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BRIAN: Welcome to Safer Retirement Radio, where you get the transparency you deserve. With over 35 years of experience in finance and investing, we help you stay up-to-date on market news and retirement strategies. I’m Brian James Decker, owner and founder of Decker Retirement Planning and host of Safer Retirement Radio. With me is my co-host, and one of the advisors here at Decker Retirement Planning, Clayton Bradshaw.
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CLAYTON: All right, so Brian today we’re gonna be talking about the kinda five main aspects that I think a lot of people should have in their retirement plans. We’ve talked about a lot of them. Taxes is one aspect. Investments is another one. We talked about that through structuring your plans so that you know where your funds are. How you’re diversified, the purpose behind that diversification. And that ties in a little bit for us, anyway, to income, is the third aspect. Gotta make sure you’ve got income in retirement, right? And then healthcare is another big one. That’s “how do you deal with long-term care?” What’s the plan, how are you gonna pay for it?
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:01:01]
CLAYTON: And these are all aspects that we talk about throughout the financial planning process. We want to make sure that any clients that come in, that we address these issues, to make sure that they can have as complete of a plan as we can help them get. But the fifth aspect that we want to cover in a little bit more depth today is estate planning. And this is a big one, because, Brian, when you get clients that come in, I mean, what are some of the things that you typically see that folks are kind of running into, or maybe missing out on their estate documents?
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BRIAN: So, typically I see one of two things. And you’ve seen this, too, Clayton. One is, quote, “Oh, the best attorneys in Seattle, San Francisco, Salt Lake, have completed my documents. I’ve got no problem.” And we just smile, right?
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BRIAN: ‘Because we know that the boiler plate language in there is there’s some difficult things that we want to bring up and talk them through. By the way, we’re not attorneys; we can not give legal advice. But we are fiduciaries to our clients, to point out things that they can re-discuss with their attorney.
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CLAYTON: Right. And I think with it. Obviously, when the attorneys put their documents together, they’re whole, they’re sound, they work fine, right? But, how does it incorporate with the financial plan?
BRIAN: That’s what we’re gonna talk about.
CLAYTON: And that’s, I think, the big question.
BRIAN: Yeah. So, I’d say half of ‘em say that. The other half give you the blank stare. Because they either haven’t done it, or they haven’t looked at them in a decade. So, that’s what we typically see.
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CLAYTON: Yeah, that was always my favorite. I mean, I talked to one couple one time, that they had put theirs together 10 or 15 years ago. And they had a bunch of kids, and I think they had assigned, and I know we’ll probably touch on this a little bit today, but they had assigned their power of attorney to their oldest child. And over the course of the time, from the time they implemented it to the time that we sat down to just kind of look through everything, I didn’t make any changes, I didn’t suggest anything, I just asked the question, I said “How comfortable are you with this decision?”
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:03:08]
CLAYTON: They said “Oh. Well, you know, her life circumstances changed. We don’t think she’s in a great spot any more, that she can handle this responsibility.” She had been divorced. They didn’t want to put that added responsibility on her, should something happen to them. And so that was a consideration. So, I think the thing I would say is “Review your documents every two or three years.” That’s important to do.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:03:33]
BRIAN: Right. So, here, let’s go through the estate documents. There’s three parts to most anyone’s estate. There are the retirement accounts, retirement assets. [COUGH] Those have nothing to do, typically, with the trust or the will. So, they have specific beneficiaries attached. When you die, you’ve got so-and-so as primary, and then secondary beneficiary choices. We all have our accounts set up that way.
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CLAYTON: And when you’re talking retirement accounts, you’re talking IRAs, Roths, 401(k)s, et cetera. Right?
BRIAN: Right. So, that’s one part of your estate. The second part of your estate has to do with your trust. So, the trust is usually your residence. If you don’t own any real estate, you may or may not need a trust. Contact your attorney for that. But, usually, your trust has two things. One, is it has your home? And the second is, if you’ve got non-qualified assets in investment accounts. Usually that’s in the trust.
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BRIAN: Then you’ve got your residuary estate. Your residuary estate is all your stuff. Outside of your home, your investment accounts, non-qual, and your retirement assets. It’s your furniture, it’s your paintings and artwork, your jewelry, your cars, your boat, your guns, and all your stuff.
CLAYTON: It’s your stuff.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:05:08]
BRIAN: ‘Kay? So, let’s start with your will. Because what we want to see, what attorneys like to have happen, is they want… The most important thing to look for in your will is the pour-over provision. So, that means that, Clayton, when you die, you don’t want, I’m gonna say this so that this has some shock effect, you don’t want it to say that all your money goes to your wife. You don’t want it.
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BRIAN: You want it to say that all your residuary estate goes to you and your wife’s trust.
CLAYTON: Right. The trust becomes the beneficiary, is what you’re saying.
BRIAN: Right. So, look for that. I would say 50 percent of the will that we look at, say that they go to the spouse. Which can bring up a probate issue. When you die, and you get letters of testamentary, affidavit of domicile, the judge is gonna look and see that on your will there’s no pour-over provision, and there can be probate cost, if you don’t have a pour-over provision. So, that’s number one.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:06:16]
CLAYTON: Well, and two, the question that I would ask is if it’s as expensive and time-consuming as it is to set up a trust, why wouldn’t you have a trust be the beneficiary, the recipient of all your stuff? That’s why it’s there.
BRIAN: So, we’ll get to that. Yeah. We’ll get to the trust in second. But, on the will, you want the will to have that pour-over provision. The second thing is, you and your spouse typically are executors, or, executors to each other. So, when you die, if you predecease your spouse, then she is the executor of your estate, on the will.
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BRIAN: Okay? Then you need to make some decisions on who you want as successor to that. So, if she predeceases you, who is gonna go into place? Now, typically, it’s the oldest, but that, sometimes, is not the best choice. And some people put all of their kids in there, ‘because they don’t want to pick one. That’s problematic, because when you have a left-brain person who wants to get it done, and a right-brain person who isn’t over it yet… That’s a horrible thing to say. You’re never over your parents’ passing. But it can create conflict and problems, so you want to make sure that you make wise choices on succession in your will. Does that make sense?
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:07:43]
BRIAN: Okay. Now let’s talk about the trust. The trust has three parts that we see, as fiduciaries to our clients, three problematic areas in boiler plate language. One is, again, succession. You two, you and your spouse, are successor trustees of your trust. Who do you want in there? Think carefully about who you want in there as successor trustees when your spouse predeceases you. Think about that succession carefully.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:08:14]
BRIAN: Number two, there’s typically a compensation clause in the trust. It takes a lot of time to operate as successor trustee, and distribute assets once you and your spouse pass away. The trust is a major distribution vehicle of all of your stuff. I mean, all of your stuff. The clothes that are hanging on the rack. I mean, all of your stuff.
CLAYTON: The money from the sale of the house, the non-qualified assets.
BRIAN: It’s a lot of work.
CLAYTON: All the sentimental items.
BRIAN: Yeah. The problem is, in the compensation clause, it says, quote, “reasonable compensation.” Now, how vague is that?
CLAYTON: Right. That sounds like a blank check to me, that somebody would be getting.
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BRIAN: A blank check. And we’ve seen checks of 30 and 40 thousand written to themselves, there’s no oversight, and it creates a problem even when you don’t write a check, because then the other kids are saying, “Hey, did you write a check? You could have. How do we know?” It creates distrust. So, a lot of people have found it best to strike the compensation clause, but keep the reimbursement clause. If any of the trustees incur expenses they can be reimbursed for, that’s fine. But as far as, quote, “reasonable compensation,” not so much.
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BRIAN: But if you do want to have a fee in there, write a specific fee in, not, quote, “reasonable compensation.” So that’s the second thing, which is the compensation clause. The third, and by the way, I can’t emphasize enough, this is the nuclear part that divides families, so that they don’t talk to each other again. And that’s in the trust, and that is in the distribution language of the tangible assets.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:10:00]
BRIAN: So, let’s say, I’m just gonna make this up, let’s say, Clayton, you have three kids, and you have three piano players and one Steinway. And it says, and it does, boiler plate language in your trust, we’ve read hundreds of these, it says that tangible assets are to be divided equally. How are you possibly gonna do that?
CLAYTON: Get that chainsaw out.
BRIAN: And, it says that your oldest gets to choose first. So, the oldest says, wisely, I’ll take the house, next.
CLAYTON: That’s a great bargain. They get a sweet deal on it.
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BRIAN: Yeah. And this is why some of the kids never talk to each other, again. So, what we’ve seen in legal language, to solve this, is language that has three parts to it, three sentences. One, first sentence says, house and cars are to be sold with proceeds equally divided. You can equally divide cash; you can not equally divide tangible assets. So, that’s number one. Number two, you have a list that’s typically referred to as Appendix A, in the trust, that you say to your kids, “Hey, we’re not gonna be around forever, if there’s something that you want, let me know.”
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BRIAN: That does two important things. First of all, no one can be a victim. No one can say “Mom and Dad should tell.” No, they did. They told you to speak up. No one can be a victim, after you say that. Second is, when both daughters want Mom’s wedding ring and wedding dress, which they typically will, and when both sons want Dad’s truck, hunting gear, fishing gear, stuff like that, they’re alive to sort it out. Instead of being gone, to have these arguments fester.
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BRIAN So, that’s very important, is that second sentence. And that’s a Word document that you can update as you’re alive. You don’t need to see an attorney on that, you just reference it, as a Word document. It’s Appendix A, of things that you want going to any of your kids.
BRIAN: The third and final thing is the catch-all, which says something like “Anything not on Appendix A is to be sold/donated with proceeds equally divided.” So, this is where, when you walk into a house, in an estate sale, all of that is going. Usually it’s to St. Vincent de Paul, DI, whatever.
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BRIAN: They come in, and they clean it all out. In your trust it says that that is your wishes to have that happen. And it can be a heartless act, a necessary act for anyone that’s acting as trustee, to go in and take all of Mom and Dad’s stuff out.
BRIAN: But it says that, that that’s what they want. So, that’s why it’s important to be in there.
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CLAYTON: Well, and I think, too, with all of these documents, a lot of what you’ve seen, I mean, you’ve been in the industry for 35 years, the financial industry for 35 years, and in doing retirement planning for folks, you do see the estate documents, ‘cause you want to make sure that everything fits, that the beneficiaries on the retirement accounts match up with what’s in the estate documents. And, so you’re speaking from experience of pretty tragic stories that you’ve heard over the years, which is why we want to make sure that the folks listening have had these conversations with their attorneys.
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CLAYTON: That the retirement plans the financial advisor does matches us with that estate plan that that attorney does, and we’re happy to look through ‘em and have those conversations. And make sure the appropriate conversation happens with an attorney.
BRIAN: Correct. So, that’s will and the trust. Now, typically what we see, and when I say “typically” I mean, there’s no cut and dry when it comes to families passing assets, but what we see is, of your three kids, one has made a ton of money. The second, not so much. The third might be a school teacher married to a school teacher.
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BRIAN: And then, when Mom and Dad pass away, the one with all the money says “Hey, we gotta keep the house. This is memorable. Look at all the memories we had here in the house.” And the other two need the money, but they won’t speak up. So, there can be a right of first refusal, where, if the oldest wants that house, they buy out the other two. Everyone gets what they want.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:14:31]
BRIAN: So, that language is in the distribution part of the tangible assets in the trust. So, we’ve talked about the will and the trust, now let’s talks about the power of attorney. And then the living will. The power of attorney document, there’s three parts that we look at. Again, succession: who do you want as your agent? Usually it’s both spouses’ primary. How do you want that to go secondary?
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BRIAN: Now, again, in a power of attorney, you’re not dead, you’re incapacitated. Or, like Monty Python says, you’re not quite dead yet. You’re incapacitated. And, so, the power of attorney is someone who you want handling your taxes, your financial affairs, your investments. They’re acting as you, while you are incapacitated. That might be someone who’s different from your health care directive, or from your will. So, we talked through succession: make sure that you’ve got the right people in there.
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BRIAN: Number two, compensation. Same discussion. It says reasonable compensation is due. We’ve seen problems with that. You many want to talk about that. And if you want a specific amount in there, put a specific amount, but “reasonable compensation” has been abused in the past, because there’s no oversight. Third, and this is the most important with the power of attorney, and that’s the trigger clause. So, I want to talk about this. My wife and I have an on-signature trigger, or activation, clause. Meaning that it’s active right now.
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BRIAN: So, if you have a great marriage, this is fine. If you don’t, and I had a meeting like this. [LAUGH] I had a meeting where they were fighting, fighting, fighting, and then, they got through their plan, we put their plan together, I got a call from the wife that she wasn’t sure if she wanted to stay married to this guy. And then, come to find out, their power of attorney was active on signature. And I had to just grimace and say “You two, I just want to let you know, can legally clean each other out, right now, today.” And there was an awkward silence.
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BRIAN: “So, I hope that you change it, immediately, so that it’s active when two doctors determine that you’re no longer able, or are competent, to handle your financial affairs.” So, one option is on signature. The benefit is, it’s active. It’s easy, it’s easily done. The negative part of that is, if I celebrate and get in my wife’s face because the Seahawks beat the Patriots, which they should have, if they would have given the ball to Marshawn Lynch, like they should have.
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BRIAN: After Marshawn [launched?] all the way down 60 yards. And no, we don’t. We throw a pass, and it’s intercepted. So, when she gets in my face about the Patriot’s victory over the Seahawks, I can get frustrated and I can clean her out, legally, ‘cause it’s an active power of attorney. I can her from Cabo, and say “You know, I just cleaned you out. Everything you own is now in my account, and it’s because you were really in my face about the Patriot’s victory.” And I could legally do that.
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CLAYTON: Well, it’s funny that you bring this up, because I know that you and Diane would never do that. But I have talked to couples. When I make comments like this, and they think one of two things: They either think “Oh, that’s silly. I could never see myself, or my spouse, doing that.” And, no big deal. Right?
BRIAN: But stuff happens.
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CLAYTON: I had a guy that I met with, without his wife there, and it was a second marriage for each of them, they each had kids from their first marriage, and he told me, he said “You know, I’m really concerned that if something happens to me, my kids are gonna get cut out of everything. But”, he said “to be honest, if something happens to my wife first, I’m gonna do the same thing to her kids.”
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CLAYTON: Yeah. And I thought “How can you say that, in good conscience?” So, these are the kinds of conversations that they can be uncomfortable for some, but for others, it’s no big deal. And it’s like “Oh, yeah, I’m not worried about that being an issue.” But, bringing it up, talking about it, is important, because this is, I mean, it’s your finances. It’s your livelihood.
BRIAN: Right. So, I’m gonna go back to the trigger clause and talk about [CLEARS THROAT] the trust again. It’s called a Revocable Family Living Trust. It’s revocable while both are alive. It becomes irrevocable, for the reasons you just touched on, when the first spouse dies. So, let’s use Diane and I.
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BRIAN: I predecease Diane. We have a combined marriage. I have three kids that are mine kids. She has three kids that are her three kids. And we have two together. I’m making this public. Let’s just say that that happened. It did. [LAUGH] And so, she could say “Brian, I love you, I love your kids. When you die, I’ll make sure that everything is equal.” And I say “Diane, I love you. I’ll make sure the same thing happens.”
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BRIAN: But no, when I die, in a horrific, fiery traffic accident on the I-15 because I have a radar jammer, I find out that after I die, I’m looking at her as Casper the Friendly Ghost, and I see that she cuts all my kids out, because she likes her kids and doesn’t like my kids.
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BRIAN: And then she marries the pool guy, and he’s 25. And so, she falls in love with him and now, no one get anything because he gets everything, and he outlives everybody. All of that mess goes away when the Revocable Trust becomes irrevocable. And so, all of that mess goes away. Okay, back to the trigger clause. There’s three that we recommend, to see what’s right for you.
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BRIAN: I shouldn’t say “we.” Attorneys recommend. One is on signature, for convenience, if you have a very good marriage. Two, and this is by far the most popular, and that is to have two doctors sign off that you’re not competent.
CLAYTON: You’re a vegetable. You lose your marbles.
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BRIAN: Right. But now, let’s say that you are diagnosed with dementia. Do you know how emasculating that is for your spouse to drag you in front of two doctors? You’re gonna put on your best face, and you’re gonna fool those guys and have your best day, and it will be two or three attempts before the doctors say “Okay, yeah, he’s not competent.” So, there’s a third way, and you can make those edit upon diagnosis with mental illness. You can change the trigger clause to a family council. Nobody knows Mom or Dad like the family does.
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BRIAN: So, when the family decides they don’t need to get two doctors, they can just simply make that decision, activate the power of attorney, and move on. So, that’s power of attorney. Do we have time for health care directive? If I do it really quick?
CLAYTON: Yeah, I think we’ve got another couple minute. We can wrap it up with this.
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BRIAN: ‘Kay. Health care directive, three things. This is the pull-the-plug document. Succession, very important. Who do you want as agent? You’re primary with spouse; who do you want, as children, to be successor agents? Number two, you want to make sure comfort measures are in there. We get all obsessed with “No artificial hydration or nutrition.” Well, you want to make sure that you have plenty of pain medication, to make sure that your exit is as euphoric as possible. [LAUGH] All the psychedelics you can get.
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BRIAN: Okay, number three, and this is the biggie. In health care directive, you want to make sure that it’s unfair for the doc to come up to your agent, which is one of your kids, and say “Do you want to pull the plug on Mom and Dad?” That is unfair. And that’s how most of ‘em are drafted. The activation clause is where the agent decides to pull the plug. Totally unfair. So, what we see from better drafted documents from attorneys, is where it says two doctors will come up and give their opinion that quote “Mom or Dad are kept alive artificially.”
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BRIAN: That’s key. Now the agent, one of the kids, can make their decision based on what’s in the health care directive. “Mom and Dad do not wish to be kept alive artificially.” And they can easily make that decision. This other way, boiler plate language where the agent makes the decision, totally unfair to put that on the kids. Because then, the kid sees the article that comes out once or twice a year, where “Man in coma for 20 years survives.” Actually, you see that in that the Enquirer when you’re checking out. But they don’t need that. They don’t need that guilt.
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BRIAN: So, those are the things that we talk through with our clients, and work with their attorney on redrafting those documents, to make sure that they’re right.
CLAYTON: Right. And having these conversations, and just asking the questions, going through some of these points, asking these questions, I’ve loved doing that, because it’s allowed people one of two things: To recognize that they should probably get in touch about making a change to their documents. Or, it solidifies their decisions. And I’ve seen both sides, and I’ve seen kind of everything in between with it. And I’m sure you have, too, Brian.
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CLAYTON: And so, as we wrap up today in talking about estate planning as, kind of, the major points that folks should consider, and have a plan for, when it comes to their retirement. We’re happy to ask these questions again, if you have something specific. You want to say “Hey, how does this tie together with this retirement account?” We’d love to talk you through it and see what can apply. Give us a call, our number 833-707-3030. Again, that number 833-707-3030.
RR S4 E7 FIVE MAIN ASPECTS FOR YOUR PORTFOLIO [00:24:24]
CLAYTON: We’d love to have a conversation about kinda where you’re at with your retirement plan. These different aspects. Again, there’s taxes, investments, income, health care, and estate planning, that we talked about today. We look forward to having you join us next week. Again, these podcasts are coming out every week, so we look forward to it. Thanks.
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Decker Retirement Planning Inc. is a registered investment advisor in the state of Washington. Our investment advisors may not transact business in states unless appropriately registered or excluded or exempted from such registration. We are registered as an investment advisor in WA, ID, UT, CA, NV and TX. We can provide investment advisory services in these states and other states where we are exempted from registration.