ABOUT THE GUESTS

Nicole Newman
ABOUT Nicole

Attorney Nicole Y. Newman focuses on guiding her clients through the complicated and often confusing maze of balancing family protection, wealth preservation, and cherished family values in the planning process. Prior to opening her practice, Nicole was an associate at a Newport Beach firm that protected high-net worth families and their businesses through the design of sophisticated [...]

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 [...]

Are you protecting your life legacy and keeping the money in your family? You’ve spent your adulthood building your nest egg and accumulating homes, cars, jewelry, and other things that you value. What happens to those assets if you pass away? Without an estate plan, you are leaving all that you have accumulated vulnerable to costly court fees and possible legal battles. Financial professionals Joe Anderson and Alan Clopine explain why having a plan in place is so important and they give you the tools to get started. Want some peace of mind? This show is a must-see.

 

Important Points:

(01:11) – Estate Planning

(02:16) – Life Legacy: Keeping Your Money in the Family

  • Essential Elements of your Estate Plan
  • Trust vs. Wills
  • Understanding Estate Taxes

(03:18) – Essential Elements of An Estate Plan

(04:15) – 5 Things That Should Be Included in Your Will

(05:33) – What if you Pass Without A Will?

(06:52) – Essential Elements of a Healthcare Directive

(07:56) – Essential Elements of a Durable Power of Attorney

(11:43) – Will vs Living Trusts

(20:44) – Estate Tax Exemption

(23:48) – Ask the Experts

(24:50) – Pure Takeaway: Living Legacy: Keeping Your Money In the Family

  • Start Today
  • Estate Planning Essential Elements a Priority
  • Decide If A Trust Is Right For You
  • Consider Potential Changes in Estate Taxes

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

Transcript

Joe: There’s an essential piece of your overall financial plan and 80% of you do not have it. Do you know what it is? Stick around. We will fill you in. Welcome everyone shows called Your Money. Your Wealth®. My name Joe Anderson, President of Pure Financial Advisors. And of course, this show won’t be the show without the big man. There’s Big Al Clopine. Hello, Big Al,

Al: Good Morning Joe. How are you doing?

Joe: Pretty good. Pretty good. Yeah. Now, 80% of people do not have this essential piece in their overall financial plan. You know what it is. Let me ask you a question, right? It could be a little bit morbid, but I think it’s very important question to ask. If you were to pass away today, what would your family do in regards to your overall financial assets? Do they know where to go? How do they pass it to the next generation without big tax liabilities or huge attorney fees? Do you know what to do? That’s today’s financial focus. Let’s keep wealth in your family. There’s been a lot of famous people that have passed away, Prince. Roger Nelson is one of my favorite artists. Did not have an estate plan. Can you believe that with the millions of dollars that he had? He did not have a Simple Estate plan. Thirty trillion dollars are going to pass to the next generation. That’s you. You have wealth. I don’t care if you have $10 or $100 million. Do you know the impact if you were to pass away? What that does to the overall wealth? Here’s the big one is that 18% of people, so over 80% of people do not have the proper elements of an estate plan. I know no one wants to talk about our death. Our demise. But this can be enlightening. If you do the right steps, you check all the boxes to make sure that when you do pass that your family’s not worried. So let’s do this. Let’s bring in the big man to bring in the essential elements of your estate plan.

Al: So today we’re stuck in estate planning, keeping the money in your family. How do you do that? Well, we’ll start in our first segment talking about the elements of what should be in an estate plan. And as Joe just said, 80% of you do not have these three elements will get into this shortly. Then we’re going to go into a key question in second segment wills versus trust, which is better. Which do you need, which is what’s going to work for you? And then finally, we want to talk about estate taxes, estate planning, and so you don’t have extra money going to the government unnecessarily. And Joe I think this is a topic that a lot of people don’t like to talk about. You know, perhaps me included, but there is a peace of mind knowing that you have your state in order in case something happens to you.

Joe: Yeah, without question, you know, it’s like, I don’t really want to talk about my death, right? I mean, I want to talk about building wealth, and I want to talk about saving money and taxes. The last thing I want to do is because some people are almost afraid. As soon as they get their estate plan done, they die. That’s a fallacy, folks. It’s not going to happen. So let’s talk about it. What do you need? Let’s get this estate planning in order. First thing’s first trust or will, which one’s better, which one’s appropriate for you? Second is a health care directive. I think in most cases, the last hill health care directive and powers of attorney are a lot more important for most of us than potentially even a will or a living trust. Because when you pass away your gone, you’re dead, right? But when you’re sick or hurt or injured, guess what? Bills still need to be paid. I think you still need to be taken care of in the overall financial house. So when you look at the most important, they’re all super important. But I think most people focused here when they should be maybe focusing down here Al.

Al: Well, I think so, too. And when you look at the studies, about half of us have a will which mean half of us don’t, which is not good. But really, very few of us have these other these other the durable power turn of the health care and the power of attorney. So let’s talk about what should go into a will. Let’s start there. For many of you, trust is going to be better, but let’s start with a will. So in a will, you should have your basic personal information, your name, address, things of that sort. Your executors name who’s an executor, that’s who takes care of your estate after you pass away how your assets are going to be distributed, who gets what percentage breakdowns, whatever it may be a guardian for your children very, very important. If you don’t do that, the court’s going to have to step in and appoint someone for you. And then finally, you need to sign it. It needs to be a valid signature. Probably want to get it notarized as well. But these are the essential things, Joe and in a will. And that’s where you start. That’s kind of step number one.

Joe: Right? I think it’s just documenting what you have, right? And what a will does is just gives the court’s direction. So it doesn’t avoid probate, but what it does is give the court’s direction of what you want to have happen. Right? Hey, I want to give of this particular item to little Joey. Right? It’s so there’s no confusion. You know, all the relatives are not fighting over your items. You already have it listed down. It’s just an organized process. Probate is not necessarily bad. It’s just an organized process whom we can talk about the pros and cons to that a little bit later. But just at least having something written down is key.

Al: Yeah. And let’s also talk about what happens if you don’t have a will because you need to know this. So first of all, the state gets involved and there’s a state, depending upon your state, they’ll have an ordering of who’s going to get what may or may not be the same as what your wishes are. And then each state has different rules, right? And who your executor may be. And then then the state or the court, I should say, will likely appoint a guardian for your children. And these Joe, these are just basic things you want to make sure at least you have a will, at the very least to kind of put some of these things down.

Joe: Right. Everyone out there has an estate plan, right? You have an estate plan if you like it or not, because if you die without anything that you’ve drafted yourself, guess what the state is going to figure out for you what is going to happen to your belongings? That’s not a very good estate plan. So at the very least, make sure that you document what you want to have happen. What we talked about a little bit earlier are health care directives, right? Do I pull the plug? If you keep me alive, freeze me right there. Maybe unfreeze me in like 30 years? Well, and there’s a another super vaccine for whatever I have.

Al: So first of all, you should know that it only takes effect if you’re incapacitated. So while you’re incapacitated, you make your own decisions. So this is just if you’re if you’re not able to make decisions. And as Joe, as you just said it talks about end of life preferences and who makes the health care decisions for you.

Joe:It much must be HIPA. It was HIPA, Health Insurance, Portability Accountability Act. This is important here because what we have found is some nightmare issues is that when it comes to your health records right there, they’re in lock. They’re very secretive, right? The hospital can’t just let anyone know what’s going on. So this HIPA release allows loved ones. So let’s say if I get in a car accident in my loved ones, come and say, what happened to Joe if I don’t have this HIPA release? Sometimes they’re not able to tell my loved ones what is going on. So the HIPA release is extremely important. So people don’t have a drought in the steep plains years ago might not have this compliant with their overall plan.

Al: So the durable power of attorney, so what you need to know about that? First of all, it only takes impact if you’re incapacitated. So as long as you can make decisions yourself, it doesn’t really apply. But you designated this for someone to be your attorney, in fact, meaning they can make financial decisions on your behalf and it can, and they can make legacy related decisions as well. So obviously, when you do a durable power of attorney, you want to have somebody that you trust, hopefully a family member.

Joe: Hey, we got a gift for you. You know, there’s a lot of stuff that we’re thrown out at you. And one of the easiest things to do is just start here. We got an estate planner organizer for you, right? So everything that we’re talking about on today’s show, you can get your ducks in a row. You can start taking a look and start thinking about things. Who do I want to be my power of attorney for health care, right? Who is going to take care of the bills? Who’s going to be the Guardian if I have younger children, who’s the successor trustee, if I have a living trust and everything else in between? This is our state planning organizer. This is our gift to you today. Go to yourmoneyyourwealth.com. Click on that special offer to get yours. No cost right. No obligation? Go to yourmoneyyourwealth.com. Click on that special offer to get your estate planning organizer. We’re got to take another break. When we get back, we got Nicole Newman. She’s an estate planning attorney. Big All and her are going to break things down in regards to You need a will. Do you need a trust? What the heck do you need? Stick around. We’ll be right back now.

Joe: Welcome back to the show, shows called Your Money, Your Wealth, we’re talking estate planning today, go to yourmoneyyourwealth.com. Click on our special offer to get your estate planning organizer. Get your sleep organized with our estate planning organizer. See that play on words. Big Al. We got Nicole Newman coming up here in a second. Before we get to any of that, let’s go to the true pulse question.

Al: Keeping real estate until you pass can give your heirs a step up in basis that can lessen or eliminate capital gains tax. Joe. True or false?

Joe: True, Alan. Very true.

Al: I agree with you. That is true.

Joe: Very true. One. A step up in tax basis is is let’s say you purchased your primary residence for $200,000 and today it’s worth $700,000. And if you pass away in those goes to the heirs, what happens is that the basis gets stepped up to the fair market value, the date of death. So it’s $200,000 what you purchased for. It is now worth $700,000. So when you pass in, your kids or heirs sell that property. If they want to sell the property, there would be no capital gains tax due. This is a huge deal. There’s a lot of talk about the step up in basis right now with the current administration.

Al: Well there is Joe, because it is, it’s a great rule. It helps virtually everybody for a next generation to avoid taxes, even your spouse, particularly if you live in a community property state, the spouse gets a full step up in basis. Non community property state. It’s a 50% step up in basis. There is some discussion right now with the Biden administration of eliminating this rule. I personally think that will be a hard thing to change. But just be aware that that is the discussion. And Joe, it’s we’ve got to keep track of this because this could make a big difference for a lot of people.

Joe: It’s a fluid situation, is what they’re saying. Usually taxes are fluid, isn’t it? Hey, let’s get a true expert in enough of Al and I nonsense. We get Nicole Newman. She’s an estate planning attorney. She’s going to break things down in regards to wills and trust.

Al: Hey, Nicole, thanks so much for joining us today.

Nicole: Well, thank you for having me.

Al: So we’re talking about estate planning today and you are an estate planning attorney. So who better to ask these questions? And I kind of want to start out with a will versus a living trust. What’s the difference between the two?

Nicole: Sure. That is absolutely one of the biggest questions that I always get when I’m meeting with folks. The biggest difference between a will in a trust is that a will does not avoid probate. So I really like to emphasize that to people that a will does not avoid probate, whereas a properly drafted and a properly funded living trust will avoid the probate process. Now, the reason why we want to avoid probate is because here in California, we win the award for having the longest and most expensive probate process in the entire country. And a lot of people assume that their estate is only going to go through probate if they don’t bother doing anything so that they’ll do a will and they think that they have covered their bases and that that probate process will be avoided, which it does not.

Al: What is probate Nicole?

Nicole: So probate is the California court process of transferring your your assets to your heirs. So when you die with assets in your own name, so you didn’t put together a trust? Well, the court has to 1) They have to change title on your assets. They have to make sure your creditors get paid back, if any. And then the court is going to identify who your beneficiaries are going to be. So it’s a very long, expensive process here in California. In fact, the average time takes about 12 to 18 months. Again, this was pre-COVID times. It’s much longer right now, much more difficult to get a court date and the costs of probate come out to about 5% of the gross estate. So the key word there is growth. So that means if the only asset you had when you died was a house worth $500,000 and you owed $500,000 on that house. The probate costs are still going to be roughly $25,000 to be able to transfer that asset. So it’s a very expensive process.

Al: So a living trust avoids all of that. So let’s talk about that. What what’s in the living trust and what are the main advantages in addition to avoiding probate?

Nicole: OK, so a living trust, it’s very similar to a will. So I always tell people to think of your living trust as a rule book that you’re going to write while you’re alive. So you get to write out the rules for what’s happening with your assets when you’re alive and then what’s going to happen to your assets once you pass away? You write down those rules and then you name the person that is going to make sure that those rules are carried out after you pass away. That’s called your successor trustee. Well, the biggest difference between the will and the trust in this respect is that while you’re alive, you are actually going to transfer your assets into your trust rather than keeping them in your own name. So what that’s going to do is it’s going to make sure that a probate does not need to be opened upon your death, so your assets are able to be transferred privately and without court involvement and according to your rules. And technically, the transfer of the assets can start as soon as death certificates are issued. If the estate is in a condition to start being distributed quickly, rather than have it having it be up to the court to decide when the assets are going to be distributed.

Al: Nicole, In some cases, when people hear that I’ve got to transfer my assets to a trust and they are afraid of losing control. So explain what that means.

Nicole: Yeah. So when you have so there’s two main types of trusts. There’s revocable trusts and there’s irrevocable trusts. So revocable trusts are the easiest type of trust to have. It means you can get rid of it whenever you want. You can change it as much as you want to, and you actually stay in full control of your assets while you are alive. So you remain in control now, and irrevocable trust tends to have a little bit stricter rules and you tend to lose some control of your assets. So I find that people will confuse the two trusts and they will think of an irrevocable trust when they think of losing control, and then they’ll assume that that’s what they have or that that’s what they’re going to need. So it’s very important for people to have the professional guidance to be able to help them pick the correct kind of trust that they need for their particular circumstances.

Al: OK, so here’s the million dollar question. Who can get by with a will and who needs a trust?

Nicole: OK, yes, that’s a great question. And that is one that always can’t be answered very quickly. I know we get a lot of phone calls to my office and people like to describe themselves as being very simple and that their situation is very simple. And maybe what is simple in their mind? Maybe not, maybe not be so simple for estate planning purposes, but I need the bit. The easiest one liner that I use is here in California as soon as you have real estate in your name. So that means the deed is in your name. I don’t care how much the mortgages on the property. As soon as you have that deed in your name and/or you have assets in excess of $166,000, that is your cue that it’s time to get a trust. And there’s actually no drawback to having a trust here in California under those circumstances. Now, if you don’t own any real estate and your assets are below $166,000, you might be able to get by with the will. But again, the analysis can be pretty complex, and it’s a case by case basis. So I really do encourage people to seek professional help to have them determine if they’re going to need a will or trust because if they get it wrong, they’re their beneficiaries are going to end up paying a pretty steep cost.

Al: Thank you so much. We just have just a little bit of time. Are there any mistakes that people make or what are some of the biggest mistakes?

Nicole: OK, so I would say there’s two main mistakes that I see people make the biggest mistakes. One is people procrastinating, not even getting around to do their estate planning. So even though our death is a guaranteed event in our life, a lot of people do like to put off planning for it and making arrangements for it. And I see I tend to find that people put it off for two main reasons. One, because it’s a very uncomfortable topic. It can be very uncomfortable for folks to face and discuss what things might look like when they’re not here. So people will avoid that uncomfortable conversation. And (2) a lot of people, just have no idea what happens when a person dies, what is going to happen with their assets when they pass away? A lot of people like to think, Well, I don’t have much or my estate very simple or things just tend to work themselves out. So I find that a lot of people don’t really have a true understanding of how complicated dying actually has become. So, so they tend to put it off. So that tends to be a big mistake.

Al: Thanks so much for that. Great information. And if there’s one takeaway. Don’t procrastinate. Get on this right away. That’s why we have an offer for you getting your estate in order. Click on Your Money, Your Wealth to find it. Download it and it will help you get this together. So we have to take a break. You’re watching Your Money, Your Wealth.

Joe: All right, welcome back to the show shows called Your Money. Your Wealth., Joe Anderson, Big Al we’re talking estate planning today. Want to thank Nicole Newman for joining us a little earlier? You know, one of the biggest mistakes that we’re making in regards to your overall legacy planning is getting started. So let’s fix that right now. Look at this. Our state planning organizer. Boom, go to yourmoneyyourwealth.com, get organized. Get started. It’s really simple, right? Get started. Go to yourmoneyyourwealth.com. That’s our special gift for you today. Let’s see how everyone did on the true false question.

Al: If your child inherits your Roth IRA, they need to pay taxes when they withdraw the money and show true or false.

Joe: If a child inherits a Roth IRA, it’s tax free forever Big Al. They will have to take the money out over a 10 year time period so they can continue to let it compound. Because what happened with the secure act, they got rid of the stretch IRA. So what that means is that you can no longer stretch out the tax liability of regular retirement accounts over the beneficiaries life expectancy. And it was really cool for Roth IRAs because let’s say your child or grandchild inherited a Roth IRA, they could still stretch the compound tax free growth on that as long as their life expectancy, they would just have to take a small percentage of the overall account out. It was a great legacy plan. The IRS said, Hey, this is too good of a deal, so the nixed, but they still give us 10 years. So with Roth IRAs, your kids grandkids can still compound that tax free growth until the 10th year, then everything will have to come out.

Al: So I give you an A.. You got both true false questions, right? So let’s talk about estate taxes because I mean, that’s one thing that we certainly want to avoid, if possible, is if we pass away, does our state have to pay taxes? Well, let’s get into that. So there are some exemptions and it’s a bouncing ball. They move all over the place, depending upon the year. So right now, 2021 are exemption is 11.7 million and that’s per person. If you’re married, you can double up on that. And right now, it’s indexed for inflation. The year before, it was 11.58. But let’s go back a few years. In 2017, it was a little over 5 million and 2009 it was 3.5 million. And I remember when I started Joe, it was $600,000 only. And then anything above that would be taxed at the estate tax rate. And that’s been bouncing all over the place, too, but currently it’s 40%.

Joe: So the estate tax exemption, all that means is that you can pass up to almost $12 million of wealth to the next generation without a death tax without an estate tax. However, if it’s IRA dollars 401(k) dollars, there’s still income tax associated with it. But if you have an estate higher than these thresholds, you could pay both. You could be an estate tax. Plus the kids will have to pay income tax. But right now, for a married couple, it’s a huge dollar figure. It’s $22, $23, $24 million, you know. So the estate tax, we’re not overly concerned. But if that goes back down to $3,600,000. I think when I started, it $680,000, but it was 600,000 or like between 600,000 and 700,000 for like 30 years, was it?

Al: Yeah, for for years and years. So just be aware of this. And so right now, currently, the Biden administration is talking about reducing these exemptions back down to the 2017 limit or maybe even the 2009 limit. So here’s the strategy maybe one you’re one of the few fortunate ones that has net worth above these amounts. You can actually gift amounts to your beneficiaries before you pass. Get them out of your estate. And let’s say the estate tax exemption does go down. The IRS, at least to this point, has said they’re not going to clawback those gifts that they will remain outside of your estate, not subject to estate taxes. So anyway, just be aware that we don’t know whether this is going to happen or not. It was just discussed in the campaign trail with with Biden. So we got to see. And Joe I will say there are other advanced estate planning techniques that you can do with family limited partnership.

Joe: There it is. The QPRT. You want to talk about the

Al: Yeah, the QPRT.

Joe: Oh boy. I think the first step is just to get the simple stuff done right. Get the estate planning documents get a will, get a trust, whatever’s most appropriate to you, get your health care directive lined up, get your powers of attorney lined up, and then you can get into the intentionally defective grantor trust. Let’s ask the experts, let’s go to that segment.

Al: This is from Julian del Mar., I want to set aside money to take care of my dog when I’m gone. Do I need to put special wording in my will and to set aside money to insure my dog is properly cared for? Here’s my understanding again, I’m not an attorney, but you can’t necessarily leave assets to your dog in a will because a dog is considered property and a piece of property can’t own another piece of property. I know that that sounds sick, but that’s the way it is. But you can. From my understanding, set up a pet trust and in the pet trust.
Then you can designate certain funds that go in there. Who’s going to care for the dog? What the money is to be spent for so that. So from my understanding, that is your best bet with a pet.

Joe: I have no comment. Let’s see what we learned today here. We learned that there’s doggie trusts. Go get your doggie trust. First things, first start today. I get this thing in order if you want your stuff to go to your pets. All right. Well, then start there, then making sure that you have the essentials in your overall estate planning documents we talked about it will trust powers of attorney tax laws potentially going to change in regards to the estate tax and then that you need to update in, look at your estate plan on an ongoing basis. It’s not draft and forget about it. So hey, start now, start with this. This is our state plan organizer. We’re not attorneys by any stretch of the imagination. Big Al’s a CPA and I’m a CFP, but we can help you at least get started in the process in regards to your state plan. Go to yourmoneyyourwealth.com. Click on that special offer. Start the process today with our state plan organizer. It is not an estate plan. It’s an organizer to get your estate planning in order. That’s it for us today. Hopefully, enjoy the show. Go to yourmoneyyourwealth.com we will see you again next week. Folks, have a great weekend.