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BRIAN: Welcome to save for 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 save for 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, welcome back. We’re excited to be here. Today we’ve got an interesting show planned. So, we talked last time about funding a plan. I hope you had a chance to listen to that episode. It talks about all the intricacies, where your money should go, your non-qualified, qualified money, how you should lay it all out. If you’ve got questions, again, don’t hesitate to give us a call. We’d love to talk you through it. Our number, 8-3-3-7-0-7-30-30.
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CLAYTON: But today, I mentioned, we’ve got an interesting show today, because today we’re going to be talking a little bit about some, I want to call it peripheral to like, financial planning but it’s still, I would say, equally as important to having a solid financial plan and that’s tying your estate documents to your financial plan. In talking with a lot of people we’ve seen a lot of estate docs come across the desk that we’ve wanted to talk people through, and obviously we’re not attorneys, but we want to make sure that the documents fit with the financial plans.
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CLAYTON: So that’s what we’re going to be talking about today on the show. Brian, why don’t you lead us off? What are some of the documents, I guess, that you see that successful retirees have as well as the things that they kind of have written out on their plan that typically lead to some success, and I guess when I say success we’re talking about less family issues, right? That’s the whole point of all of this.
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BRIAN: That is the point, right. So, we’re not attorneys, can’t give legal advice, but in working with the legal team, we as fiduciaries have seen train wrecks where the kids don’t talk to each other for years. And that’s what we want to avoid. So, with that being the focus, let’s go through the main documents. We won’t get into the less popular documents but, will, power of attorney, living will, and trust documents. So, on the will, we’ll start with that, there’s three parts to your estate.
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BRIAN: You already know this. There’s the retirement accounts where you have IRAs, and retirement accounts where you have specific designated beneficiaries that you want those funds to go to.
CLAYTON: And that’s what the retirement plan is centered around, is all of those retirement accounts.
BRIAN: Right, but that’s separate from the will and the trust.
CLAYTON: Right.
BRIAN: Then you have the trust which is part of your non-qualified estate. Usually it has the house in there and some non-qualified investments.
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BRIAN: Some people who have rental properties, have LLCs, we’re not going to talk about that today, but the third part of their estate is their residual estate. All their other stuff, their cars, their jet skis, their jewelry, their artwork, all their stuff.
CLAYTON: Right.
BRIAN: That’s called the residuary estate, and that’s what the will is focused on. So, there’s three things that we look at for the will. Two, very, very important. One, very, very important, sorry. One is succession.
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BRIAN: So, in your will, you’re going to choose typically one of your kids, if you don’t have any children, then you’ll typically choose someone younger than you that’s expected to outlive you, right?
CLAYTON: [LAUGH] Yeah, so you don’t want to have to switch who’s managing your documents when you’re in your late 70s, early 80s because they passed away before you.
BRIAN: They pre-deceased you, yeah. So, choose wisely, nieces, nephews, accountants, CPAs sometimes, but whoever you chose we talk about wise succession.
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BRIAN: So, let’s say, Clayton, you had three kids. Are your kids going to feel bad if one of them is the successor on your will?
CLAYTON: I don’t know, maybe?
BRIAN: So, some say that they’ll put all three kids there as successor.
CLAYTON: And that’s because they don’t want to hurt anyone’s feelings that they have the favorite, right?
BRIAN: That’s one. The second is for trust issues.
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BRIAN: If you have one go in there and handle all the issues, human nature is, hey, did Johnny take a little scoop of honey for himself? I’m just saying, it’s just human nature.
CLAYTON: Sure.
BRIAN: So, you can kill both of those if you have all your kids in there as successor at the same time. Co-successor, executors. Now you two, you and your spouse are primary executors to each other’s will.
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BRIAN: So, this topic of succession, you want to talk through. I would say in my opinion, that the successor, executor on your will, is a no-brainer do nothing title only position because of the second topic we’re going to talk about, which is the pour over provision in the will. So, you have a trust to avoid probate.
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BRIAN: What happens if you have your spouse receiving all of your residuary estate? Now you have probate issues, because the way it should read is all your assets flow into the trust. Your residuary estate, all of it should flow into the trust. That’s what it should read. So, it shouldn’t read, my wife’s name is Diane, all of Brian’s estate, residuary estate, is gifted to my beloved spouse Diane.
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BRIAN: If it reads that way, after I pass and there’s letters of testamentary and affidavit of domicile, there’s typical documents that you need for transitioning my name off of my accounts and onto my wife’s. The judge is going to see that, and they will tip off that this is an estate that owes probate fees because so much of my estate stays residuary. Instead, you avoid all probate fees by simply having that pour over provision.
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BRIAN: Does that make sense?
CLAYTON: Yep.
BRIAN: Any clarification, because sometimes we get into the weeds on some stuff.
CLAYTON: No, I think the only clarification I would add, and I guess this will be kind of our disclaimer for it is obviously when you’re dealing with legal matters you want to speak to that qualified professional. Our point of view on this comes from dealing with retirees and their financial plans and the issues that we’ve seen that they’ve run into with their legal documents. There’s problems that have arisen so that’s why we address this.
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CLAYTON: But officially, yes, go to the attorney to discuss legal matters.
BRIAN: Correct, good point. I smile, and you’ve been [INAUDIBLE] too, Clayton, when they say, won’t find any issues on these. Best attorneys in Salt Lake. Fill this out.
CLAYTON: Yep.
BRIAN: We just smile. Half, 50 percent of the wills are improperly drafted and don’t have the pour over provision from my experience.
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CLAYTON: Well, I think a lot of that, too, stems from the boilerplate language that the attorneys pull it from when they say, all right, what’s your name? And they type that in, [MAKES NOISE] and they enter it, they click print, and they’re like, all right. Here’s your documents. And so just being on the other side of it, to see, all right, here’s some common issues that folks run into and I had folks that came in and they were happy even if it didn’t make sense to me, they were happy with the way it was laid out and they kept their documents the same and it’s great.
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BRIAN: Well, there’s good, better, best, right?
CLAYTON: Sure.
BRIAN: Okay. So, it’s good that they had their documents.
CLAYTON: Right.
BRIAN: But it’s best if they don’t have to pay probate fees because most people think hey, I’ve got a trust, probate free. Not true. So anyhow, those are the two important things on the will. Make sure you talk and discuss and think through succession on who the secondary successor executors, singular or plural, are going to be and make sure that you have the pour over provision so that Brian’s estate does not pass to his spouse.
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BRIAN: That would be improper. Brian’s estate needs to pass to the Brian and Diane Decker revocable living trust.
CLAYTON: Right.
BRIAN: That’s what it needs to say. All right, anything on the will? Let’s do power of attorney next.
CLAYTON: Yeah, let’s move on.
BRIAN: Okay. Power of attorney is when like Monty Python said, you’re not quite dead yet. You’re incapacitated, but you’re not dead. So, this is a document where you’re incapacitated.
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BRIAN: There’s three important things on the power of attorney. One, again, is the discussion on succession. Now this is a job that requires a lot of grey matter because your spouses are primary to each other on succession as agent to each other on the power of attorney. So, if you’re incapacitated, your wife operates as you in all things financial and health care.
CLAYTON: Right.
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BRIAN: So that trusted relationship now requires this document to be notarized and we’ll get to this in a second, this is financially a loaded gun because, well, we’ll get to that in a second. The activation clause.
CLAYTON: Yeah.
BRIAN: You got to really think that through. We’ll get to that in a second. But on succession, which of your kids are left brained, get it done, accountant type of people because that’s who you want in there.
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BRIAN: If you have all three of your kids co-agent that could cause problems if they’re not able to work together. They need to be able to work together.
CLAYTON: Right.
BRIAN: All right. The second thing that causes major problems on the power of attorney document is compensation. So, the typical compensation cause says this. “Agent is due reasonable compensation for their services.” How do you quantify reasonable?
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CLAYTON: Sounds like a blank check.
BRIAN: It is a blank check. And many times, when Johnny is acting as agent, secondary, one parent is gone, Johnny is the successor agent, and Sally and Susie read the power of attorney that says reasonable compensation is due. This is human nature, they are going to say Johnny, how much money did you take? What is reasonable?
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BRIAN: Well, I didn’t take anything. How do they know? It just sets off in human nature all kinds of unnecessary trust issues, so we advise, this is not us, but we have seen problems, train wreck issues on trust in their power of attorney document when compensation clauses are in. We’ve seen zero problems when the compensation clause is deleted. That handles a major issue by deleting the compensation clause.
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BRIAN: Now, you still keep the reimbursement clause in there, so if they have to fly out to handle your issues and be present, physically present, yeah, they should be reimbursed for their expenses.
CLAYTON: Well, and there’s little things too, little costs and fees that people pick up on the way. Hey, I had to go pay 50 bucks for this to get a report and file this. All of that kind of stuff can add up for someone so that’s why the reimbursement clause seems like a fair clause.
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BRIAN: Good. So that’s the second thing. The third thing is the trigger clause. Who decides when your power of attorney is activated?
CLAYTON: So, this is the activation clause that you referred to earlier?
BRIAN: Right. This is a big deal. If it’s based on signature, I hope that you have a great relationship with your spouse. Here’s funny story. I think you’ve heard this before. [LAUGH] In Seattle, we had husband and wife bickering all the way through the planning process.
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BRIAN: I mean, it was so bad that she called me for meetings by herself, unbeknownst to her spouse, and confided in me that she wasn’t sure that she wanted to stay married to this guy. Well, we made it through the planning process, they funded their plan, and while we went through their estate documents, I had the horrible experience of having to reveal to them that their power of attorneys were activated on signature which legally means that they can at any time clean each other out, financially.
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CLAYTON: Yeah.
BRIAN: And do it legally and call them from Cabo and tell them that the other spouse has nothing left.
CLAYTON: Right.
BRIAN: And there was an awkward silence and we quickly changed that to a different activation clause. Now my wife and I, Diane, have the trigger clause, active on signature. It has its benefits of being by far the most convenient.
CLAYTON: Sure.
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BRIAN: You don’t have to search out a doctor, but you better make sure that you trust your spouse, if it’s active on signature, with your financial life because literally that’s what you’re doing. What are some options? So other options are the boilerplate is to have your primary care physician determine whether you’re competent or not.
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BRIAN: Well, most of the time, when you’re in your mid 80s and you have a stroke, your primary care physician died 30 years ago.
CLAYTON: Right.
BRIAN: So, we see that all the time. Make sure to update your documents, look at the trigger clause, what we recommend and what we see recommended from other attorneys is two doctors. Just two doctors. That language, T-W-O. Two doctors.
CLAYTON: Because if you get to an emergency room.
BRIAN: Anywhere in the country.
CLAYTON: Yep, there’s two doctors around.
BRIAN: That works.
CLAYTON: Right.
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BRIAN: In any country, in any emergency room, you can get two doctors. So, we recommend that. Why two?
CLAYTON: So, the reason you want to have two is you’ve got two different perspectives looking at it. So, the one that probably hasn’t slept in 24 hours that’s the resident.
BRIAN: At the emergency room.
CLAYTON: At the emergency room, doesn’t walk in and misread something, so you’ve got a second opinion that can come in and confirm, that way it’s just extra assurance that the right decision is being made
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BRIAN: Right. So, one option for convenience, and huge trust, is on signature. The second trigger is two doctors. There’s a third. Now let’s say that as a spouse, Clayton, sorry to pick on you, but let’s say that you have the horrible experience of being diagnosed at age 75 with dementia and Alzheimer’s.
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BRIAN: If you get that diagnosis, your spouse, if the trigger clause on your power of attorney document says two doctors, your spouse has to haul you in to two doctors to tell you that you’re incompetent. Now you’re a human being, you’re going to fight for your independence and put on your best show every time she hauls you in there. So, you have the horrible experience of probably two or three times before the doctors say yeah, he’s incompetent.
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BRIAN: To avoid that horrible experience, we recommend and have heard this through other attorneys, that you can use what’s called a family council as a trigger clause. Nobody knows you better than your spouse and your kids.
CLAYTON: Right.
BRIAN: So you list family council, you list the kids that see you, are in state, are in touch with you, and they can determine when it’s right for mom to take over all things financial and health care and you would never know it.
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BRIAN: Does that make sense?
CLAYTON: Yeah, and going through this, I’ll give you a little bit of background. I was sitting through a conference this morning, just a compliance conference, talking about some different rules and regulations and I thought there’s a reason that every single one of these rules exists and I can only imagine what story had to happen to get that rule or that law put in place. And it’s the same thing with the things that we’re talking about.
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CLAYTON: These experiences, Brian, you’ve been in finance for over 30 years and you’ve seen people go through that entire phase of retiring all the way to living out a great life in their golden years and passing away old and happy, and so you’ve seen all of these different issues and I’m sure if we had four hours, I’m sure you could fill it with stories of all of these issues that people have run into, which is why we share this. So, I recognize that it’s a lot of information that’s coming out but the stories behind it are the reason why we want to get into and share some of this stuff because we’ve seen a lot.
BRIAN: Right. So now we talked about the will and we talked about the power of attorney.
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BRIAN: And power of attorneys, you can get different ones, you can have power of attorney finance, power of attorney health care. Make sure that both are covered. So, the third thing is health care directive. And a health care directive, this is the pull the plug document.
CLAYTON: Right.
BRIAN: Again, there’s three things that we want to make sure you talk about with your spouse, and your attorney. One, again, is succession. So, while both spouses are alive, they’re agent to each other on their health care directive.
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BRIAN: Who do you want in there? Do you have a son or daughter or niece or nephew with medical or health care background? That would be ideal. Again, for trust issues you may want to have, if you have more than two kids, two kids or more, you may want to have all of them in there, but succession requires, in our opinion, a discussion of who is best in there. is it the same person who is succeeding on the power of attorney and the will? Quite often it’s different.
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BRIAN: So, the first thing on the health care directive is succession. The second thing is to make sure that you have comfort measures in the document. So, we strive to make sure that, yeah, there’s no artificial hydration or nutrition, well, you better have comfort measures in there, or you’re going to suffer. Comfort measures are pain medication, making sure that you have drugs and it should read that even if it extends my life, I want to make sure that I don’t suffer. And you ask for pain medication.
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BRIAN: That’s the second thing. The third thing is the most important in my opinion on the health care directive, and that is to make sure that, and this is so unfair, this is the trigger clause for the health care directive where doctors come to you, let’s put you in the horrible hot seat, Clayton, where doctors come to you and you ask if they should pull the plug on your mom or dad. And let’s say, well, you know, he doesn’t look too good, and the doctor says yeah, he’s got all these problems like we’ve talked about. Yeah, let’s pull the plug.
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BRIAN: And you pull the plug on your mom or dad and then within six months, invariably, you’re going to read the article about the guy that was in a coma for two years, who came out and he’s all fine.
CLAYTON: Right.
BRIAN: And you think, I just killed my dad. So what we want to substitute in there is not have you be the decision maker, but that you get to receive council from two doctors again, T-W-O, two doctors, that state in their opinion that mom or dad is kept alive artificially. If two doctors state that to you, now you can pull the plug on mom or dad because they wrote that document so that they wouldn’t be kept alive artificially.
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BRIAN: Does that make sense?
CLAYTON: Yeah. Well, and I think about this, I try to put myself in that situation where okay, if I’ve got to go into the hospital, I’m in a coma, I get in an accident or something like that, what do I want to have happen? Do I want to go out on my own terms or on somebody else’s terms? Do I want to be the one deciding how I live out the end of my days or do I want someone else deciding that for me? I want to be the one to decide. I want to be the one to say yes, make me comfortable, but don’t keep me alive.
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CLAYTON: Get me out of here, I want to ride that pain free train all the way out. So, I think these are things to consider, put yourself in that situation. And it’s awkward, it’s uncomfortable, you don’t want to think about it, because it’s emotional and it’s scary, but a couple years ago my dad called me up and he said, hey, there’s somebody in our neighborhood, he’s not doing well, can you come notarize some stuff for him? And I said yeah.
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CLAYTON: I mean, this guy was on his death bed, and by the time I was able to get home and take care of it, somebody else had been able to help them out. That’s not the kind of stuff that you want to be worrying about when you’re on your death bed. So think about it now while you’re happy, while you’re healthy, get all the kinks kind of worked out so that when the time actually comes, you can spend time with family and do the things that are the most memorable, the most enjoyable.
BRIAN: Yep. Okay, do we have time to talk about the last document which is the trust?
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CLAYTON: Yeah, let’s just do the trust and can we do it in one minute?
BRIAN: We’ll see. Okay, the trust is the biggest problematic document of all the documents and is the superlative, the reason that most kids never talk to each other again. So, this also has three parts. One is who do you want as successor trustee? So, parents have passed away, assets have poured over into the trust, no probate, so we’re good on that, but now who’s the successor trustee?
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BRIAN: You’ve got to have the discussion because that person is going to take a lot of work, a lot of time to transition that estate to the beneficiaries.
CLAYTON: Right.
BRIAN: That’s the key person, the lead that’s doing all of that.
CLAYTON: Right.
BRIAN: Make sure that they are left brained, that they’re get it done attitude, and that they’re very organized. That’s the person that you want in there.
CLAYTON: Sure.
BRIAN: For trust reasons, you might want to have more than one kid in there, but this is where the job really has to be done perfectly.
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BRIAN: The successor trustees the most important designation election. The second thing, again, is the problem and issue of compensation. So, for compensation, it’s going to say again, that reasonable compensation is due. It’s a blank check, it needs to be addressed. If there’s kids involved, we’re again, seeing less problems if they strike the compensation clause and keep the reimbursement clause.
CLAYTON: Sure.
BRIAN: The third one is the biggie. I’ve left this one for last and that is the distribution instructions in their tangible assets.
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BRIAN: Now remember, all tangible assets are things like the house, the cars, the boat, the jet skis, the hunting stuff, all that stuff. It says something that is very ridiculous in the instructions in the boilerplate document for tangible asset distribution. It says, “all tangible assets are to be divided equally” and sometimes they’ll recommend shares. So, let’s just point out the obvious, so you have a Steinway, three kids, how can you possibly do that?
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CLAYTON: I get the chainsaw out, right?
BRIAN: That’s it.
CLAYTON: Give them a piece. [LAUGH]
BRIAN: Yeah. And it says that the oldest kid gets to pick first. Oldest being smart says I’ll take the house. Next.
CLAYTON: Yeah.
BRIAN: It’s not fair, and this is exactly why most kids never talk to each other again because of how poorly drafted this section is in the trust. So, what we recommend are three things. One is that you say the biggest items in the trust, there’s liquidation clause.
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BRIAN: House and cars would be sold with proceeds equally divided. That’s point one. Point two is to create appendix A where you go to your kids and you say, hey guys, we’re not going to be around forever, do you have your eye on something? If so, let me know, I’ll put your name on it. That’s important for two reasons. One, the kids can’t be a victim, they can’t say that they were shafted.
CLAYTON: Right.
BRIAN: Because they had a chance to speak up.
CLAYTON: Yep.
BRIAN: And two, let’s say that there’s two daughters.
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BRIAN: They both want mom’s wedding dress. Well, you’re alive to take care of that. You’re alive to handle it and work it out.
CLAYTON: Sure.
BRIAN: If you’re passed away, there’s a problem because they might not be able to work it out without your help. So, second part of this is to say refer to appendix A for specific asset transfer requests. Third is the catch-all. It’s a liquidation clause. It says anything not on appendix A is to be sold slash donated with proceed equally divided. You can equally divide cash.
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BRIAN: Now, that does make it fair but sometimes there’s a right of first refusal clause in these instructions so if one of the kids wants mom and dad’s house, they can buy it fairly with appraisal from the other kids.
CLAYTON: Sure. Buy the two thirds portion, right? There’s three kids, they got to buy out the other portions.
BRIAN: Yep. So anyhow, I zipped through that as fast as I could. Any clarifications?
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CLAYTON: I’ll just add one comment. The most organized person that I ever saw with their distribution strategy for all their assets, they had gone through, each page had a note of what the item was, describing what it was, with a picture, and who was going to get it. [OVERLAP]
BRIAN: You don’t have to do that.
CLAYTON: Yeah, you don’t have to do that but that’s taking it to the extreme of organization to make sure that there were no issues, and everyone understood exactly who got what.
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CLAYTON: And it wasn’t for all of her stuff, but it was for the jewelry and some of those more kind of precious heirloom items, but it was still well detailed and well thought out.
BRIAN: And it was done by someone who prized her possessions greatly, when, this is the unpleasant fact, most of that’s going to the Salvation Army. You know that, right?
CLAYTON: Yeah.
BRIAN: Okay.
CLAYTON: Yes, it’s something that I think for just about any of us, we can think about our parent’s homes, our in-law’s homes, and think about the mess that it’s going to be when they pass away of having to go through it and clean it all out.
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CLAYTON: Because 95 percent of is junk. It’s just stuff that we’ve got to go through, and we have to feel like we have some emotional attachment. Now, I’m a sucker for this kind of stuff. I get way emotionally attached to junk and I hate it. My wife gets so mad at me. So, having these conversations and talking through it is helpful because I recognize the importance of, at the end of the day, again, it comes down to the relationships. And so, we’ve got to remember that it’s all just stuff. What matters is our relationships and maintaining those relationships with our siblings, with our parents, with our in-laws, as much as possible and if these documents are all organized, that can be a huge help to maintain those relationships.
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CLAYTON: So, if you’ve got any questions on any of this, we’d love to talk you through it, get you in touch with an attorney if need be. You can give us a call, our number’s 8337073030. Again, that number 8337073030. And one other thing, if you haven’t already, on our website we’ve got some books and useful guides. I encourage you to go on there and download those. We’ve got the Common Sense Approach to Retirement, that’s our e-book we’ll give you that Brian wrote, and a few other documents in there, some other e-books that we’d love for you to check out. Again, go to our website, Decker Retirement Planning dot com, where you can find all that. Thanks for joining us today.
