ABOUT HOSTS

Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 153 out of 715 RIA’s nationwide by total assets under management by [...]

Alan Clopine
ABOUT Alan

Alan Clopine is the CFO & Chairman of the Board of Pure Financial Advisors. He has been an executive leader of the Company for over a decade. As CFO he is responsible for the financial operations of the company as well as investor relations. Alan joined the firm in 2008, about one year after it [...]

Heaven forbid that something happened to you. Would the things you worked for all of your life be protected? There are tools and strategies you can use to ensure your money, assets, and possessions pass on after you are gone, but few people are using them. In this episode of Your Money Your Wealth, Joe Anderson, CFP®, along with “Big” Al Clopine, CPA, breakdown how to get started and give you some tools to maximize the amount of money you can pass along now and beyond:

• Estate Plan Essential Elements
• Trust vs. Wills
• Types of Trusts
• Giving While Living

Download the Estate Plan Organizer

Important Points:
(0:00) – Intro

(1:19) – Financial Focus

(2:15) – Giving While Living

(3:14) – Estate Plan Essential Elements

(5:32) – Wills

(6:08) – Healthcare Directive

(6:51) – Durable Power of Attorney

(9:42) – Trusts

(10:50) – Wills vs Trusts

(13:38) – Types of Trusts

(16:21) – Wealth Transfer

(17:30) – Gift Tax Exclusion

(18:45) – Donor Advised Fund

(22:27) – Ask the experts

(23:45) – Pure Takeaway

Make sure to subscribe to our channel for more helpful tips and the latest episodes of “Your Money, Your Wealth.”

Transcript: 

Joe: Believe it or not, all of you have an estate plan, but unfortunately, 80% of you probably have the wrong one. What camp are you in? Welcome to the show, everyone. The show is called Your Money, Your Wealth®. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, alongside Big Al Clopine. We work here at Pure Financial Advisors, and today, we’re talking about a very important topic. It’s called estate planning, but no one wants to talk about it. No one wants to do it because it’s about death or disability. We don’t want to think about our mortality, but you have to! Here is the proof. 18% of people have a written document. 18%. That means 80-some-odd people have not taken the time to write down a proper estate plan. We’re all gonna die unfortunately, but we want to make sure that you have the proper plan in place. That’s today’s financial focus.  Let’s talk about estate planning. You know, there’s reasons that people want to give an inheritance. Some people want to bounce the last check to the mortuary, and that is totally fine. At least that’s a plan, right, but some people want to give something to the next generation. You know, there was a survey done. Almost 50%–it’s the right thing to do. I don’t know. Is that right for you? I don’t know, but it’s looking at, hey, I want to cover funeral expenses or maybe making sure that the family is taken care of. On the other side of the spectrum, looking at giving while you’re still alive. Some people want to give while they’re dead. Some people want to give while they’re still living. 65% of people that are surveyed are thinking, “man, it will make me feel a little bit better to give while I can see the reaps of the reward of the gift that I’m giving. Let’s break things down. Let’s talk about things that you need when you pass, things that you need when you get disabled, and some strategies that you can give while you’re still healthy. Let’s bring in Big Al.

Al: Estate planning and gifting, that’s what we’re gonna get into today. These are topics that you need to have thought out, so we’re gonna start with essential elements of an estate plan. So we know that 80% of you do not have the elements of an estate plan that you need. What are they? We’re gonna get into that. Second thing will be a trust versus a will, more specifically a living trust versus a will. What are the pros and cons, what are the differences? Talk about different types of trusts because there’s more than just living trusts, and then finally, we’ll get into giving while you’re living because not only does that feel good while you’re living, but you also get a tax deduction, so we’ll kind of talk about how to maximize that. So, Joe, it’s kind of a–it’s a topic that not everyone necessarily wants to talk about first thing in the morning, but here we are.

Joe: Ha ha ha! Yeah. You might feel like death, and then it’s like, “whoa. I got to get some stuff taken care of,” but once you get it taken care of, you’re going to be in a lot better spot, right? You can put it behind you, but it’s really important. A couple of things that you really want to make sure the essential pieces of an estate plan is either have a will or trust. In most cases, depending on the state that you live in, probate is an issue. Sometimes, probate is pretty easy. Sometimes, it is a pain in the rear, so we’ll look at will or living trust. What makes sense for you? Healthcare directives and durable powers of attorney. I think these are even more important than the living trust or the will because you might get disabled, you might get hurt, and the bills need to be paid, and healthcare issues and decisions also need to be made, so when you look at the basic fundamentals, al, of an estate plan, I would say these are the top 3.

Al: Yeah. I would agree, and that’s what roughly 80% of the people out there over 55 do not have, and I agree with you, Joe. I think some of these other things, healthcare directives and durable power of attorney, these are at least as important and, in some cases, more important when you’re incapacitated or something happens to you. You need to figure all this stuff out, but let’s talk about a will first of all. So the essential elements of a will– and we’re gonna get into living trust versus will here in a second, but we’ll start with a will, and that is your basic personal information. You know, that’s kind of obvious. Get that in there. Get the executor’s name and duties. Executor is the person that basically takes over your estate when you pass away. That’s how a will works. How the assets are going to be distributed. If you have children, who is the guardian? Make sure it’s signed and dated, that it’s a valid will. Make sure you have all these elements in the will. Realize one big thing about wills, and that is you are gonna have to go to court. That’s what probate is. You go to court, you do probate, and the court then has to agree the will is valid and that you, as the executor, could do the wishes of the decedent.

Joe: yeah. In most cases, you probably want to avoid probate, i’d imagine.

Al: Yeah. I think so.

Joe: I mean, you have attorney fees. It could be a lengthy process. It’s public record, you know, so those are the 3 main things why people want to avoid probate. Understand a will does not avoid probate, but it is a document that makes the distribution of your assets to your heirs a lot simpler if you didn’t have anything written down at all.

Al: Yeah, and, Joe, I’ve seen roughly–other surveys. About the half the people don’t have a will. You at least need a will. I mean, that’s really important.

Joe: Looking at no will impact. It depends state by state. You know, if you live in Washington to California to Illinois to Minnesota, right, each state has their own process and procedures, so you just want to understand, hey, is this going to be a lengthy process? How expensive is it gonna be? Because you’re dead, right? It doesn’t really necessarily matter to you, but your executor is gonna have to handle this. Let’s get into the other documents, al. Healthcare directives.

Al: Yeah. So this is–it’s important to realize. So this is for healthcare decisions, but it only takes effect if you’re incapacitated, so don’t worry about that, but you need to designate someone to help make decisions on end-of-life preferences or if there’s healthcare decisions. It does need to be HIPAA compliant. This is maybe 20 years ago, which I think all the current documents are, but there’s all kind of privacy laws where hospitals and doctors won’t share information unless you give certain people permission to hear it.

Joe: Yeah, and this gets fairly complex, so this is where an attorney comes in and really understands, ok, your specific situation because if you travel quite a bit, if you travel internationally, or if you’re in different states and things, so healthcare directives, and then finally, your durable power of attorney or your financial power of attorney. Something happens to you, right, someone still needs to pay the mortgage, maybe pay tuition for the kids. You know, the finances still need to be ran in the overall household. This gives someone that authority to do so. So if you need help with any of this, what we’re giving away today is this. Boom! Look at this. It’s your estate planning organizer. It’s an organizer and a survivor guide, right. A lot of people get confused. If something were to happen to you, what does the executor, successor trustee do? Right. We have a survivor guide that gives the step-by-step instructions, so you can just keep this in the overall safe or with your financial documents, and we got the estate planning organizer. This is not an estate plan. This is an organizer to help you organize your overall finances because you might have stuff scattered everywhere, right? This will get you totally organized, ok? So our estate planning organizer and our survivor’s guide is our gift for you. All you got to do is go to yourmoneyyourwealth.com, click on that special offer, and it’s yours. Yourmoneyyourwealth.com, click on the special offer. We’ll be back in just second to talk about more death and disability. Can’t wait.

Joe: Welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson, Big Al. We’re talking estate planning today. It’s a very important topic. What happens when you pass or get hurt? You want to make sure that you have the appropriate documents in place. We have our estate planning organizer. That’s our gift to you today. Go to yourmoneyyourwealth.com, click on that special offer. It’s an estate planning organizer. Get your estate organized with our help. Yourmoneyyourwealth.com. Let’s see how you did on the true-false question.

Al: Who would know that one? Uh, Joe, what do you think on that one?

Joe: barely.

Al: barely. Yeah. It’s about equal.

Joe: Wealth being passed to the next generation over the next 30 years is 30 trillion. U.S. national debt–i think our national debt might be even higher than that, so, yeah, that was a little news that you will never use.

Al: Ha ha ha! In and out.

Joe: Ha ha ha! Parting gift for you.

Al: Yeah. So, Joe, let’s talk about trusts and, you know, what’s the purpose of trusts, or what are the benefits. Now there’s many kinds of trusts. We’ll sort of get into that in a minute, but certain kinds of trusts can reduce estate taxes, not all, but certain ones do. Certain trusts can offer asset protection. Almost all trusts when you pass away offer asset protection for the next generation, and they set terms for distributing assets, what’s gonna happen to property, so forth, so that’s essentially what trusts are for. It’s generally a separate entity from yourself, although in cases it’s–you know, revocable trusts are ones that are actually part and parcel of yourself. Irrevocable is always a separate trust, separate property. Things get put into the trust, and they can’t come out.

Joe: Yeah. This is where it gets a little confusing is because when people think of trusts, it’s like, ok. Well, what is this thing, right? Well, does it really mitigate estate taxes? Well some trusts do, and some trusts don’t, right? So a simple living trust, really all that does is it gives direction to the successor trustee to tell you where you want to put your stuff, and it avoids probate. That’s basically it, ok? If you want to get more complex and say, “hey. I got a huge estate,” you could have other trusts that could mitigate these estate– or “hey. I want asset protection.” well, some trusts will do that, but you–there’s a give and take, right? It’s not like, “I’m gonna set up this trust, put all my assets in it. I’m gonna control them all, and I’m gonna be protected from estate taxes, and I’ll be protected from, you know, lawsuits, and everything else.” no. It doesn’t necessarily work that way. So a simple living trust. When we look at things, there’s a will, and then there’s a living trust. A living trust, ok, when is it effective? Well, a will comes into play when you die, ok? Now the executor reads the will to the court and says, “Big Al has all these items, and it’s gonna go to Robbie.” Trust. It’s in effect when it’s signed. You fund the trust. You take the assets, and you make sure they’re titled correctly in the trust. So your home is gonna be the title of your property. It’s going to say, you know, “the Anderson Family Trust,” on the title, not necessarily–or look at your property statement. That’s a really good indication to make sure that your property is in the trust. We see that mistake quite a bit, and also, your brokerage statements and things like that should be titled in the name of the trust. So just double-check your titling.

Al: yeah, and that’s a really good point, Joe, because this is one of the biggest problems with living trusts that we see–people spend the money. They go to an attorney, they set up the trust, and then they forget to fund it, and fund it means put their assets in the trust. So your cash accounts, your brokerage statements are now in the name of the trust. Your home, it’s in the name of the trust, but don’t worry. This is a revocable trust. It’s really–it’s a document there revocable that you have full access to. You’re not giving up anything. It’s just titled a little bit differently. That’s about the only thing, and as you said, Joe, avoiding probate is probably the biggest thing that you get out of the trust.

Joe: Yeah. Good point because am I giving up in control when you put it into a living trust? The answer’s no, all right? It’s just titled in the living trust, right, and you are the trustee of the trust. So you still–you can buy, you can sell, you can transfer out, you can transfer in, everything else, but the biggest thing is that, right, it avoids probate. A will does not avoid probate. Preserves privacy. A living trust will preserve privacy because the courts don’t get involved, right? So there’s a court record when you go through the probate process. So if you want privacy, maybe a little ease on distribution, a little bit quicker, right, because you got to wait for a court date sometimes with probate, it might make sense to do a trust. However, it depends, also, on what type of assets that you have. If you just have a retirement account that has a beneficiary designation, well, there’s no need for a trust because you don’t want to put a retirement account beneficiary the name of your trust. You just want to name people.

Al: Good point, and I think a lot of people don’t realize that it’s–retirement accounts, they go to the next generation through a beneficiary statement. So those do not go in your trust, but anything that’s not part of a retirement account you want in your trust to help avoid probate. Let’s also talk about the two main different types of trusts. One is revocable, one is irrevocable. So a revocable trust means something that can be revoked or changed. You set up a living trust, you can undo it. You can put assets in it, you can take them out while you’re living, right? That’s revocable. An irrevocable trust is a one-way street. Once you set that up, you’re not gonna be able to change it. Like a charitable remainder trust for example, you set it up, you put the assets in, it’s irrevocable. Irrevocable life insurance trust would be another example, where you can’t change it. So, Joe, those are kind of the two main types of trusts.

Joe: Sure. I mean, irrevocable, why people set up an irrevocable trust would be because you’re trying to get assets out of your estate to avoid estate tax, right? I mean, you know, real high-level, that’s why most people set up an irrevocable trust. There’s of course other reasons. A revocable living trust means you can change it, all right? So that’s your living trust that we’ve been talking about. You put your house in there, you put properties in there. You can put, you know, shares of stock in, your corporation or whatever that you have that doesn’t have a direct beneficiary designation, that would go in your revocable living trust. If you want to get a little bit more technical, a little bit more advanced estate planning, that’s where the irrevocable trusts come in. Sometimes at death, a revocable trust turns into an irrevocable trust. So what we want to do is just kind of give high-level understanding that, hey, some things need to be done, and you will have to do a little bit of work here, but we’re here to help you. Go to yourmoneyyourwealth.com and get our estate planning organizer. That’s the first step. Start organizing your estate, looking at things that you need to be thinking about when you start crafting your overall estate plan. Doesn’t have to be super complex. It can be super easy, but, however, you’re not there. Remember, someone else is going to try to find your stuff. Does dad have brokerage accounts? I thought he had some shares of ge stock? Where the heck is that, right? So get organized, make sure that you tell your loved ones where it is. You don’t got to tell them what you got. You just got to tell them where they need to go if something were to happen to you. Yourmoneyyourwealth.com, click on that special offer this week. We got to take another break. We’ll be back in just a second. Show’s called Your Money, Your Wealth®.

Joe: Hey. Welcome back to the show. Show’s called Your Money, Your Wealth®. talking about estate planning today, folks. Go to yourmoneyyourwealth.com, click on that special offer. It’s our survivor guide and also our estate plan organizer.

Al: I love it!

Joe: See that, Alan? Didn’t put my finger on it. Go to yourmoneyyourwealth.com, click on that special offer. Let’s see how you did on the true-false question.

Al: What do you guys think? True or false? Stats tell us this. 70% of wealth is lost by the first generation that gets it, and by the second generation, it’s 90%, so what does that tell us? It tells us you have to educate your kids, your beneficiaries because there’s a tendency to spend the money when you yourself didn’t make it. It just requires more education if you want to keep a family legacy going on, Joe, and that seems to be a common thing.

Joe: So the wealth gets passed to the first generation, and then they completely implode, and only 10% of the time it makes it to the second. So, yes, education is key, but because of that, some people really enjoy gifting and giving to organizations while they’re living. So they’re not going to wait until they pass until the wealth transfers, that they want to do some giving now, and there are some interesting gifting strategies that people should be looking at.

Al: yeah. Let’s start with the gifting limits as they are right now today. So $16,000 per person per recipient. So in other words, I can give $16,000 to one son, $16,000 to another son. So can my wife. So we can double up on that. $32,000 per couple, and then the lifetime exemption– this is the estate tax exemption, so it’s about $12 million per person. What does that mean? It means when you pass away, the first $12 million per person or $24 million if you’re married goes to the next generation tax-free. If you have an estate that’s higher than that, larger than that, that’s where you’re gonna start needing advanced estate planning.

Joe: Yeah. I mean, this is really good for giving to heirs, giving to friends and family. You know, hey, how much can I give to junior? Well, these are the overall amounts? Now if you want to start getting some tax– there’s no tax benefits by giving $16,000 to your kids or family or friends. Sometimes, you’re “oh, I gave my money to my kid. Can I get a tax deduction?” the answer’s no. It needs to be a qualified charity. So when you take a look at where people are giving now, right, we’re seeing a fairly large increase in different strategies because of the tax law change. You know, with the schedule “a” and people are not necessarily itemizing deductions anymore, what they’re doing now is they’re trying to bunch some deductions and using a fairly unique strategy called a donor advised fund.

Al: Yeah, and, Joe, these are really popular. In fact, if you just look at what happened since 2020, 20% increase over the prior year. It’s almost $50 billion going into donor advised funds, so what’s all the benefit? Let’s talk about it. A donor advised fund, you start as the donor, and you can give cash, stocks, or other assets to the fund itself. So it’s like an account. You could do that at your brokerage company for example. You set up an account, but it’s a charitable account, so when the money goes into that fund, it stays there. You get an immediate tax deduction, so that’s really cool. Whatever you put in there, you get a deduction in that particular year, and then the fund itself gives gifts to charity as it sees fit, and by the way, you are the trustee of the fund. You get to decided who the gifts go to, but you don’t necessarily have to do it that year. So in other words, what if you have a big income year and you want to give, let’s say, over the next 10 years. You might give all of that 10 years in one year to get a big tax deduction. Now it’s in here. You get the tax deduction in the year that you need it, and then instead of writing checks in the future, basically what you’re doing is you designated gifts from the fund. It’s really a really cool tool, Joe, for people to get a tax deduction now for future gifts.

Joe: Yeah. Without question, and so let’s say you give $10,000 a year or $1,000 a year. It doesn’t really matter, but what you could do is you could bunch up, like, 5 years of contributions. So you know that you want to give over the next 10 years $50,000 to your church or college or alma mater, whatever, and you just put the $50,000 in the donor advised fund. You’re managing those dollars, and then you get a $50,000 tax deduction that year. So if you need a large tax deduction in any given year, this is a really good tool, and then you can dole out the money as you see fit. So there are so many pros to this and very few cons.

Al: Well, there really aren’t, and once you kind of learn how to do this, you get that immediate tax deduction, as we just said, when you need it, right, when you need it, when you’re in a higher income year. You get to control how the assets are invested. You get to control which charities get which amounts, and here’s something else that you should realize is should you write a check, should you give away stock? And the answer is usually stock if it’s appreciated because when give stock away, whatever it’s worth on the day that you give it is your deduction, your donation deduction, and you do not have to pay the capital gain on that. It’s a huge–otherwise, you sell the stock, pay the gain, and then the difference goes to charity. Why not just give the stock to the donor advised fund? The donor advised fund can sell it, pays no tax because it’s tax-exempt, can give it to charity. Now you’ve got a double benefit.

Joe: Yeah. Without question. That’s a big mistake that a lot of people make is that “i want to give. I don’t have a lot of cash, so I don’t want to give them cash. I want to give them stock,” but they sell the stock, they pay the tax, and then they take the proceeds and give it to the charity. Give them stock. Let them sell it, and there’s zero tax due, or put it in the donor advised fund.

Al: Yeah, and I think–you know, we should talk about the things that aren’t as good, the cons. I think the main thing is loss of control. Loss of control just simply means you put it in, and you can’t take it back, so think of this is a charitable contribution. It’s a different way of making a charitable contribution, where you’ll designate the charity of your choice later, but you don’t have the ability to pull it back in. There are a few restrictions. Like, for example, you’d have to give to a charity, a 501(c)(3) organization. You can’t just give to any needy person that you want, so a couple things to be aware of there, but I think when you look at it, Joe, I think the pros outweigh the cons by quite a bit.

Joe: Absolutely. Let’s switch gears. Let’s go to ask the experts.

Al: From Dave. Great question. So the retirement accounts, these do not go into trusts. We talked about how there’s beneficiary statements. That’s how it goes to the next generation or your beneficiary, whoever it may be. That does not go in a trust. Your llc, yes, that would go in a trust, and the way that you do that is the documents, your ownership, your membership interests should be owned by your trust, not by you personally.

Joe: Yeah. Be careful. A lot of people do put the trust as the beneficiary of a retirement account per se. You can absolutely do that, but the only reason why you would want to do that is controlling the money from the grave, is that “ok. Well, I don’t trust junior with his cash, and so I want to control it from the grave, and I only want to give junior a certain amount of dollars, let’s say, at age 35 and then 45 and then 60.” whatever that is. Be careful with that because of the new distribution rules. Because of the secure act, all of those dollars get pushed out within 10 years, and if those are still held in trust because you don’t want to distribute to the overall beneficiary, they could get taxed at trust tax rates, and it could blow you up, so just be extremely careful by naming a trust the beneficiary, but all other capital assets absolutely. So let’s recap. First off, we just talked about the essentials of the estate plan–the powers of attorney, putting a will or trust in place–and then from there, executing that, making sure that if you have the right estate plan, make sure you execute. Put the thing in place and then decide what is right for you. Is a trust right for you, is a will right for you? Make sure that you have the appropriate documents in play, and then we explored giving while living, you know, looking at some unique strategies that you can help others while also helping yourself. That’s it for us today. Again, go to yourmoneyyourwealth.com. We got a couple of gifts for you. We got the Survivor Guide, we got the Estate Planning Guide. Go to yourmoneyyourwealth.com, click on the special offer. We’ll see you again next week.

 

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience, and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.

AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.

CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.