Estate Planning: Aligning Beneficiary Designations with Your Legacy Goals

Are your beneficiary designations in line with your legacy goals? Find out why a simple name on a form isn't enough as we navigate the complexities of estate planning and the importance of a well-thought-out will. Our latest Ditch the Suits podcast episode is your wake-up call at the start of the year to examine the fine print of your financial future, ensuring that your assets transfer seamlessly and your wishes are respected.

We broach the sensitive topic of life's impermanence and how it affects your estate planning.  We share insights on crafting a will that acts as a clear guide, simplifying the process for your loved ones during a time of loss. It's not just about listing down assets; it's about understanding the nuances of the inheritance, particularly when it comes to things like special needs beneficiaries. Our discussion spotlights the perils of overlooking the impactful role of beneficiary designations, and ways to shield your family from unnecessary stress and taxation.

This episode isn't just a checklist; it's a strategic roadmap to aligning your financial and estate plans. We emphasize the need for regular updates to estate documents, especially considering recent societal changes. We also share real-life examples that illustrate the consequences of mismatched beneficiary designations and wills.

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Transcript

Speaker 1: 0:07

Welcome to Ditch the Suits podcast, where we share insights nobody in the financial services industry wants you to know about. We're here to help you get the most from your money and life, so buckle up and welcome to Ditch the Suits. Hey guys, steve Campbell, before we jump into today's episode, we wanted to share a way that you can win some DTS swag on us. This is episode number 98. We are two away from the big 100. It's been an absolutely incredible three years for Travis and I and we wouldn't be able to do this without all of you. This is why we want to celebrate and give away some goodies. Here's a way that you can win a gift on us. There's going to be a drawing with three chances to enter. Number one you can head over to Facebook and like our NQR Media Not Choirite Media Facebook page at NQR Media, and we'd love for you to share a recent DTS episode with your network. Number two you can head over to NQR Media on Instagram Same thing at NQR Media and comment on a recent DTS video that we shared. Number three if you're an Apple podcast user, you can leave a five star rating and review on Apple podcast. Three chances to enter we're going to pick multiple winners, but once you're completed, send us an email at ditchthesuitscom that's ditchthesuitscom and let us know what you've done. All this information and directions will be in the show notes so you don't have to worry. Drive your car, be safe. But we want to thank you. There will be multiple ways to enter and we will pick it after the 100th episode. Get some DTS swag on us. Thank you for celebrating this journey with us and now enjoy the episode.

Speaker 1: 1:37

Welcome back to Ditch the Sooths podcast. Steve Campbell here with Travis Moss, starting off our new year with you guys, excited For the year. It had 2024. As we were mapping out this year and all the things we want to talk about, we thought a good place to start the year is maybe you ended 2023 trying to be better set up for 24, taking inventory of what's been going on, regular, routine maintenance. But we wanted to talk to you about maybe a really overlooked area in regards to planning, or something that you should definitely be paying attention to. It's around this idea of beneficiaries and, more so, complex beneficiaries Like Ditch the Sooths. We always take you through a three-part conversation to really build upon a foundation and then help you have some takeaways, travis, I know with complex beneficiaries, this is really important to you as a planner because it's very overlooked, it's misunderstood. Maybe a good starting point is to talk through why this conversation, why now, and what are some good takeaways through this series.

Speaker 2: 2:36

Well, as we were talking before we started, it's beginning of the year and so people are thinking about how do I get myself set up? This year I got to go down my checklist, make sure everything's checked off, or maybe you're going through it into your annual appointment with your investment or financial person, or, if you do it yourself, you're checking your box is making sure that everything's in order, getting this in front of you now. This is a good time to think about it. You're not really into filing your tax return yet. You're not really into any mid-year planning or year-end tax planning or anything like that. It's a good time to think about your beneficiaries and look at that.

Speaker 2: 3:14

Beneficiaries normally are the forgotten thing. Everybody wants to know how their accounts are doing or how much money they have, but we don't always ask is it really going to get to where I want it to go in the way that I want it to? For instance, I want it to get there easy and smooth, and that cause a lot of issue or consternation. I don't want there to be a lot of conflict. A lot of people want to avoid probate those types of things. I think that because beneficiaries are just kind of they're not fun. It's got nothing to do with you right now. It's got to do with you and your God. We have these other estate planning mechanisms, like wills and things, which just feel like it's not really important or as long as somebody's name is listed, that's going to be fine and it's much, much more if we do a good job. It's much, much more sophisticated than that for most people.

Speaker 1: 4:11

Yeah Well, and I think, as we've talked about on the show, to get the most for your money in life. That's our main thing, that we're trying to do with all people, and the life component is something that is mostly fun. It's how to get the most from life, but it's also kind of afterlife what happens when you're no longer here? How do you make sure you set up the next generation or whoever's important to you? So I love this idea of this topic because I think we're going to get into some points here that maybe just people have never considered, and that's our whole takeaway with our show Take this information, take it to the people you work with, understand the ins and outs of these components, because you just don't want to not understand and make a mistake, especially when it comes to your estate. So a great place to start, as you said, is maybe a will Help us understand maybe just a high level overview of the will any different kind of parts or types that are involved.

Speaker 2: 4:58

Yeah, I think this is really good too, because if this is really more broadly about estate planning so if you're somebody who's thinking I got my wills and everything and I got my beneficiaries on my set, listen to this anyway, because we're going to get into some different ideas with estate planning. That I think maybe is the differentiation between an advisor who is actually really good at estate planning and somebody who just kind of generically does some stuff because they're more worried about getting your assets. And so if we start with the will and we start with some of the misconceptions around the will, I think we kind of have to understand what a will is. And a will is a catch-all instruction manual, so it's. It's designed so that if you forget to say where you want something to go, or if something's a little bit more complicated than just I want to get to this person or that person, the will is an instruction manual that explains what should happen when you're gone with your assets. So it an instruction manuals can come in different forms, right, like that.

Speaker 2: 6:03

We were joking we got a new headset and then instruction manual, for the headset is like two inches big, so you can have a really thick instruction manual and have all kinds of details in there. You can have a really thin instruction manual, maybe just one page or ten bullet points or something like that. Sometimes you know you have a lot of things in there that don't matter either. I mean, if you've ever got an instruction manual for something and it's like more of the generic one, in case you got this feature, in case you get that feature, like if you ever read your, if you buy a new car and you read the car manual, right, it's for every feature that that car possibly could have, not the feature specific to the car that you bought. So it's really keep, keep it. Let's keep in our mind the purpose of a will is it's a catch-all and it's to provide instruction where instruction is actually missing.

Speaker 1: 6:49

And and I think I think to that point too. I want to add that there maybe there's a couple of camps listening to this. When you hear will, you might be the kind of person who you, you and your spouse just kind of went oh, like we don't have one of those. We've talked to a lot of people over the years and they're 50, 60, 70s. You get to the estate planning portion of you know gathering information. It's like talk to me about your wills in the States and they kind of look at each other and they're like, yeah, we haven't done it yet. So there's that group that's never done it.

Speaker 1: 7:16

You have people that maybe they did this 30, 40 years ago when they first had kids or they bought their first home, and so they kind of have this thing from 30, 40 years ago and they've never really revisited it. So I think that this is also going to be a really helpful conversation, because most people on Dish the suits are here to it better improve or self-improvement. What our hope is is that, even if you feel like you're good in this area, just like every other topic we do, we hope we leave you with one nugget that can just improve the things that you're doing. So don't tune out, but but. But start to talk to us then about the will. I think that was a great understanding, but keep going.

Speaker 2: 7:49

Yeah, and I think that this is also for young people. I think you have young people who think that they don't have enough, so they don't need a will, and then you also have people who hear this and they're like you know what? I haven't updated my will in 18 years, from when my kids were born and they're out of house now, so I need to run off to an attorney and update my will and and you need to listen to some of the stuff first, because this is going to Maybe help guide you so that you don't, let's say, go do things that then you have to undo or redo because you know you didn't realize what some of the vernacular is or what some of the tools available to you are. The will is is like we were talking about again back to the Just understanding what we're talking about here. It's it's the last opportunity for someone to designate a directive regarding what happens with their assets post death. So that is Back to our young people example here.

Speaker 2: 8:45

That's you. You have a house. What do you want to happen to your house? Or let's say that you don't have much money but you have a child and you have life insurance through work for 150 grand. Well, if you want, if you have a 15 year old, you know, or an eight year old or a five year old, if they inherit 150,000, courts got a point of guardian or a custodian for it, right, and that person is now going to be in charge. Well, it let's say that you have an ex spouse. Do you want the ex spouse to be in charge of the kids money? You know, maybe the reason why they're an ex spouse is because they weren't good with money. You might want to designate who's going to be in charge of that money for that kid. And then you may also not want the kid to actually get the money when they're 18 years old. You may want them to have to wait until they're done with college or something to get the money. And so these are things that your will normally will.

Speaker 2: 9:43

Actually, that's the instruction manual part of it. It can lay it out and you think, okay, well, my kids are out, so it's a lot easier. I just give it out, I'll rate to my kids. We, you know you also have to think about contingencies. What if assets actually went to your kids, kids? Now you're back in the same boat that you were when you had kids. If you left assets to your kids' kids by chance, because you don't plan on your kids predeceasing you, but if something happened, maybe you and your kids together, it's the instructions of what should then happen for their kids as they inherit assets.

Speaker 1: 10:18

Hey guys, steve Campbell with Ditch the Suits, I want to take one quick moment to make a big ask. If you haven't already, travis and I would love for you to subscribe to this podcast, but if you haven't, also we would love for you to leave a five-star rating and review. Your rating and review will let other podcasters know if the show is worth their time. Let's get right back to the episode, and thanks for listening to Ditch the Suits podcast.

Speaker 1: 10:39

Maybe it's hard too, because we're not talking about death today, but in a roundabout way, we're talking about what's going to happen when you're no longer here. There may be some people that just can't come to grips. They're healthy, they just can't imagine a time when they're not going to be here. It's like I'll deal with that at some point down the road. But I think, to also bring it back to you have to have these conversations now because of you can't make decisions when you're no longer here. So wouldn't you rather be aware of what's going on, even if you thought things were happening a certain way, being exposed to? I know this is what you thought was going to happen, but a reality, like based on what you have when you're no longer here. This is how things are actually going to play out. Most times, that's when people are like, oh my goodness, that's not what the intention was, and I think that's what you're getting into.

Speaker 2: 11:30

There's like an old saying that the graveyard's full of people that didn't intend to get there or be there right Like I don't know.

Speaker 1: 11:35

I might have made that saying up, but I mean, that's pretty good, let's put that on a T-shirt.

Speaker 2: 11:39

But think about life in general right now. I mean, a couple of years ago we had COVID and we had a bunch of people that died unexpectedly, right. You have mass shootings all the time now, right, you just be at the wrong place at the wrong time, yep, and something can happen to you. You've got airplane windows that are blowing out while the plane's in the air, right. So it doesn't matter how healthy you think you are, how risk-averse you think you are, how much you wear your seatbelt and drive by this speed limit, stuff can happen to you and your family members at the same time you go on a family vacation together. These happen, and the reason why you worry about your beneficiaries and your will in the first place is in case a tragedy happens, in case you don't know when it's coming and it comes and gets you right, like that's what this is all about. And so we want to think of our will as really a funnel and on the top of the funnel, the big part of the funnel. That's where your stuff goes that doesn't have its own instruction manual already built in. So it's like all your stuff that needs instruction. It goes into the will and at that small end, the bottom of the funnel, the small end, that's probate. So the stuff is going into the will and it's going through the will and it's squirting out on the other side of probate, and probate's that whole process of having to go to court to process your estate and allowing creditors and other people to come in and challenge who's getting what, and that type of thing, and for the most part, it's a pretty lengthy process. I mean, in the grand scheme of things, it's pretty short, but in reality, when you've lost a loved one, waiting nine or 12 months to get things settled, that's a long time. That's a long, stressful time when you're trying to live your life and you're trying to get over losing somebody, and so everything goes through the will and it passes through probate, and then it gets to whoever's inheriting that, and the will itself, though, can be a very powerful tool.

Speaker 2: 13:38

Back to that instruction manual. If you've ever gotten, I ordered a little chain sharpener for my chainsaw, and the instructions literally were missing words and missing sections. I mean, the instructions were so bad I can't figure out how to use it, and the pictures are so small I can't really understand what they're getting at right, and so, obviously, it's like you know it's been thrown together by some cheap back off company or whatever. I should have maybe read more reviews on it or something. But I can have an instruction manual. That is so bad I actually can't figure out what to do with it, or it doesn't help me maximize my situation. Right, I'm not going to get the best as I can out of that tool because I don't understand it. And so you know, I can go online, I can go on YouTube, I can go try to figure it out. That's a situation where I kind of have free will to do that.

Speaker 2: 14:31

If my will, though, if my rule book for what happens with my stuff when I'm gone, if that's undefined, I don't just go to YouTube and figure it out. The state in which you reside has some default stuff for you, right? Or let's say that you do have a will so it doesn't come to the state. Now your executor is going to decide for you, let's say if it's vague or undefined, or something like that. So we create situations where our rule book or instruction book is not going to be very good and we're missing the opportunity what we can actually do with that.

Speaker 2: 15:11

Well, how powerful that will can be to create really good situations.

Speaker 2: 15:15

I mean, it's a horrible situation to lose a loved one, but it's a really good situation if you're going to inherit assets, to inherit them correctly, like, for instance, if you're on special needs.

Speaker 2: 15:25

Let's say you have a disabled child and they're an adult disabled child and they get welfare programs. Depending on how you leave them assets, you could disqualify them for welfare programs or you could force them to put their money into a special needs trust. But there's a difference between whether the trust inherits the assets directly or whether they go to the disabled person and then they go into the trust. There's a difference in what you can actually do with that money, how it works and your heir's ability to pass that money forward. The wheel actually can can structure all this for you. You know and these are very simple examples there's many, many, many more, but I want to get into some other areas. I wanted to talk about beneficiary designations. We want to talk about leaving assets of someone else to deal with it for you, and we wanted to talk about naming charity to small gifts in your will.

Speaker 1: 16:22

Yeah, and I think you know, when it comes to financial planning, there's always layers, and if you've lifted into Travis and I for any length of time the last three years and this is your very first episode it's like investing. You can invest and just throw your money into anything. Or you can, you know, take a next level and maybe do a mutual funder and ETF and try to be diversified. And then you listen to Travis and I and we're like but wait a minute, there's an even better way that you can actually learn how to pick good companies and own good stocks and all of a sudden you're like I didn't even know I could do that.

Speaker 1: 16:51

I feel like wills and estates are kind of the same thing. Most people know that they need a will and then when you go to turn for a will, you can Google any company online that will create a will for you. You can think you can write on the back of an appkin. You can go to an attorney and they say that they do wills and they pay. You pay a transaction. So there's a part of you that feels like you're being responsible because you paid somebody in a suit a certain amount of money to draft this legal document. So it's better than being online.

Speaker 1: 17:18

But what my hope is is that we challenge you that. What if there was an even better way? And I think it's hard, because I've dealt with family, I've dealt with prospective clients that they just don't wanna deal with it and they want to avoid, maybe what they know they should have done for years and years and years and they just wanna, kind of like, leave it so whoever has to pick it up, and that's not fair, and I think maybe it just chalks down to they don't understand how, not simplified, but with a proven path, you can actually go from a place of being confused to confident, because you actually understand the different components and what you could do. So I feel like when it comes to a state planning, everybody knows they need to do something and you hear all the stories of professional actors and musicians that pass away and it's like, oh, prince didn't have a will. It's like, no, prince didn't have a will, james Gandolfini didn't have a will. No, james.

Speaker 2: 18:11

Gandolfini didn't have a will, but you know that they had attorneys, you know that they had advisors, right, like there was absolutely no way that people with that much money don't have attorneys and advisors. So how is it that they don't have these things set up correctly? And it comes down to procrastination, and it comes down to not wanting to actually deal with this, I think, or deal with the challenges and stuff like that, and or it comes down to, like you said, you can go to an attorney and go online and stuff. Just because somebody can put a will together for you, does it mean that they're actually good at planning? Right, there's. I don't always say this when you go to an attorney. An attorney's job is to go over the legal aspects with you, the legal aspects with you. They're very good at going over legal aspects they're.

Speaker 2: 18:59

The attorneys that I know that I've worked with are kind of pretty black and white, straightforward. You know, this is how I see the world. There's no other way into it, because that's the world that they live in. I mean, think about what law is all about, you know, and so you can go to them and have them give you advice on law. But I would say that it's quite often very difficult to go to them and have them give you advice on life, which is what really drives what should be happening inside of your instruction manual or inside of your will, like how does your family actually work? What's going on with your family? What type of assets do you have? What condition are your kids in? How's your spouse? You know like there's a lot more. What's today look like, but not just today, because you're writing this for the future. What's it look like? Where are you gonna be in five or 10 years or 20 years or 30 years? Like understanding the grander scheme of things and understand things for a person, the person's bigger kind of how their life actually looks, versus just taking a piece of paper and trying to shove it all into a will and say, yes, legally you can do this, Cause I've seen that an awful lot. We go to the attorney and we say here's what I want. And they say great, and they make you know, they put it in a will and it becomes legal and it's like yeah, but somebody needed to say to you that that was a really like you can make it legal, but it doesn't make it practical right. Like it's like there's an attorney doesn't care, because the less practical it is I mean, frankly, you're gonna have to deal with the attorneys and pay legal fees to clean it up at the end. So you know it's there, like that's what they told me they wanted.

Speaker 2: 20:38

So the other pieces, before you even get to the actual will, though because the will again, remember, is the funnel for everything that doesn't have its own instruction with it the first line here, before you get to the will, is the beneficiary designations, and so these are the interchangeable terminology, and people always get like really finicky but you call it bank. They get really finicky with this, but it's all the same stuff. A beneficiary is the same as a payable on death, it's the same as a transferable on death, it's the same as rights of survivorship. They all mean the same thing. What we're talking about is those are instructions on the account to say what should happen with the account if I pass away. And here's the really crazy thing and I know you and I are talking about this they supersede your will. That's a big point. So you can say in your will split my money with my kids equally, or give my money to my new spouse, and if your old beneficiary says give it to my ex-wife. It's going to the ex-wife. So the beneficiary designation has precedence Because you're not even getting to the funnel.

Speaker 2: 21:46

It's stopping everything in its tracks. Stuff's getting to that beneficiary designation. The financial company says we don't have to send this to the estate to sort it out, we don't need to put it in the funnel, we know who we're supposed to send the money to and they send the money where it's supposed to go. So it doesn't pass your probate. But some of the other things it doesn't do if it was supposed to.

Speaker 2: 22:04

Let's say, somebody's inheriting it that all of a sudden is in a special need situation and this money should be going to the trust. The beneficiary designation also doesn't necessarily capture that. It just says, hey, give it to them outright. So now we've got some problems too. Like Steve, you have young children. You can't put your children you could, but it would be unadvisable Put your children as beneficiaries on your life insurance. And the reason is is because we're back to that first question if you inherited it through the will, who's actually going to manage it and at what age can they just have the money? You know, if you give an 18-year-old the choice between taking a half million dollars and galvanizing around the world, or going to college. Most of them are going to galvanize around the world. They're going to make some different decisions and you otherwise would have, you know, tried to have guided them to, had you been alive and in their life.

Speaker 1: 22:58

Well, that's such a big point, I want to park right there because that was such a big point that if you're driving in your car and you just kind of heard it, it's like what do I do? Here's a super practical take away. When Travis says that beneficiary designation supersede the will a great thing that you can go do today. You got a 401K, you got an IRA. Go in, sign into your account, go to the services tab and look at your beneficiaries, right.

Speaker 1: 23:20

So when we say beneficiary designations, that's specifically your 403B, your 401K, your IRA go to the tab that says beneficiaries, because whatever you have on there from 20 years ago, 15 years ago, even if you just updated your will, that will supersede it, and so that's a super practical thing you can go do today when you get home, not while you're in the car. While you're home. Go home and check this out. Let's pause and hear a word from our sponsor.

Speaker 1: 23:45

This episode is brought to you by the One Big Thing podcast. If you're in the thick of life as a parent or a spouse and just trying to grow as a person, then you won't want to miss this show. Hosted by Steve Campbell, the One Big Thing is an interview style podcast where he brings you guests from all walks of life picture professional athletes, influencers, business owners and even some rock and stay at home moms. Each episode will bring you, as a listener, a life hack or a way of looking at life that will help you move from inspiration to transformation. Listen to the One Big Thing podcast and all major podcast platforms today.

Speaker 2: 24:22

An interesting thing too, when we do 401K reviews through our sweet K division, when they meet with employees or employers and they talk they have to every year remind people to go in and actually list their beneficiaries. It's kind of a major issue where, because it's like, oh it's, you know, I didn't even sign up, it's not really a big deal to me, and then before you know it, you got a couple hundred thousand dollars in the 401K and there's no beneficiary listed on it. That's going to be an absolute disaster when you pass away, because now you're not just dealing with the fact that you know it's going to have to go through essentially probate, but you're not dealing with an account. You don't actually own the 401K account. You have a sub-account within it and the 401K is the governing body and that's got its own rules and that's got its own things that are going to happen if you don't have a beneficiary designated, and so it makes it an extremely cumbersome process.

Speaker 2: 25:18

So, steve, I think that was a great point. You know you're thinking about any kind of investment, cash, insurance, crypto, anything like that. That's what we're talking about here Anything of monetary value that you can even get into real estate. With this, I mean there's literally ways to essentially create beneficiaries on real estate or even businesses. You know you could have a small business and there's a way to create secession in that small business to keep it out of probate. So the point is that there are things that we can do for most of your assets to keep them away from going through probate or passing through in a way that you don't want them to.

Speaker 2: 26:02

And then the other really neat thing and people a lot of times don't understand this is your beneficiary designations don't. Actually, since they supersede the will, they don't need to match up with the will. So let's say that you said look, I've got beneficiaries list on everything and my will says split everything extra 5050 and what we're really talking about is my house and my cash. But you know, I've got, you know, one kid who's doing really good, one kid who's not doing as good, or both of my kids are doing really good. But one went into nonprofit and one went into business and want to win into businesses done financially much better than when they went into nonprofit.

Speaker 2: 26:38

So one is in a higher, much higher tax bracket than the other one.

Speaker 2: 26:42

So I'm going to leave my Roth to the one in the higher tax bracket.

Speaker 2: 26:45

I'm going to leave my retirement account, my IRA, to the one in the lower tax bracket because it kind of levels out by the time they get done paying the taxes and the family keeps more money because they're paying less to the tax man, even though your will said split everything 5050, but you're not splitting the accounts 5050.

Speaker 2: 27:02

You're saying this is the right account to leave to that person because they're in the 32% tax bracket and this is the right account to leave to that person because they're in the 12% tax bracket. So we can go in there and when we're, when we understand how beneficiary destinations work, we can actually like scheme out your assets and how you might want to direct things that you don't even have to mention in a well and we'll talk about those. And we have one more point before we're going to get to that. So we'll talk about things that you don't even have to mention in a will, but you can still leave money to or things that you might mention in your will that we would advise that you don't mention in your will because of some other types of planning issues.

Speaker 1: 27:46

Well, I'm just thinking about listening to what you just said, and that was the point I made at the beginning. So, the different camps you have people that have nothing, they have no will, they have no beneficiaries. So let's go pay attention to that today. Right, that's step one. But then step two you got people that took the noble step, which is they just want to leave everything equally to the kids because that makes them feel good. Good idea on paper, good premise.

Speaker 1: 28:11

Until you just take the analogy that you just said hey, of your two children, one's a doctor and one works for a nonprofit or, you know, as a missionary. One makes a ton of money, one makes no money. Love the idea of leaving everything equally. What if we could get to the same end result but just not kill the other one with a tax situation that's unfavorable to them? Now, all of a sudden, people are like I guess I didn't even understand the levels. So then you look at all your assets and all your tools and I think that's the cool thing about this conversation and why we got excited about it. It's like well, what do beneficiaries matter? Quite a bit, actually, when actually done. Well, and that's the whole point. So these are the little takeaways that people can have, and I think these last kind of points that you're going to make are going to lead us into the next episode.

Speaker 2: 28:53

Yeah, well, one of the big issues that people have and I have. I understand why people do it, because I've had people explain it to me before, and it's as a planner. It's a frustrating thing to do and I've actually had to deal with a state where somebody passed away, where people have done this and man does it make it very, very difficult and very stressful and it's really not fair to the heirs. What happens is is we say, look, I don't want to deal with some issues. So I'm going to say, steve, let's, let's pretend that you're my brother, right, and I've got a bad relationship at home and I'm kind of stressed out with my kids, or something like that, so I just leave all the money to you. I go, steve, here you go, I'm going to leave everything to you and what I want you to do is do what you think is fair and take care of my kids. Wow, so I'm not dealing with my problems. You know me as a man, I'm not dealing. Or you know it doesn't have to be a man, it could be a woman, right, but as an individual, I am not dealing with my family issues. I'm not thinking about. You know, there's a reason why I don't want to get money to let. Sometimes people have kids who have substance abuse issues, have major, major lifestyle issues, you know, and I don't want to deal with that. I don't want to deal with the fact that you know I don't want to spoil the kid or I don't want to give them money that'll cause some problems. So instead of dealing with that, I give it to somebody else to deal with. Like there are things that a good planner should be able to do to help you kind of not reconcile your relationship with your family members, but to compartmentalize it so that we can make a practical solution for when you're gone, because you may die of a heart attack, unannounced to everybody else, right, like it may not be that we know exactly when you're going.

Speaker 2: 30:54

We see people do this because they don't want to pay for advice. I don't want to pay the attorney. So I'm just going to, you know, or I don't want to pay an advice, I'm just going to make it easy. I'm just going to, I'm going to leave Steve there, because Steve knows what to do. Is Steve's really smart and good with money? Again, like we're creating some legal traps, some tax traps, like, for instance, steve, if I leave you an IRA and I say I want you to take care of my kids with this. When you take money out of the IRA that is in your tax bracket, that is affecting you. That may impact whether or not your kids can get financial aid to go to college, you know. But thank you very much for taking care of my kids while your family suffers because I've jacked up your tax situation by giving you the obligation although not a legal one, but a an ethical one or a moral one, let's say to take care of my kids.

Speaker 2: 31:46

And it's like, well, that's not right, that's not fair. And then the other reason is, you know, people are afraid or they're anxious and they don't want to address the issue more. I've literally had had folks cry about having to talk about mortality, and so, since they can't talk about it, you can't plan for it. And the problem is, you know, the hard part is is that it's going to happen to everybody. Yeah, so we have to figure out some way to do that, whether you know, we use different terminology or something, so there's not trigger words or something. But if you don't plan for it, chances are we're going to leave a pretty ugly mess. And the funny thing happens with families, with when people inherit money and mom and dad are no longer there to tell them to shut up and sit down, all of a sudden, like money causes all kinds of problems. People get in fights, people do stupid stuff.

Speaker 1: 32:43

Well, can I just throw the elephant in the room for you? I don't know that. Covid really brought families together and politics brought families together over the last, you know, four plus years. So what I'm saying is maybe four or five years ago was noble right to have in your document that your brother or your sister would take care of your kids if you're no longer here. The last couple years, man, things have gotten a little touchy in the family. There's trust issues. If you don't up-date those documents, you know what I mean that can cause a lot of issues. So so just very real world things that we hear about all the time. But you know, things can change and I think that's the whole point of why we're saying an annual start of the year. Folks, we're only a few weeks into January. Hopefully not too much has happened. Bandwidth why is it emotionally you just can't keep up right at this point that you can actually start to think about this is a good thing to check out this year.

Speaker 2: 33:31

Yeah, and I think that I've actually had clients say you know, I don't trust so-and-so to do. You know, I had so-and-so in my will as a trustee or something. I don't trust them anymore because of their political views. You know, I mean it is very galvanizing the big issue with leaving some your problems to somebody else to clean up, because somebody else might say, yeah, I'd be happy to clean that up for you, you can mess up their taxes. You can actually lose a lot more money because, let's say, you left money directly to certain people in their tax bracket maybe their tax brackets 12 or 22%. Now you leave somebody in a higher tax bracket, so that creates a problem.

Speaker 2: 34:09

There's legal responsibilities what happens if you leave me money that's supposed to go to your kids and I have credit or problems? What happens if I had a business that went bankrupt or something like that? Or I'm getting divorced? You know, I mean there's all kinds of issues that could come into play there. Or I end up with my own issues or I die. You know, not my assets go to my errors. There's gifting penalties, you know, depending on how much money we're talking about. There's family pressure and there's infighting, you know. So these are all the problems that you exacerbate by just saying you know I'm just going to kick the can and let somebody else deal with it. And the last thing I wanted to do we can do a little bit fast because I know we're running out of time is naming charities or small gifts in your will.

Speaker 2: 34:54

So this happens an awful lot, and a good example of something that happened is I have a client who, well, I've had a couple of these where the client has done their estate planning before they came and they didn't want to deal with the estate planning when they joined us because of the family dynamics, and so they had bequests in their will that said leave so much money to so and so or leave so much money to charity XYZ. And the problem is is that then they go out and they put beneficiaries on everything. So the will is saying we got to give $50,000 to charity X, but where's the 50 gonna come from? Because nothing actually got into the funnel. And so in an example, the only thing that got into the funnel in one of the cases was it was all funneling back out to charity. It was a large amount of gifting to the charity, so we couldn't really take advantage of the tax benefits of getting the charity, let's say, directly out of a retirement account as an inheritance.

Speaker 2: 36:00

Another one was somebody had to liquidate a college planning account to fund a charitable account, because that was all that went through that funnel. And so if we don't understand how these work and our planners aren't working together, or our state planners and our financial planners aren't working together, or we don't give them a copy of our will or we got it, we talked to an attorney, we got it all figured out. We can really screw this up. I mean, in one case we lost an opportunity probably to save $30,000, $40,000 in income taxes and in another case we had to cash out $15,000 of the grandson's college account. I mean, oops, you know, and it's because of a fear of dealing with the family, basically, and some of the dynamics and coming to grips with it.

Speaker 1: 36:49

And I just think it's really important to acknowledge that what's in these documents is whatever legal terms have to be fulfilled. You know what I mean. There's no like interpretation, like I know it said that, but this is what they really meant. You know what I mean.

Speaker 2: 37:02

A lot of people tithe, right, they like to give 10% to their religious institution so that they're doing a very noble thing, and what they're really talking about is 10% of their money. Right, you know, 10% of their income, 10% of their retirement accounts, because that's income when they pass away that type of thing. And so they go in the will and they say give 10% of everything to charity. And then the only thing that gets into that funnel is their house, and their house is supposed to go to their kid. So what's, how's the kid? Give 10% of the house to the charity. You know what I mean. That's not what they meant. What they really meant is give the charity X amount of money. Right, they didn't mean sell the house, they meant, you know, they didn't mean the charity gets 10% of the house, they meant the charity. You know, if the house is worth 500 grand, the charity gets 50 grand. That's what they really meant. And so what you can do is actually, with beneficiary designation, is you can actually go and you can say look, I really want $50,000 to go to United Way. So, beneficiary designation, $50,000 to United Way. The remainder gets split equally to my kids.

Speaker 2: 38:01

But the benefit to that is. It's not actually in your will. The will is not going out there looking for the money, right, nobody can challenge. Well, we were supposed to get that money. Where's that money? You took care of it right off the top. So if we put charities and small one-offs, I want, you know, $5,000 to go to each of my grandkids or $5,000 to go to my godchild or something like that. The more stuff we pack into that will and don't use beneficiaries for, the more likely the funding is not going to happen correctly. The intent is not going to happen correctly. There's going to be duplicity. You could like think about it like this let's pretend that you were going to give $10,000 to your kid and you already gave it to your kid. Now it's in your will and you don't get there to rewrite your will. So you know, rewriting a will as a process, doing a beneficiary update, is five seconds. So it's a very different thing and it just complicates administration. It can increase expenses.

Speaker 1: 38:57

Yeah, well, I think as we bring this episode to a close. I know we went maybe a little bit longer. We try to keep these two a half hour, but that's just because we wanted to lay the groundwork for understanding, leading to this final conversation around complex beneficiaries maybe a term you've never heard of, but just give you a little teaser to tune in for next week as we talk a little bit more about the will and give you some different levels, maybe a good, better, best and some disasters that you might want to avoid. So we want you to come listen, because you might hear these and be like, oh shoot, we fit one. Let us know which one of the three you fit into next week. So again, thank you for stopping by Digitus Suits. We hope that inspires you to go out and get the most from your money in life, but you're really going to want to listen to the last two episodes here in complex beneficiaries.