure when they’re doing their estate plan that everything lines up and is in alignment, as far as accounts, if they have beneficiary designations on them, that they agree with whatever their trust or will that they’re using calls for. Or at least they have an understanding of how that’s going to flow. I don’t know if that’s what you’re referring to [inaudible 00:17:13]

 

Nick:

Yeah, yeah, just kind of the uniformity and the importance of, I think, from the extent from how we see things, that a lot of times as an advisor we suggest to a client to get an estate plan done, and then we stand ready, willing, and able to help them implement, like retitling accounts in the name of a trust or updating beneficiaries. But there’s instances where not all the accounts are through us or just different things that happen. And so that implementation, that second phase is super important, and I think people do kind of tend to assume that, well, hey, if I have my trust and I’ve gone through and I’ve done this process and I’ve written out exactly what I want to happen in my trust, then all my accounts should just automatically follow those rules. And I think people understanding that that’s not the case, that a beneficiary designation on an account can supersede a trust, is super important, especially if it happens to be an ex-spouse or something like that, which is not a great situation. So, I just wanted to bring that up.

 

Marc:

Okay. Yeah, that makes sense. And what we’ll do is we’ll do one more question here and then we’ll wrap this episode up, and that way we keep these at a normal timeframe, and then we’ll have Bill back on again for a continuing session to chat some more about this topic. One of the things I was going to ask you when you guys were running through some of this stuff, and I’ve heard this before from other advisors, that a common mistake is that you go through the time and the effort to get a trust put together, Bill, and then people don’t fund the trust. Can you kind of explain what that means?

 

Bill:

Right. Yes. That can be a common problem with a lot of individuals, and not with our clients, but [inaudible 00:18:53] the standpoint that some people think that, okay, I go to my attorney, they create this trust document for me that’s going to avoid probate. I sign the agreement and then everything’s done. That’s not the case.

 

What happens after you create the trust, you now have to what we call fund it, which means retitle assets out of that person’s either individual or joint name into the trust, or add beneficiary designations onto the assets, if they’re able to use a beneficiary designation that would be in favor of the trust so that when they die, even though the account is in their individual or joint name, it automatically passes into the trust. If somebody doesn’t do that, if they don’t fund the trust, if they just sign the instrument, but they don’t go out and retitle these various assets, then what’s going to happen? They’re going to die, at the time of their death, the trust doesn’t have anything in it yet.

 

And when you have a trust-based plan, if it’s done right, you’re still going to have a last will and testament that we refer to as a pour-over will. That’s really there to catch assets that for whatever reason were not put into the trust, or a beneficiary designation was not put on them directing them to the trust at the time of the person’s death. So that pour-over will says, “Hey, when Bill dies, if we find anything in his individual name, this will’s going to take that asset and pour it over into Bill’s trust that will direct where the assets go.” But to get that asset or assets out of Bill’s name over into that trust, we got to go through the probate process to do it.

 

Marc:

Oh, wow.

 

Bill:

We don’t want that to happen, so it’s very important that when your trust is put in place, that your attorney and your financial advisors and everybody, that we have all this information. That’s why we work very collaboratively with advisors like Nick and John to make sure that we’ve identified all their assets, and that they are titled into the trust at the time they create the trust, or they get a beneficiary designation on it.

 

And the way you title those assets into the trust, I tell people the rule of thumb is, if you were going to sell that asset to somebody else, how would you do it? So if it’s real estate, we have to do a deed and deed it from that person’s individual name into the trust. If it’s a interest in a closely-held company like a corporation or an LLC, we have to do an assignment of that interest over to the trust, or a new stock certificate. If it’s accounts like that Nick and John are managing, then it’s very easy. They go ahead and retitle those accounts from the person’s individual name into the trust. But all those steps have to be taken, because otherwise they’ve got this trust document that ultimately will direct where the assets go after they die, but we’re going to have to go through the probate process to get the assets into that, and it sort of defeats one of the primary purposes of having a revocable trust.

 

Marc:

Exactly, so you’ve got kind of like a shell with not much in it, I suppose.

 

Bill:

Right, exactly.

 

Marc:

Okay. Well, look, so as Bill said, a lot of times they got to work hand-in-hand, so that’s the importance of a team and working with financial planners and estate planning attorneys, and so on and so forth. We talked quite a bit about that the last couple episodes. If you need some help, we’re going to jump out, we’ll come back in with a new episode here in about a week or so, so reach out to John and Nick, or reach out to Bill and Nicole as well. You can find Bill and Nicole at LegacyProtectionLawyers.com. That’s LegacyProtectionLawyers.com. They’re based out of St. Petersburg, Florida. You can check the show description. We’ll have a link down there for you. Or you can also just call 727-471-5868, 727-471-5868.

 

And of course, if you want to talk with John and Nick, as always, don’t forget to subscribe to the podcast and find them online, and all that information is at PFGprivatewealth.com. That’s PFGprivatewealth.com. Nick, thanks for being here, my friend, as always, and of course, Bill, thanks for being here and being our special guest. A lot of great information and really did a great job kind of breaking that down for folks.

 

Bill:

Thank you. I enjoyed it.

 

Marc:

Absolutely, so we’ll have you back on in about a week or so. We’ll talk a little bit more about our four-part series on estate planning with John and Nick on Retirement Planning – Redefined.

 

 

Understanding Estate Planning: Wills and Probate with Nicole Cleland (Part 2)

On This Episode

This episode, we welcome back estate planning expert Nicole Cleland to discuss important topics such as how property passes after death, the rights of spouses and blended families, challenges minors face when inheriting, and the benefits of avoiding probate. Whether you’re single, married, or navigating a complex family dynamic, this episode offers valuable insights to help you protect your legacy and plan effectively for the future.

Learn more about Nicole and Legacy Protection Lawyers

Contact info: www.legacyprotectionlawyers.com
Phone 727-471-5868

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Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

 

Marc:

Time once again for another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And once again, we’re going to continue our conversation with Nicole Cleland on estate planning. So really happy to have her back on this chat with us. And if you’ve got questions, need some help when it comes to the legal side of things, reach out to them at legacyprotectionlawyers.com. That’s legacyprotectionlawyers.com. And of course, if you’ve got some questions on the financial side, reach out to John and Nick at pfgprivatewealth.com, pfgprivatewealth.com.

 

Nicole, welcome back in. Thanks for being here again.

 

Nicole Cleland:

Thanks for having me again.

 

Marc:

Lovely to talk with you. And John, my friend, thanks for being here as we continue this chat with Nicole. We covered a lot of stuff and I want to kind of circle back to a few pieces. We were talking about property, how it passes on death. Who should inherit your assets? I think that’s kind of maybe a big question for people in general.

 

Nicole Cleland:

So this is what we call testamentary intent, meaning you can leave your assets to whomever you want. There is no restriction or requirement on who takes from your estate. However, most states, Florida included, has a law that says if you are married, you cannot disinherit your spouse. And sort of the philosophy behind that is if you had, back in the old days, husbands were the breadwinners, wife stayed homemaker. And if husband wanted to leave assets to someone else, his children, a mistress, something like that, the law would not allow you to disinherit that spouse. And that’s sole control.

 

So the law presumes that spouses are meant to be taken care of and you cannot leave your spouse less than a certain percent. In Florida, that percent is 30%. So although you can disinherit the rotten children, you can’t disinherit the spouse.

 

Marc:

Okay. I like that.

 

John:

So I’d also say this becomes very important when you have blended families. I’ll say that.

 

Nicole Cleland:

Absolutely.

 

John:

Working with clients where it’s second marriage, kids. This becomes a very important topic that I think most people I’ll say that haven’t gone through an estate plan or just haven’t made that decision yet to go through it, have no idea this even exists. And also I’ve even talked to some pretty savvy attorneys that I’ve talked to and I mention it, like, “What are you talking about?” And they look it up and they’re like, “I had no idea.”

 

Nicole Cleland:

Yeah, it’s one of those things that a lot of people don’t realize because again, circling back to that testamentary intent, you should be able to leave your assets to whomever you want, but the law’s not going to say that for a spouse. And you’re right on the money there, John, with the blended family situation.

 

And I usually try to even say it’s not always that later-in-life marriage couple. So if you’ve got a husband and wife that get married later in life, they both have children from prior relationships, we usually find that they honor that testamentary intent, meaning, all right, husband, whenever you pass, you can leave your money to your children and then I’m going to leave my money to my children. We don’t need to leave anything for each other. We’re getting married later in life. We’ve built our wealth so we don’t need to support each other.

 

But what ends up happening is if my husband passed away and I’m still alive, I might be older and a little bit more vulnerable. And usually I find that it’s the kids of the surviving spouse that end up saying, “No, mom, you’re entitled to that elective share. You’re entitled to that 30%. You need to pursue it.” And it’s usually the children of that surviving spouse in that blended marriage that end up trying to push for things that that married couple really had no intent to do.

 

Marc:

Is it easier or more complicated for folks on a… I guess if you’ve never had children and just you’re single or whatever, do people feel like, “Well, I don’t need any of this stuff because it’s just me”? But you still have to leave your stuff somewhere, right?

 

Nicole Cleland:

Right. No, and I think it’s where whether you’re single, whether you’re married, like I mentioned on our last podcast, I made a comment that everyone has an estate plan, you just may not know what it is.

 

Marc:

Right.

 

Nicole Cleland:

So a lot of people where let’s say you have a young person who’s working out in Silicon Valley, they graduated from an Ivy League school, they’re making a ton of money out there, and they were raised by their mom but have no relationship with their father. In that instance, if that single individual passes away, not married, no children, their money’s not going to go to the mom that raised them single-handedly. It’s going to go 50/50. And I see that. I see those instances where you have money going to estranged family members, family members you had no relationship with because you just did not know what the law was going to presume you wanted.

 

Marc:

Yeah, that makes a lot of sense. And it gets really interesting because it’s more complex than I think people realize, but yet it’s also something simple to handle. You just need to get it done. And that’s where making sure that you’re checking off beneficiaries and all those things come into play as well.

 

John:

And I’ll jump in here. Just I’d say that the biggest thing I think doing estate plan, and I’ll say guilty where I didn’t officially do one until my daughter, my first daughter was two, it was just kind of peace of mind that it was done. Because it was always kind of lingering there like, “Hey, you got to get this done.” And finally when I did it was just like, “Hey, I’m good.” And then we make updates to it. But it was a relief to get it done and know that my wishes would be taken care of if something happened to me and Jenny.

 

Nicole Cleland:

And I think that type of planning is very important for younger couples that do have children. You can name who you would want to have what I call custodial care for your child, who your children would live with if something happened to you and your spouse. But that also doesn’t mean that has to be the same person that’s managing the money. So you might have one person that decides whether your child goes to public or private school, whether they go to church or not, but then you can have someone else be the one to manage the checkbook, so to speak.

 

But the other thing that’s wrecking havoc on our world a little bit is ancestry.com, believe it or not. We’re having children that no one knew existed come to the forefront. So that’s where planning could be even more important is you might have biological children that you did not know about.

 

John:

So I got to ask, I know this isn’t a topic we were going to discuss, but how often is that happening and do those surprise kids, let’s call it, have any rights?

 

Nicole Cleland:

Great question. So I’ve had it come up once, and it was in the context of what we call an intestate estate. So there are two different types of probates in the sense of who are your beneficiaries, meaning an intestate estate is a probate administration where the decedent had no will. So the law declares who your beneficiaries are, who your heirs are. A testate estate is a probate administration where you have a will. And so your will that you’ve created dictates the beneficiaries under your estate administration.

 

Most wills, at least I will say most good wills define who your children are. So for example, if I was creating a will for someone, I would say, “Okay, your children are A, B, and C. and for purposes of this document we’re limiting your descendants or your children to those three kids.”

 

Now, with an intestate estate, the one that I’m speaking of that we had happen is the family sort of was suspicious of this individual being a descendant. And after a paternity test, it was deemed true. But that didn’t come to fruition until after the person had passed and the parent of this minor wanted to stake a claim in the estate. And they were successful because they were a biological child, even though there was no relationship at all, the child did not know the other family members. But they were an equal child to all the other children, even though they’re technically half sibling. But it was a direct child of the decedent.

 

Marc:

Wow. Yeah, it gets a little sticky there. So we tend to think about that with celebrities or something like that. But I guess, yeah, it can happen anywhere.

 

Nicole Cleland:

Yeah, it really can. And it’s not fun to manage because now as the attorney, I’m having to really make sure my clients understand, my executors or my personal representatives, I have to ask them, “Are you sure these are the only children of the decedent?”

 

Marc:

I’m sure you get, “What kind of question is that?”

 

Nicole Cleland:

Correct. Yeah, it’s not a fun one, but it’s something that I have to say, really make sure we’ve got the right heirs here.

 

Marc:

Yeah, that certainly, it was a great question by John. I didn’t even think about that, kind of kids coming out of nowhere. And maybe this is one reason, Nicole, why people want to avoid probate amongst other reasons, right? Because if you’re going to a trust or something like that, you have more privacy, correct? Where probate is out in the open.

 

Nicole Cleland:

That’s correct. So trust administrations are typically private, meaning we don’t file the trust anywhere. We don’t have any sort of public record of the administration process. But probate is the opposite. We have to deposit your will with the court. The probate administration is all public record. So whenever you have a probate proceeding, we talked in our last session about how long it can take. I’m saying now the average is about 12 to 18 months. And a lot of that is, I think directly dependent on your fiduciary, your personal representative that you have serving in that role. Some of it is the court, but a lot of it is that person that you have named.

 

But a lot of people tend to shy away from probate administrations, not because it’s necessarily public and not so much because of the delay, but the cost. The cost for probate proceedings here in Florida are statutory, which means there is a Florida statute dictating the schedule on what is deemed a reasonable fee for not just your personal representative but the lawyer.

 

And in Florida, 3% of the probate estate is deemed reasonable. So if you’ve got a million dollar investment account that needs to go through probate, and it could just be the one account, what would be presumed a reasonable fee under Florida law would be 3%, 3% for the lawyer and 3% for your personal representative. So just right there, you’ve got 6% coming from that million dollar account, $60,000 for a probate administration. So the cost can add up fairly quickly, especially the bigger and the more complex the size of the estate.

 

John:

Yeah. And I’ll add to that just kind of personal experience. You don’t know what you don’t know. And I’ll tell you that even though I’m somewhat in the industry, not an attorney, there’s a lot of questions that I’m having for helping my wife be the executor of her father’s estate. And it’s like, “Hey, what about this?” So we’re emailing the probate attorney quite a bit of just, “Hey, what about this scenario? What about this?” And there’s a lot of nuances that I think the average person just is not aware of.

 

Nicole Cleland:

Absolutely. I think for most administrations, we always joke here in the estate planning world in the administration side is there’s no easy probate. There’s something new in every single probate administration that you have just because the family dynamic could be different, the type of asset that could be different. You could have what I would deem a very easy probate where the only thing we have to transfer title to is maybe the house. But let’s say the house isn’t selling. Let’s say the mortgage is worth more than the house, or there’s a special assessment on the condo or one of the beneficiaries doesn’t want to consent to the sale. Something, anything can just come up at any time with a probate administration that can turn what I would deem an easy probate into a very, very complicated one.

 

And like John said, you don’t know what you don’t know, and sometimes you can’t envision or foresee what’s going to happen at the end of the probate proceeding. But surprises do often come along. And that’s where I think sometimes experience can really matter in terms of the type of attorney that you pick because they’re going to have experience dealing with this type of issue, this type of condo that’s being sold or this type of family dynamic that’s occurring or something like that.

 

John:

Nicole, how about something that comes up a lot with I would say Nick and I is minors. Minors that potentially could or have inherited money that maybe they were listed on a beneficiary account and the person didn’t know the rules in Florida with minors inheriting money. How does that work?

 

Nicole Cleland:

Yeah, that is just not great planning, frankly. I think a lot of people who maybe don’t have a lot of wealth or have young children, they name their minor children as a default, and it becomes really sticky very quickly. And even in the best of scenarios where let’s say you’ve named your minor as the beneficiary on an account, and let’s say we have to do a guardianship for that child because minors can’t manage over a certain dollar amount, or let’s say you even have a custodial account, even if all of those get teed up perfectly, at the end of the day when those minors inherit the money, they’re 18 years old or 21 years old, or even 25 years old. And I don’t know about you, but I don’t see a lot of financially savvy or financially prudent 18-year-olds or 21-year-olds.

 

So it ends up being where even in best of scenarios, without proper planning for young kids, it’s really hard for someone in their early twenties to inherit any type of money, not just a significant amount.

 

John:

Yeah, I’d say one thing we come across when we’re doing initial consults, we’ll do reviews of beneficiaries and we’ll see minors as contingents. And that’s where, going back to who needs an estate plan or why, I think people really need to take a look at that with kids.

 

Nicole Cleland:

They really do. Because that’s the one where, again, even if we’re able to do the guardianship for that minor or a custodial account or something, it just doesn’t work well when you have a young person inheriting.

 

I’ve had a minor, no, actually take that back, they were an adult, inherit a life insurance policy, and I think they were 21, what the law presumes financially mature enough to inherit money. And this 21-year-old spent over half a million dollars in life insurance in a year.

 

Marc:

Wow.

 

Nicole Cleland:

And they had nothing to show for it at the end of that year, nothing. It was you almost felt guilty asking them what did you even spend that money on? Because they’re just so young. And it wasn’t necessarily their fault in the sense that that was not the planning that should have been put in place for that person.

 

Marc:

Yeah, their sneaker collection was amazing.

 

Nicole Cleland:

Yeah, I couldn’t even say that. There was no collection to speak of.

 

Marc:

Oh, geez.

 

Nicole Cleland:

I have no idea where the money went.

 

Marc:

Really? Oh, no. Well, that’s terrible. That’s the importance, right? That’s the importance of, and that’s a great way to wrap up this episode, Nicole, the importance of planning for the individual, for the situation, just it’s paramount. Right?

 

So get onto the calendar, have a conversation. If you need some help, reach out to Nicole and the team at legacyprotectionlawyers.com, that’s legacyprotectionlawyers.com, or call them at 727-471-5868. That’s 727-471-5868 to have a conversation about your situation. And of course, as always, don’t forget to subscribe to the podcast, Retirement Planning Redefined with John and Nick. You can find that on Apple or Spotify. And of course, if you need to make it easy, just go to their website and get some time with them as well, pfgprivatewealth.com. That is pfgprivateweath.com.

 

Nicole, what does it look like if people want to reach out to you and the firm?

 

Nicole Cleland:

We would love for clients to reach out and ask to meet with one of our attorneys to get a little bit more of a specific recommendation as to their family and their situation. Everyone is different. There’s no cookie-cutter approach to planning, and it’s important that people talk to an attorney or a professional that can be a little bit more custom approach to their type of plan. So they can give us a call and we can offer a complimentary consultation to kind of go over that in more detail with them.

 

Marc:

All right, there you go. So thanks so much for listening to the podcast. We appreciate it. Again, reach out to them at legacyprotectionlawyers.com. That’s legacyprotectionlawyers.com. And thanks for tuning in to Retirement Planning Redefined with John and Nick.

 

 

Understanding Estate Planning: The Fundamentals with Nicole Cleland (Part 1)

On This Episode

In this special episode of Retirement Planning Redefined, John and Nick welcome their first-ever guest, Nicole Cleland of Legacy Protection Lawyers, to kick off a new estate planning series. Nicole shares key insights into what estate planning really involves, who needs it (hint: it’s not just for the wealthy), and how proper planning can help avoid confusion and conflict later. They cover the differences between estate planning and elder law, the importance of incapacity planning, and how assets actually pass after death.

Learn more about Nicole and Legacy Protection Lawyers

Contact info: www.legacyprotectionlawyers.com
Phone 727-471-5868

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More Episodes

 

Check out all the episodes by clicking here.

Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

 

Marc:

Once again for another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth, and we’ve got a special show this week. We’re going to be talking about understanding estate planning. We’ve got a little series planned around this. We’ve got some special guests coming up also. So really looking forward to today’s conversation. John’s going to be joining me along with Nicole Cleland, who is our special guest from Legacy Protection Lawyers based outside of St. Petersburg, Florida. And we’re going to have a great conversation around understanding those estate planning basics and some other details and information. So it’s going to be an excellent episode, so stay tuned and we’ll get right into it. John, my friend, how are you this week, buddy? What’s going on?

 

John:

Hey, I’m doing all right. I’m excited to have Nicole as our first guest that we’ve ever had on our podcast here.

 

Marc:

Yeah, our very first guest here on this, so it’s excellent to have Nicole here. Nicole, welcome in. How are you?

 

Nicole:

I’m doing great. Thank you both for having me. I’m really excited to be here today.

 

Marc:

Absolutely. So we’ll jump in real quick. Just tell us a little bit about you and your firm, what you guys do.

 

Nicole:

Sure. So we are a boutique trust and estates firm, meaning this is all we practice is trust and estates. We do primarily planning, and secondary administrations of estate planning documents, and we also do a little bit of litigation and a little bit of tax planning as well. So we do have a trust and a estates only litigation lawyer and a tax lawyer with us too.

 

Marc:

Okay, excellent. And Bill McQueen is going to be joining us as well on probably the next episode, so we’ll get into some conversation with him. But for now, let’s just kick things off and get started. Although I do have to ask, I was looking at the website and I see that you are a super lawyer. What is a super lawyer?

 

Nicole:

Yeah, it means that we get a cape every year.

 

Marc:

Nice.

 

Nicole:

No, a super lawyer designation is a designation that you receive from other lawyers in the area and about 5% of practicing attorneys get this designation. So I’m very honored to have been a rising star super lawyer for seven years now, I think.

 

Marc:

Awesome.

 

Nicole:

And yeah, it’s nice to know that the professionals that I work with enjoy working with us in our firm too.

 

Marc:

Yeah, that’s great. John, you need something like that? You need super advisor or something.

 

John:

I don’t know if there’s a super advisor, but if there is one, I’m about to see how I can get that.

 

Marc:

There you go.

 

John:

I feel like got as much work as I do, I need a cape as well.

 

Marc:

There you go. Yeah, capes are good. Well let’s get into our conversation here. So I wanted to kick things off with just a really simple question for you, Nicole, because a lot of people, I think it’s probably changed through the years and you can maybe talk about that as well, but people, I think around estate planning, even financial advisors, tend to think that, well, this is for the ultra wealthy. Those kinds of things are for people that really have a lot of money, and I don’t think that’s the case. So explain, do you really need an estate plan and if so, why? Can you give us some kind of parameters and some breakdowns on that?

 

Nicole:

Yeah, that’s a really great question. And I think a lot of people do think estate planning means you have to have a large estate, but that’s really not all estate planning is, I kind of think of it as twofold, you’ve got planning on the incapacity side and then you’ve got planning on the after-death side. So you don’t really have to have a lot of wealth, or really any wealth, to do estate planning, because if you’re incapacitated, you might have very specific wishes on your care, whether that’s through any sort of long-term incapacity, through any end-of-life care wishes, whether it’s where you want to live, how you would like to be buried, things like that. So it’s not necessarily always based around dollar amounts, and I’m sure you all see this and sometimes you have the most complex cases that really aren’t the super ultra-high net worth people.

 

It could just be your run-of-the-mill, middle-class American that has very specific wishes in terms of they’ve got a blended family, or stepchildren, or maybe a child that has addiction issues. So it can really be more broad than, “Hey, I have all this money and I need a plan for taxes.” It’s really more complex than that.

 

Marc:

Gotcha. Okay. Is there a difference between estate planning attorneys and elder law? I think people get those confused as well.

 

Nicole:

Oh my gosh, yes, there is a difference. And that’s a big one we get too. And for us, the estate planning is planning for… What I say is, you’ve got tax planning, you’ve got incapacity planning, asset protection planning, and kind of encompassing all of that, just your run-of-the-mill estate planning, meaning how you would want to plan for things after your passing. But elder law is a little bit more on the incapacity side and planning for one day potentially needing Medicaid, so thinking more of the disability planning. That’s how I sort of equated in my mind is you’ve got an elder law lawyer that’s a little bit more on the disability planning side, but a lot of elder law attorneys still do estate planning, but there is a slight distinction between the two and that is important to note.

 

Marc:

Great point. All right, good. What makes an effective estate plan?

 

Nicole:

Oh, that’s a fun one too because I like to say the one that works is the one that we have no hiccups with after the testator, or the creator of the plan, has passed away. And that’s sort of the hard part on estate planning is my best witness is no longer here to verify that this is what they wanted. So I would say that the best estate plan is one that you can keep family harmony at the end, as much as possible, at least preserve it or maintain that family harmony as much as possible, and administer and execute that settler or that testator’s intent. Really kind of making sure that that is the theme throughout the whole administration.

 

John:

So Nicole, you mentioned incapacity, what type of planning goes into that because that comes up quite a bit with Nick and I’s clients, where it’s coming up where we’ll talk about beneficiaries and the estate stuff, but I’ll say the incapacity planning is not my strong suit. So I think from our listeners standpoint it’d be good to hear, what does that include?

 

Nicole:

Yeah, that’s also a great question because a lot of people, when they think of themselves in the incapacitated context, they think of themselves more in, there was an emergency, I had a bad accident and now I’m on life support for a week and then I’m deceased and then I’ve passed. And the reality is that’s not what happens to most people, especially as we’re aging and living longer, more people are experiencing longer bouts of incapacity. And with that, a lot of family members don’t really know what that person wanted, where they would’ve wanted to live, what kind of care they would’ve wanted to receive.

 

So when I’m talking to clients about incapacity planning, I try to tell them, don’t think of yourself in the context of, “Oh, there was an emergency, I’m out for a week and then I’m gone. I want you to think of it as you’ve developed some sort of dementia, you’ve developed some sort of condition where we’re going to have long-term incapacity.So when you’re thinking about who should be making those types of decisions on your behalf, think about it in the context of you’ve just signed these people up for a part-time job, if not full-time job.” When you’re thinking of these individuals, a lot of people default to their children, which is usually best for most people, but it isn’t for everyone. And I think it’s important for people to sort of think of themselves, which is really hard to do in the situation that they’ve gotten, they will need long-term care, not the short-term one-week care, but really that long-term care piece, and it’s really hard to think of yourself in that boat.

 

Marc:

That makes sense. And documentation has got to be crucial in all of this, right?

 

Nicole:

Absolutely. There’s no statutory authority or person that can make any sort of financial or legal decision if you become incapacitated. There is a healthcare statutory order, but it’s just spouse, then parents, then children, there’s no one after that. So if you’re an elder person with no children, not married, you don’t have that default person, so it’s really important that you do have documents in place. But for most people, whenever you’re thinking of who to name in this role and what documents you should have in place, it’s so important that you really have a robust plan and documents that really spell out all of the things that you want your named agent to do because there are certain types of statutory forms. So you can look on Florida Statute and just look online and find a statutory form for a living will, but if you present that form that was created by lawyers to a doctor, that doctor’s not going to be able to honor that living will. It’s not clear enough, it doesn’t really express what someone’s true intent might be.

 

So sometimes there is a disconnect between what the lawyers prepare and what the doctors are executing, or what the bank is executing under a durable power of attorney or something like that. And it’s important you have a lawyer that’s preparing your documents that knows both, that really can make the connection between the different areas of your life in any sort of end-of-life care incapacity situation.

 

John:

When you’re meeting with clients, I’m assuming this comes up quite a bit, when someone’s having an issue picking who their power of attorney or health care surrogate is, what kind of advice could you provide for that?

 

Nicole:

Yeah, great question too. I tell clients, think of two things when you’re considering who you should name in these roles. And the first condition I say, is you want someone who’s going to have the time because most people want to name their more intelligent child or, “This child is very smart, they’re a doctor, they’re a lawyer, they’re going to know what to do. They’re very smart.” But those people typically don’t have the time. They’re too busy, they’ve got a family of their own, full-time career, other obligations outside of their job and family that even though they could probably do and be fine with it, they usually don’t have the time that’s needed to devote to something like this. So I always say, look for someone who’s going to have the time. And then two, you’re going to want someone who’s going to know when to ask for help.

 

And I always tell clients too, is when we have people do things that are bad, it’s not because they’re a bad person. Most people aren’t doing things to be evil or have any bad intent behind the action, but it’s because they didn’t know when, or they didn’t want to ask for help. I think people still have that, “I want to save money, I don’t ask the professional for help.” Or, “I think I can do it. I don’t need to ask all of these people for advice and things like that.” And I think if you have someone who’s going to know their limitations, then they’re going to get advice, they’re going to get opinions from people, and they’re going to get a little bit more well-rounded approach on how to provide for mom or dad’s care, or whatever it is, or whatever person that we’ve got here, making decisions on your behalf.

 

So I would say those two things is, someone who’s going to have time, someone who’s going to know when to ask for help, because again, it’s not always our children, but usually it can be, but it’s something where they really need to, if they’re comfortable, have that conversation with that person. And that’s sort of sometimes a hard conversation to have, especially if you have children that are, “I don’t want to talk about it, we don’t need to talk about this.” But it’s really important that you do talk about it because what you don’t want is you don’t want to name John Doe, and then when John Doe is being called to serve, he’s completely taken off guard, he has no idea what to do, he’s not prepared. So it’s nice to kind of have these conversations with your prospective agents just so that they can start asking questions that they might need to know the answer to one day.

 

Marc:

Yeah, that makes a lot of sense. I mean, certainly you want to get people in the loop on these things and when you’re setting up all your documentation and putting the basics together, I guess we should probably switch and talk a little bit about some of the assets then, because that’s where people get confused and kind of wonder about the different rules that are in place. So how does property pass at your death? I guess we can start there.

 

Nicole:

Whenever someone dies, there’s really three ways that property can be transferred. The first way is by operation of law, and a good example of that is if you own something jointly with rights of survivorship with someone. So for example, if I own my house joint with my husband, when I die, by operation of law, he will own the home. Nothing else has to occur. He doesn’t have to record anything, that’s his house.

 

The second way that property passes is through contract law, and a good example that would be a beneficiary designation. So if you’ve got a life insurance policy, you could have a contract with that company that says when you die, whatever the death benefit that life insurance policy would be, that would be paid to your named beneficiaries. Another example of a contract is A trust. A trust is a contract you have with typically yourself as trustee, and we could talk a little bit more about trusts later today too. But the third way that property passes is through probate, and probate is really just a fancy court-supervised process of transferring assets out of someone’s individual name to your heirs. And if you have a will, then your will says who your beneficiaries are. But if you don’t have a will, then the state of Florida tells you who your beneficiaries are.

 

So really rounding out, how does property transfer whenever someone dies? Those three things are in order of priority, so joint ownership usually supersedes beneficiary designations or other types of contracts, and then both of those items supersede your will. So a lot of people don’t realize this, but your will only governs assets that go through probate, and your will would only kick in if you have probate assets. So that’s why sometimes when we talk about estate planning, it may be where you really need to confirm with a professional what your estate plan is, because whether you have a will or not, you have an estate plan in place, you just may not know what it is.

 

Marc:

You have the state’s plan, right?

 

Nicole:

Correct.

 

Marc:

Yeah, I was always taught, and tell me if this is accurate, that a will just means you will go through probate.

 

Nicole:

I love that. Actually, that’s a great phrase there that I should probably start using.

 

Marc:

There you go. You’re welcome.

 

Nicole:

Absolutely. Yeah. Your will only is going to govern those assets that have to go through probate, which if you’ve done other type of planning, you may not need probate, and so you may not need your will. There are, of course, other reasons to do one, but yeah, that phrase is right on point.

 

Marc:

You can jot that down.

 

John:

And Nicole, I think going to get onto some of this stuff deeper in the podcast or maybe next week, but something that always comes up, is how long does someone expect probate to last?

 

Nicole:

Yeah, really good question. I used to say most probates are anywhere from 6 to 12 months. Since COVID, it’s been more 12 to 18 months, and I used to kind of say that the 6 to 12 month mark was really dependent on the court process and where the court’s cue is and how backlogged they are. I am finding, I think the longer I practice, that your probate administration is probably 60% to 80% indicative of how efficient, and organized, and on top of it your executor or personal representative is. Because if you’ve got someone who’s going to take charge, hop on things, get things done, it can be more on the 12-month mark. But if you have someone who’s sort of dragging their feet, and it’s, again, part of the grieving process for people. Some people need to dive into stuff, others need to take time to process before they can dive into stuff.

 

But I would say now probably more 12 to 18 months because I think people are busy, I think people sign up for a lot of things and maybe don’t necessarily know they’ve been signed up for this, but it definitely can take I think more 12 to 18 months now.

 

Marc:

All right, well I want to ask, is a will part of that advanced directive as part of that incapacity conversation? Is that part of that documentation you want to have?

 

Nicole:

A will is what we call an ambulatory document, meaning it actually isn’t a valid document until after the testator has passed away. So I sort of joked earlier that when you have an estate plan, your best witness is gone by the time we’re effectuating that estate plan, and that’s sort of the case with the will. So when it comes to most people’s estate plan, when we think about what’s included in all of those documents, those legal documents we would prepare, the will is the after-death document, the advanced directives are the pre-death documents. And most estate plans are going to have, at the very least, a durable power of attorney and a healthcare surrogate, with the durable power of attorney being the person that makes financial or legal decisions on your behalf, and your healthcare surrogate being the document where you name someone to be your healthcare proxy or who’s making healthcare decisions on your behalf.

 

So part of a robust advanced directive packet, you should really have those two documents, and a few more if it is your wish to have the additional documents. One of the probably more common questions I get on the incapacity planning side is people generally don’t want to be kept on life support, they want that pull the plug document, which we call your living will. That’s a document where if you have no cognitive function that you do not want any life-prolonging procedures. You want all of those heroic measures withdrawn so that you can pass naturally, but a lot of clients get that confused with a DNR. A DNR is different, that is what I call heart function. So a DNR is also on yellow paper, it’s signed by your doctor, and a lot of doctors typically don’t like to sign those types of, Do Not Resuscitate or DNR documents, unless you have some sort of terminal condition.

 

So that’s why, circling back to the beginning, really kind of making sure that your client, if they have a lot of these end of life or incapacity specific wishes, that they’re talking to all of their professionals, not just a lawyer but their doctors and things like that.

 

Marc:

Well look, we’re doing this multiple part series on estate planning, obviously a wealth of information here from Nicole. So if you’ve got some questions, you need some help, definitely make sure that you’re reaching out and having conversations with qualified professionals and talking about the situations that you’re in and what you might need. So if you’d like to get in touch with the team at Legacy Protection Lawyers, visit them online at legacyprotectionlawyers.com, or call them at (727) 471 5868. Again, (727) 471 5868. And don’t forget to subscribe to the podcast, you can catch future episodes as they come out because we are doing a multi-part series on this so there’ll be more information to come. And you can find all of that, of course, at John and Nick’s website, pfgprivatewealth.com. And don’t forget to subscribe to us on whatever podcasting app you like using, like Apple or Spotify and so on and so forth. Nicole, thank you so much for being here and sharing a lot of great information with us.

 

Nicole:

Thanks for having me. This has been fun.

 

Marc:

Been excellent. And John, of course, thank you for being here, my friend, and facilitating as well. Hope you have a great week.

 

John:

Thanks, appreciate it. Have a good one.

 

Marc:

We’ll see you next time here on Retirement Planning Redefined with John and Nick.

 

Should You Gift Money While You’re Alive or Leave A Legacy?

On This Episode

You’ve worked hard, saved well, and now you’re thinking about giving back—maybe to your kids, your grandkids, or a cause you care about. But should you wait and pass that wealth on later, or give while you’re still around to enjoy the impact? Let’s talk about how to make that decision with confidence.

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More Episodes

 

Check out all the episodes by clicking here.

Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

 

Marc:

Welcome in once again to another edition of Retirement Planning, Redefined with John and Nick, and we’re going to talk about gifting money while you’re alive or leaving a legacy. You work hard, you saved well, so let’s talk about how to gift and leave a legacy.

 

Welcome into the podcast everybody. Thanks for hanging out with John and Nick and myself as we talk about these topics this week. And guys, it’s gifting, right? So I want to go over some basics here. It seems like there’s been a trend the last couple of years for people to enjoy their retirement legacy with the family versus the old way of you pass and you’ll leave a check, right? Here’s your inheritance, we’re gone, that kind of thing. So let’s talk about that a little bit this week on the show and just kind of see what you guys are seeing in your neck of the woods. How you doing this week, Nick?

 

Nick:

Good, good. How about yourself?

 

Marc:

Doing pretty good’s. How’s the wedding action coming?

 

Nick:

Planning’s moving along.

 

Marc:

Nice.

 

Nick:

Did some, hopefully we got the food picked out, so trying to check off all the big things, so.

 

Marc:

That’s important. Got to have that good food going on for sure. Well, good. Kudos. Good. Glad to hear that. And John, my friend, how are you this week?

 

John:

I’m good. I’m good. Summer just started for the kids, so getting used to waking up in the morning and they’re hanging out with me as I’m getting ready for work-

 

Marc:

And they’re ready to go.

 

John:

Versus me just dropping them off. Yeah.

 

Marc:

That’s right.

 

John:

It’s a lot of fun.

 

Marc:

There you go. Are you guys seeing this trend that I talked about, not necessarily a new trend. It’s been going on for a number of years now, but I think where people just want to maybe enjoy some experiences with their loved ones while they’re still here versus just leaving that check, so to speak? Are you guys seeing that in your practice as well?

 

Nick:

Yeah, I’d say so. We’ve had, what are we on now? A 14, 15 year bull run from the standpoint of people have kind of exceeded what their perspective on goals was for the money that they might have in retirement and, so especially I would say, at least from what I’ve seen, the vacation side of things is kind of the biggest thing that people have been doing where they’ll do a large family vacation and pay for the kids and their families to go so that they can all enjoy that together.

 

Marc:

Yeah, that’s very cool. And we’ll talk about some of the numbers and things in just a few minutes, but John, I’ll kick this over to you. I’d say the first step probably still should be, make sure you are covered first, right? We all want to leave and do things for our kids and loved ones, but don’t sacrifice your own retirement in order just to do that. Is that a fair place to start?

 

John:

That is 100% where you should start. The last thing you want to do is start gifting and spending money on a vacation, and then you look at it and you’re like, “Oh man, I don’t have enough money to live anymore.” So first thing we do in this situation where it comes up with clients is like most things we say, we look at the plan and we will stress test it and look at different scenarios to make sure, hey, if this were to happen, how does your plan react to it? So we’ll throw out some scenarios out there, whether it’s healthcare, inflation, social security, things like that. And if the plan looks solid, we will typically give somewhat of a green light of, we think you should budget X amount for this. Or we can also look at scenarios where Nick talked about vacation, but we’ve seen some others where it’s like, “Hey, I want to help my son, daughter with a home purchase.” And with the way prices are going now, it’s very difficult for first time homeowners to be buying houses. So we’ve seen a lot of people basically lending, not giving money to their kids for buying homes. So we will put that in the plan and say, “Hey, what does your plan look like if you were to give X amount for a down payment?”

 

Marc:

Gotcha. Okay. And we’ll talk about some of those numbers and ways to do that here in a few minutes. So I would say if step number one, as John pointed out is make sure you are covered. The next step number two is maybe just kind of clarify your motivation. He kind of touched on that a little bit, but why are you giving, I mean, again, we all love our kids. We want to help, but what’s the purpose? Is that an important kind of factor to decide through?

 

Nick:

Yeah, I’ve had some recent conversations where maybe there’s specific topics like, okay, we’re off conversions, and because somebody has read or seen an article or something like that, the thought process is, all right, well let’s go ahead and let’s convert all of our qualified money to Roth accounts and leave the money to them. And a tricky thing with that can be, as an example, is maybe their kids are not in the same sort of economic space as they are and they’re not going to ever make nearly the same amount of money. Them taking a hit right away from a tax perspective maybe doesn’t make sense, so try to take them back to the initial point in, Hey, what’s your motivation? What are you trying to do? What’s most important to you? Is it making sure that your plan is structured well to protect you first and then start to do some giving while you’re alive? Or is it more focused on you want to give after you pass away and let’s structure your assets accordingly?

 

So just so many things, making sure that you fully understand what your objectives are because it can be a little bit of the shiny new thing or a shiny new strategy that weren’t familiar with at first or initially, and then once you go through and evaluate it in more detail, maybe it doesn’t make a whole lot of sense. But yeah, really understanding how account types work, what your goals are and really what your focus is really important.

 

Marc:

And of course, working with a financial professional is going to help you identify that because often we’re not going to know what the account types and the rules and the taxation things are going to be, so that’s why you want to turn to the pros on that. So let’s get into some of the numbers a little bit, guys, because I actually want to point out a couple of things that based on what you’ve said so far, and just kind of ask you some clarifying questions on that. But let’s start with understanding the gifting rules. So John, what’s some of the numbers that we need to know if we just want to gift money in general?

 

John:

So you want to look at what is the gifting amount before you trigger having to file a gift tax return or putting that on your return that you gifted money. So this number changes from year to year typically, and in 2025, it’s $19,000 per person. So example, let’s say you have a mother, father, and they want to gift to a child. They can each give $19,000 apiece.

 

Marc:

So married couples 38 grand, right?

 

John:

Yes. So that’s a good starting point. And then if you have grandkids involved or whatever, you can start gifting to that. So it’s $19,000 per person per year without triggering the gift tax filing.

 

Marc:

And that’s hefty. Now I’m sure somebody listens going, “I love my kids, but I ain’t giving them 38 grand.”

 

John:

Again, everyone’s situation’s different.

 

Marc:

And you can do that. And it doesn’t matter if it doesn’t have to be family either, right? This could be anybody, right? You can give 19,000.

 

John:

It can be anybody. Yeah. If you want to just find a random person in the street, you’re more than welcome to-

 

Marc:

Your favorite podcast host. I mean, podcast hosts need love too, so I’m just saying.

 

John:

Yeah. So that’s definitely the starting point. If you’re going to be gifting money to any particular individual. If you want to help out with tuition and medical expenses, as long as it’s paid directly towards those institutions, you don’t have to file any type of gift tax return.

 

Marc:

Now, I wanted to ask you about that because a minute ago you guys were talking about helping with school. Now you can’t gift the money and pay the loan, right? It’s not paying the student loan, it’s paying the tuition. There is a difference there, correct?

 

Nick:

Yeah. And you want to pay it directly to the institution.

 

Marc:

Gotcha. Okay. That’s important to know too, right? I’m sure from a tax standpoint as well. All right. What about QCDs, John? Can we do that in that arena as well? If you want to do some gifting?

 

John:

Yeah. So let’s explain what that is. So it’s qualified charitable distributions from your IRAs. Nick and I use this quite a bit. So when we’re doing the fact-finding with clients, one of the main, not one of the main, but one of the questions we go through is, do you do any charitable gifting? And if they check that box, we’ll typically find out what institutions and how much they’re giving. And once someone hits RMD age, a great way to save on taxes is gifts directly from your IRA. So you could save quite a bit depending on how much someone’s gifting. So example, we have someone that doesn’t necessarily need their distribution from the IRA, and they were just taking money out of just cash flow, whether it was social security or pension, they were gifting it to their church. What we would typically do is say, “Hey, let’s kind of switch this. Let’s go to, let’s pull out of the IRA.” Let’s just use number. Maybe it’s 10 or 15 grand and we’re going to go directly from the IRA to the charitable institution. In this example, it’s a church, and you don’t pay any taxes on that amount that came out.

 

Marc:

That’s ideal, right? And Nick, thinking about how you, if you’re a charitably minded person and talking about leaving a legacy, since this kind of rolls into this conversation, people often ask, “Well, which account should I use for what?” And John mentioned that earlier. So if you’re thinking about leaving money to your kids and you’ve got money in a Roth, you might want to leave the kids that right? And then maybe QCD some money from the IRA over to the church, for example, because that’s a tax benefit to everybody. Correct?

 

Nick:

Yeah, for sure. That makes sense. I would say to one kind of red flag, or at least something to be very aware of and had this conversation recently with a client is, while you’re alive, if you’re in a position to be able to gift and if you’re in a position to be able to choose where you want to gift money from, avoid gifting from highly appreciated assets from the standpoint of let’s say there’s a property or there’s a taxable brokerage account that maybe you’ve held 10 different stocks for 20 years and they have a substantial gain. If you gift that while alive, then the recipient, when they sell those is going to pay taxes on the gain versus if you gift it after you pass away, those investments will get a step-up in cost basis, which can save a significant amount of money from a tax perspective. So I would say where you gift from is absolutely, probably if this is something that’s important to you, that’s where the largest amount of strategy comes into play and doing it from the right place.

 

Marc:

Nick, any other things we missed as far as with the QCD or some of the numbers there?

 

Nick:

Yeah, one thing that we have run into is that some custodians, including the one that we use, Charles Schwab, they don’t send out a specific tax document when somebody processes a qualified charitable distribution. So that’s something that you want to keep records of and indicate that you’ve done that with your tax preparer. We’ve had a couple of clients where they were anticipating that they were going to receive a specific document that laid out exactly what they did, who it paid to, and that sort of thing and that was not the case. It shows the distribution via the 10-99, but they have to notify the tax preparer and usually provide some sort of documentation showing that they made that gift to a charity. So just from a best practice sort of standpoint, that’s something to keep in mind.

 

Marc:

All right. All right. Good stuff guys. So as always, if you’ve got questions and concerns, need some help when it comes to any kind of the financial pieces, the X’s and O’s when it comes to retirement, you always want to check with qualified financial professionals who do this day in and day out. And John and Nick certainly do so if you need some help, reach out to them online at pfgprivatewealth.com. That’s pfgprivatewealth.com and don’t forget to subscribe to the podcast on Apple or Spotify or whatever podcasting app you enjoy using. You can reach out to the guys on the website. You can also call them at (813) 286-7776. And don’t forget to tune in for new episodes as they come out. I appreciate the time guys. Thanks so much for being here and we’ll catch you next time here on Retirement Planning, Redefined with John and Nick.

 

 

Get yourself a plan, get yourself a strategy. Reach out to John and Nick today at pfgprivatewealth.com, that’s pfgprivatewealth.com, to get started on your situation or to tweak your situation and dive into that process with the guys. You can reach out to them at 813-286-7776. Or again, find them online at pfgprivatewealth.com. Don’t forget to subscribe to us on the podcast on Apple or Spotify, or whatever platform you like using. We’ll see you next time here on Retirement Planning Redefined with John and Nick.