Controlling Your Wealth: Wills, Trusts and Estate Planning
What Estate Planning Docs Do You Need?
Have you wondered if your estate planning documents are enough? Or, what kind of documents might be best for your situation?
Grant McKeehan Trust & Estate Attorney, joins us to share his experience and expertise about wills, trusts and how to pass your wealth on to your heirs in the most efficient way possible.
Key Topics:
The advantages of having a trust over a will
The new changes brought about by the Secure Act for your inherited IRAs
Gifting strategies to reduce your taxes
The different estate planning documents and what they do
From controlling asset distribution to protecting businesses and beneficiaries, we cover it in this episode.
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Michelle Moses: Hello, everyone, and welcome to the me financial podcast. I am Michelle Moses, your host. And I am here with Grant McKeehan, a lawyer, a longtime friend of mine, actually, we've known each other for probably, I want to say like 18 years. And Grant is a lawyer focused on estate planning and helping families after the loss of a loved one.
He is a graduate of ASU law, that's Arizona State and also has his master of taxation from NYU. He's been practicing law for 19 years and has had his own practice for 14. Welcome Grant.
Grant McKeehan: Thank you. Thanks for having me.
Michelle Moses: Yeah, thanks for taking the time to be on here. I appreciate it. So today you guys, uh, Oh, I forgot to introduce myself.
I'm a certified financial planner. Former e commerce store owner, [00:01:00] podcaster, and, uh, I am a financial advisor. I've owned my own firm for 18 years and, um, I'm trying to cover some topics that I think are very important in estate planning is one of those. I think people, um, get really confused about some things, especially when you're moving from state to state.
Uh, there are, you know, different things to worry about when you go from state to state.
So a lot of what we're going to be talking about, uh, might appear be applicable to only Arizona, but I think a lot of it is also applicable just to everyone, um, across the nation. Would you say?
Grant McKeehan: Um, every state has its own, um, probate and trust laws, governing wills and trusts and the like.
Um, I do have, uh, quite a few clients that have moved to Arizona from places like Chicago or New York. And it's always cute because the married couples, they, they don't have a joint trust. They have a husband's trust and a wife's trust. And so they come in and I say, okay, well [00:02:00] now we're in a community property state.
So let's, uh, consider, uh, alternatives, but, uh, Arizona has. Pretty good, uh, state and trust laws. We have an Arizona trust code that was updated in 2010. So, uh, we have a pretty modern set of law and fortunately Arizona does not have an estate tax. So Arizona does not collect, uh, an inheritance tax if you pass away as an Arizona resident.
Michelle Moses: And that's just for state, but the federal level, it might. is different. I'm afraid so. Yes. You always have to be thinking of two levels of taxation.
So today we are not just going to only be talking about estate planning. So I had originally called Grant because, uh, in 2020, the secure act was passed and it has really chapped my hide ever since.
Um, because there was a law. This is not how Grant would talk at all. He's smirking over here. Uh, that there is a law in there that was passed that if you are a non secure [00:03:00] Spouse, beneficiary. So basically, uh, if you're not husband and wife, uh, and which happens a lot, you know, the mom or dad dies, and then the last, uh, parent dies and then it's left to the kids.
Uh, you have to get all the money out in 10 years. And so I originally had him on here to talk about that and how angry I was.
Grant McKeehan: deep breaths.
Michelle Moses: Deep breaths about yes, about this law. So, but we're going to start out first.
We're going to get to that, but first we're going to talk about what I want to ask Grant is what is some of the biggest surprises that you have when people come in to talk about estate planning?
Grant McKeehan: Absolutely. So, you know, as advisors, um, we have an opportunity to have a tremendous positive impact upon our clients lives. And I take that very seriously, hopefully not too seriously. Um, but. When we have estate planning, the opportunities, uh, abound. Um, [00:04:00] most estate plans start with a simple will, which you've probably heard of a will, allows you to nominate your executor, someone to handle your final affairs when you pass, pass away.
Someone to be a guardian if you have minor children and to leave your assets upon your death. One of the biggest surprises in my office is when clients learn that even if they sign a will, even a will prepared by a licensed attorney, that oftentimes that will is not sufficient to keep their estate out of court when they pass away.
Michelle Moses: Right. And I think a lot of things that get missed are things like, um, but let's, let's back up. So what happens when you have a will is that you're, you're basically stating what you want to happen. Uh, you could have it be healthcare. You can have it, you know, uh, be a power of attorney. If something happens to you and you become incapacitated.[00:05:00]
Um, and it's also saying where things who would take care of your children, how, if you would be cremated or buried, you know, things like that. Um, and you can say, All of my assets will go to, you know, said husband or wife or my kids and you can say that, but that is going to throw things into the court.
And by what we mean by going into probate is that it's going to be going into court and you're going to have to go in front of a judge, which means you're going to have to pay a lawyer and it's going to take a lot of time. And so this is what you're trying to avoid by having a trust because when you have a trust and you actually fund the trust, which we'll get to, um, then all of these things, these companies that you call and you say, Hey, I'm calling, you know, Schwab and I'm calling, you know, AIG and, you know, you're calling all these things to get these financial products in order, you can just give them the trust documents as long as those accounts are in the name of the trust.
You can just give them those documents rather than having to go to court and get like a court order to [00:06:00] say this is how the, um, assets need to go.
Grant McKeehan: Yes. Yes. That's one of the big surprises is if a parent passes away, um, and has an account, let's just take even a basic bank account titled in their name.
Unless that bank account has a payable on death designation or some type of beneficiary designation, describing who will receive the bank account when he dies. Um, in order to take that account out of dad's name, the family might have to take a loan. His will to court and probate is the process of proving up the validity of a will, um, but in our state, as many others, it also recall involves quite a few administrative tasks here.
I typically tell clients get ready for about a six month process, which can be shocking. Why is this going to take so long? Why is this so expensive? So that's one of the things I'm here to help with today is Uh, [00:07:00] options for preparing your estate, your assets for your demise and how can you do that? And as Michelle said, a trust is a good option.
Michelle Moses: Yeah.
And so you're a big fan of a trust, correct? Yes. I like to call A revocable
Grant McKeehan: trust we're talking about. Absolutely. So kind of the, the most commonly used trust in estate planning, which can you know, use a, be a companion with your basic will is a revocable living trust. A revocable living trust sounds scary.
Um, ultimately it is just a legal entity that you can create with paperwork, just like an LLC or a corporation. You can't reach out and touch it, but if you sign the paperwork, you've created it. And a living trust does not require. any separate tax filings. If you transfer your assets to a trust, you're not creating a taxable event.
You're simply [00:08:00] doing estate planning. You're simply putting on the hat of trustee and changing the way that you own your assets.
Michelle Moses: Right.
And I think a lot of things, a lot of what happens when, um, I meet with people as an advisor is people have gotten their trust, but they don't realize that they have to fund it.
And so they're like, Oh, I have all of these, um, documents that we put together, you know, we did the power of attorney, you know, the durable healthcare power of attorney, you know, all these different things. And, um, and I have this trust and I was like, well, but you've got these accounts that are. held jointly, or you have this account that's only in your husband's name, you have to actually fund the trust, right?
Grant McKeehan: Yes. It's kind of the, the second step. So the first step is to have your will or trust prepared and sign it with the appropriate notary or witnesses. And now you've got a great set of legal documents, but in order to make that trust effective, [00:09:00] there is a follow through step, which is step two, which is what we like to call funding your trust.
Um, just for example, if you own a home, you can transfer ownership of your home to yourself as trustee of your trust. And. That magically takes that house out of probate court should you pass away. And we always encourage people to let us prepare and record with the county recorder the deed that places your home in the trust so that we're 100 percent sure that that house will not go through probate when you pass away.
Michelle Moses: Right. And the same thing you want to do with your cars and your checking accounts. Uh, any brokerage accounts that you have, things like that. Although you are not going to help them with that, correct? You help with the real estate and then you give them instructions on how to do the rest.
Grant McKeehan: Correct?
Absolutely. Okay. Many law offices will prepare real estate deeds to help you transfer your real estate [00:10:00] to your trust. Um, and then we also recommend that you transfer ownership of your bank and brokerage accounts and vehicles. And we will provide you with an instruction letter to help you. As you said, when you send your trust document to your brokerage firm or when you take your trust document to the bank.
Michelle Moses: And we'll back up just a little bit here because the reason that you would want a trust versus a will, uh, not only to have all of your assets included, cause there are ways around it. You could do a transfer on death on your checking accounts and you could do like a quick claim deed or something like, you know, you could do transfer on death, I guess I should say.
On your cars, on your bank account, you could get around it, but a lot of times people want trust because they want to say, you know, child, you know, Harry is really great with money, but you know, Bobby isn't. And so we want to make sure that Bobby doesn't get any money until he's 30 and Harry can be in charge.
And. Okay. Be in charge when he is 25, you know, [00:11:00] whatever it is. Or, you know, there's special circumstances, um, where there might be a child that needs to be taken care of, someone that has special needs. Um, there are certain trusts for just special needs. I don't know that we're gonna get into all of that today or if we'll have time, but, um, so you can set out specifically, I mean, you can even get down to the nitty gritty of like, you can never go outside of Vanguard funds of how this money is invested.
Correct? Correct. Okay. So you could like, say. very specific things. You're right. The key word
Grant McKeehan: here is control. Um, if you die without a will, or even if you leave a will, um, you are, you're basically ceding control. For example, if you have minor children and you pass away, without a trust agreement, that minor child, upon turning 18, the age of majority in our state, will legally be entitled to receive their entire inheritance.
And so this is another kind of surprise to many clients that, um, even [00:12:00] with a will, uh, those assets are going to be up for grabs at 18 for not only that child to potentially misuse, but also a divorcing spouse or creditors down the road.
Michelle Moses: Right, because they could be dating someone that you don't like or, you know, there could be a lot of different things, um, as to why you would want to protect your assets, right?
And do you find a lot of people, they don't want their kids to inherit money at 18?
Grant McKeehan: The vast majority. Really? Yes, and so using a trust agreement, they can select the appropriate age or ages if they want the inheritance to be distributed outright to the child at any point. And oftentimes that's a guessing game because maybe the child hasn't gone through their teenage years or hasn't left for college and so we're not sure how the child is going to handle money.
The beauty of the revocable trust is we can update it with amendments as time goes on. [00:13:00] So sometimes folks will come in maybe five years later and say, And we'll have a different idea of the appropriate age that they want the inheritance distributed out to. But again, we only have that flexibility with the trust.
If you sign a will, everything's going to go to that child at
Michelle Moses: 18. At 18. And if you did, and so there's a lot of different kinds of trusts, but we're going to talk about Irrevocable and revocable and revocable basically means that the assets are still in your control. Uh, you could revoke and close down the trust if you want to, you're still taxed on the assets.
And that's where, um, it gets really, the planning gets more complicated because you want, uh, if your idea is that you want assets out of your estate, then you would move them into an irrevocable trust, which means you cannot close it down, correct?
Like it's completely out of your estate.
Grant McKeehan: So the revocable trust is the most [00:14:00] commonly used trust in estate planning.
Um, but as Michelle said, an irrevocable trust is an option for you to add to your estate plan, uh, particularly if you are interested in making one or more gifts for the use of, for example, children or grandchildren.
Michelle Moses: Um, and you see this a lot because people come in and they want to give gifts to their children or grandchildren and they want to do more than what the annual exclusion is.
Right.
Grant McKeehan: Yes and no. So some of these trusts do utilize the annual exclusion. So to try to keep it relatively simple, um, each of us under the tax laws are permitted to gift up to this year, 17, 000 to each of our chosen beneficiaries that we want to give a gift to. And that's what we call an annual exclusion gift because in 2023, I can give 17, [00:15:00] 000 to you.
And then on December 31st, that expires. And then we're into 2024. It just so happens that next year I can gift 18, 000 to you. Now, it's straightforward. I can give a check to someone. I can give them stock that's worth 17, 000. Um, but oftentimes my clients do not or are not ready to directly gift. Cash or stock to a child or to a grandchild, but they still want the benefit of being able to make this gift tax free gift, this annual exclusion opportunity.
That's kind of a use it or lose it opportunity. If I don't gift the 17, 000 this year, then I will forever lose that ability. for 2023. So we use irrevocable trusts. We'll set up the trust. Let's say it's for the benefit of a grandchild. And then once the trust is signed, the client will gift the 17, 000 to the trust.
And then the [00:16:00] gift is held by the trustee and can be invested by the trustee for the benefit of the grandchild without the grandchild having direct access to those funds.
Michelle Moses: So, And then it's just like any other trust you could set up. age 25 or any age or however they would have to get it satisfied.
Different requirements.
Grant McKeehan: Absolutely. You can, you can keep, and you can keep making gifts. If you want to make gifts annually, that's your prerogative. If you want to make larger gifts of cash or stock or any other asset, you may also do that. You will need to have an accountant prepare and file what's called a federal gift tax return.
But fortunately under current law, uh, US citizens can gift up to 12. 9 million without paying a penny of federal gift tax. So the gift tax return is more of an administrative requirement. It doesn't mean that you're going to have some gift tax bill delivered to you by IRS. Um, the, these, these gifts, [00:17:00] uh, then using these trusts can be quite effective.
And, um, some of these trusts, they don't even, require that the money be distributed at all. They might say that the trustee is permitted to make distributions for the child over the course of their lifetime. And if the child passes away, then those funds are now held for the next generation, free of forever free of Federal gift or a state tax.
Even if that initial investment of 10, 000 grows to a million dollars over a 50 year time period, Uncle Sam will never, uh, have a bite of the apple.
Michelle Moses: Well, and you can also, if you had, uh, say a stock that was, you thought was going to appreciate that was worth 16, 000, you could put that in there. Right. As long as you're under the gift tax.
Certainly. Yes.
Grant McKeehan: This, this works particularly well for closely held stock. Which, um, you know, the sky can be the limit [00:18:00] and Can
Michelle Moses: you explain closely held stock to them? Right.
Grant McKeehan: I'm talking about, about, um, stock in a, an equity that's in a company such as a startup company that is not publicly traded. Okay. And so the valuation is not set based upon the close of the New York Stock Exchange and what the stock closed at that day, but rather you would have a valuation professional, uh, prepare a professional valuation of what each share of that company is worth today.
And then we, if we're going to put one share of stock into the trust, we're going to report that to IRS on a gift tax return. Let's say the stock's worth 16, 000 today. The IRS has three years to challenge that. Otherwise all bets are off. And if that 16, 000 stock appreciates to 1. 6 million. If it's Apple, for example, um, sorry, IRS, it's too late.
We've made the gift. We reported it. We used our 16, [00:19:00] 000 annual exclusion and now our family and an irrevocable trust can reap the benefits of this now very valuable asset without it being subject to transfer tax.
Michelle Moses: Right. Okay. See, so there's some, this is a good, I mean, that's an amazing tool, especially if the.
If the stock price goes up, obviously. So I think in the point of us talking about all of this is all the bells and whistles that you can do. I don't think people realize the minutiae that you can get into when you're writing a trust. I mean, you can get into. A lot of different things. And that's where I hear is when people go and meet, uh, with a lawyer about their estate planning is the amount of questions that they have to think about and the details.
They don't like meeting with you, I don't think, because you send them home with a lot of homework of what age do you want them to have this? Because there's just a lot of scenarios that can happen. Because what if your child gets married to somebody that you don't like? Are you going to require them to open this [00:20:00] up into an account that is only in their name?
You know, like you can do things like that, right? Yes.
Grant McKeehan: I, I, I beg my clients to, to encourage or pay for their children to get premarital agreements. But, um, that, that often falls on deaf ears because it's not appropriate or, or what have you. But, um, short of a valid premarital agreement, um, You can use a revocable trust, not a, not this complicated irrevocable trust, but you can use a garden variety revocable living trust to safeguard a child's inheritance from a potential divorcing spouse, whether it's a year away or 50 years away.
Yes. And so kind of back to that example with the Apple stock. Um, one of the beauties of Arizona trust code is that a trust can own an asset for a [00:21:00] beneficiary.
And even if the beneficiary becomes the trustee, in other words, controls the trust in the future, um, most of the time the asset can be held for the benefit of the child, but can never be reached by the child's creditors.
Uh, one of the things we like to do in our trust agreements is specifically permit the trustee to purchase a business. In the name of the trust, let's say the child's an entrepreneur. Um, rather than just writing them a check and hoping it all works out, no, let's have the child present a bit reasonable business plan to the trustee and the trustee can decide whether or not it, it has likelihood of success and then the trust rather than the child can own the business.
But the beauty of that is that the trust asset is not subject to the child's divorcing spouse or the child's creditors. Maybe a simpler example would be a house. Often times we have trusts set up for [00:22:00] beneficiaries and maybe they're not going to get their distribution until much later in life. 40, 45, 50, who knows, but if there's a lot of money sitting there, the trustee can purchase a primary residence for the child to live in.
And so the child has all the benefits of homeownership, but it's not subject to creditors or divorcing spouses.
Michelle Moses: And is that because it's in the name of a trust that is outside of their, because if it was an LLC, sometimes Even if it's in NLLC, it can go into, you know, it's not protected from creditors all the time.
Absolutely. Right. Uh, and so is there more protection when you have it in a trust?
Grant McKeehan: There is in the sense that the child never became the legal owner.
Michelle Moses: Okay.
Grant McKeehan: Um, so as opposed to if you or I. Take one of our assets and we put it into our own LLC. Well, that's an asset that we originally owned and maybe or maybe not.
We're trying to play a shell game with a creditor or with IRS or you name it. But [00:23:00] what I'm saying is these revocable trusts can own either for a short term or permanently assets for the benefit of the beneficiaries. But the trust itself is not under Arizona trust code. is not subject to judgments. It's not subject to, it's not an asset in a divorce.
And so while your spouse may want to get their hands on that million dollar home that he or she lived in with you for X number of years, it never became a marital asset because it was never owned by the child. It's owned by a trust.
Michelle Moses: Okay. All right. I think this is a great planning strategy. Thank you for sharing that with us.
Do you feel like that's shady or is that why are you making that face? Oh, okay.
Grant McKeehan: No, not at all. Okay. Um, I'm just hoping that, uh, our clients children are not in these, uh, divorce scenarios.
Michelle Moses: So do you look around at people and think we're all under planning? [00:24:00]
Grant McKeehan: Uh, no, not necessarily. Really? Because, or
Michelle Moses: like, do you think that a lot of these scenarios, and I don't know that they could be avoided, but that we could.
Um, that we're all kind of naive to that we could be utilizing some of these tools. Um, well,
Grant McKeehan: sadly, oftentimes when folks are reaching out to me, it's, it's too late. Because it's after somebody's passed. Or there's been some type of calamity. There's been, uh, there's been a car accident. There has been, uh, a matrimonial problem that has popped up that we didn't expect and there's no prenup in place and, um, you know, it's, it's that factor of, well, what can we do?
And I have to be on the other. saying, well, I'm sorry, but, you know, at this point we've kind of already made our bed. Um, so you're right. Yes. I mean, you're right.
Meeting with, um, [00:25:00] meeting with your estate planning attorney for the first time may seem tedious because of the need for so much information, but it's our job as counselors to prepare you for all of those, what if worst case scenarios, you know, I hope, um, that, that the vast majority of the time we never get to, uh, the third or fourth scenario that I have to anticipate in, in our documents, but it's, it's your lawyer's job to plan for that.
The worst. And so by putting these documents together, you can give yourself some peace of mind that you have done the best you can, but know that there is flexibility for most, if not, well, not all, but the vast majority of your estate plan documents can be updated. They can be changed. And so that's another suggestion is that if you do go to the trouble to [00:26:00] make these documents, Please revisit them.
The tax laws change, life changes, there's changes in your assets, family circumstances. It can never hurt to take an hour, five years from now, ten years from now, to dust off those old documents and make sure that they still make sense today.
Michelle Moses: Like five years, um, to probably check in and just to read it and make sure that it's still what they want it to say.
And especially if somebody moves from state to state, I tell them to call an estate attorney. Do you agree with that?
Grant McKeehan: Yes. Yeah. Particularly because as, as you mentioned on the outset, you know, we do have a federal estate tax, um, which, um, you know, is a pretty hefty, uh, hefty tax, but there are many states.
Illinois comes to mind as one that also have a state, a state tax with a separate exemption amount, a separate tax [00:27:00] rate. And so, although we do have a lot of folks that move to our state to escape the tax regime of a state like Illinois, um, you know, these are still considerations that can be state by state, and we haven't even.
You know, covered the possibility that, Oh, my spouse or my, uh, uh, relative is not a U. S. citizen, uh, which can create a whole, a whole nother set of tax laws that we have to be aware of.
Michelle Moses: Right. Oh, I can't even imagine that would be a whole nother podcast. I'm sure. That's right. Yeah.
Okay. Um, I, okay. So I feel like we've kind of covered the basics of the revocable living trust and the will and kind of how they go together.
Cause, um, I do think that people get confused and they think, oh, I'll get a will or a trust. I mean, it's all together. I mean, if they come to you, you're getting a lot of different documents, correct?
Grant McKeehan: I appreciate that. Let me, let me quickly touch on that. [00:28:00] Everybody needs a will. No matter what. Okay.
Everybody needs a will. I've now said that twice. And so
Michelle Moses: with a will, are you saying that includes a health care power of attorney? Or is that you, are you including that as a separate thing?
Grant McKeehan: Thank you. I'm including that as a separate thing. So, so quickly, Everybody needs a basic will. All right. If you feel like a revocable trust can also benefit you, then in addition to a will, you're also going to sign a revocable living trust.
All right. But you're never going to, or you shouldn't just have a trust without a will, right? Cause a will is the document that appoints your executor. A will is where you name a guardian for your children. A trust can't do that. In addition to that, and in my office, and I say this all the time, everything's a la carte.
You take what you want. We'll give you a document package if that's what you're hungry for, but I'm happy to [00:29:00] just prepare a power of attorney for you, or a will for you, and so forth.
But to answer your question, Um, in addition to a will or a trust, we also recommend that everyone, every adult sign powers of attorney.
Sometimes you'll hear these called advanced directives. In our office, we prepare three different types of powers of attorney, a financial power of attorney, healthcare power of attorney, mental health. What is this all about? Well, if you become incapacitated, either in the short term or permanently. A power of attorney allows you to appoint an adult that you trust, that you pick, not a court, that you pick, that you're comfortable with, to become your advocate, to help you with your finances, to make decisions.
at the hospital or if needed to make mental health care decisions on your behalf. Most law [00:30:00] firms prepare these documents and they can help you in the event of your incapacity.
Michelle Moses: So the mental health care or mental power of attorney, I'm not doing the mental one, uh,
that, that mental power of attorney is that one more for like dementia and Alzheimer's? How, why would that be different than the health care?
Grant McKeehan: That's a great question. So, um, the healthcare power of attorney nominates an agent to make your standard healthcare decisions, such as where are you going to be cared for?
Are you going to be in home care? Are you going to be in hospice? Are you going to go to the hospital? Um, who is your doctor going to be? Which surgeon is going to perform that procedure? But we also, uh, recommend that you consider signing a separate mental health care power of attorney. And the issue there is if you reach a point where it's dementia or [00:31:00] another impairment that you are unable to give informed consent to mental health care treatment.
And that means are you able to weigh the advantages and disadvantages of a particular health care treatment, such as a psychiatric drug. If you're not able to make that decision, you've appointed someone you trust to make that decision for you. And then let me put a cherry on top of that. In Arizona, if you have a healthcare power of attorney, Even if your agent, your family, and the hospital all agree that it would benefit you to receive inpatient treatment, to receive inpatient treatment unless you have authorized your agent to admit you in your mental health care power of attorney.
the mental hospital will not admit you without a court [00:32:00] order. So that means if you have not signed a mental health care power of attorney and given your agent the authority to make that decision on your behalf, your family is going to have to hire a lawyer and then petition the court and then wait for the court to be available.
to then decide whether or not your family member is fit to go into a mental hospital. Okay.
Michelle Moses: Okay. So that's kind of a specific that's that. Yeah.
And so with all of this, my question is about elder abuse has been heavy on my mind lately. And so is, is elder abuse more is happening more when people have these documents in place or when they don't have them in place?
Do you know the answer to this question? Because For my experience, it has happened more from just being like a joint owner on a bank account and then they take out all the money. But, do you have any, I don't know, thoughts on this? It's just kind of what popped in my head about elder abuse and Cause [00:33:00] that's kind of what comes across people's minds when they say a power of attorney and that they're Handing over all the rights.
Do you see what I'm saying? And so are they going to take advantage of that?
Grant McKeehan: Understood. So I guess I don't know the answer your question. I don't know if The popularity of these estate planning documents is contributing to more or less, but my opinion Is is twofold One is if there is someone in your life that is going to try to take advantage of you, they're likely to do that whether or not you have had a proper set of estate planning documents prepared for you.
But if you have signed, for example, a financial power of attorney in advance, where you have thoughtfully chosen the person or persons that you do. Want to give legal authority to to help you if you need help in the future, then you have taken a [00:34:00] step toward preventing that elder abuse or financial exploitation because you now have enabled an advocate to act on your behalf and say, Stop, right?
Wait a second. I have been appointed as Michelle's agent. And I am legally required as a fiduciary to use her assets for her benefit. I've identified that you may have used an asset that, you know, for your own personal benefit, I've caught your hand in the cookie jar. I'm going to take you to court, right?
And so, um, To me, it is just a way of enabling the people that you trust to help you if you need that help.
Michelle Moses: And I agree with that. Because I think from the experience that I've had, it's been, um, that the parents have chosen the correct child to, as the financial power of attorney. And then there are other children that.
tend to want to have everything and because [00:35:00] they set these parameters up ahead of time, it makes it that much harder for them to get to anything. Um, so that, that's what I found is that a lot of these documents will prevent that from happening as long as they chose the right person to administer and be, um, their advocate.
Grant McKeehan: And the, you know, that's, that's another benefit of a trust is that if you've established a trust, then the trustee that you have chosen can manage your assets on your behalf if you have resigned as trustee or if you are incapacitated, rather than, as in your example, the adult child having to rely on a power of attorney.
I'm hearing anecdotally from a lot of attorneys in this area that some banks, uh, Some of the larger banks are reluctant to honor a financial power of attorney, even if it was attorney prepared, even if the T's have been crossed and the I's have been [00:36:00] dotted and it's been properly witnessed and properly notarized.
Uh, and we have a letter from a physician that says, I'm sorry, but Grant, due to his mental condition, can no longer handle his financial affairs because of the stakes.
You might think you're going to stroll into the bank and present that letter and present that power of attorney and be off to the races. But unfortunately, um, not all the time, but oftentimes the banks say, well, no, our legal department will need to review that. And that review might take 15 minutes or it might take a month.
And so, um, Again, um, if you title assets to your trust and that scenario unfolds, well, your trust already owns your bank account. And so we don't need to go run around begging banks to let us use your money to help you.
Michelle Moses: Right. Okay. So the moral of the story is when you get your ducks in order, it tends to help you down the road when things, when.
The stuff hits the fan. [00:37:00]
Grant McKeehan: And it's good to think about this. I mean, we've, we've talked about the benefit of something even that you can do on your own, creating a list of key contacts. Where do I bank? You know, where do I, uh, have my investments? Um, who is my physician? Where are my important papers located in my home?
What are the passwords to my iPhone or to my to help the person in your life if there is an emergency,
Michelle Moses: right? Well, have them know where everything is or have a file that at least has a copy of something. Um, yeah. And I, I think that's the biggest help is that just having some sort of statement or, or anything that can just lead them on a paper trail, like crumb trail.
Grant McKeehan: Yes.
Michelle Moses: Um, because if you call then and you have all the correct documentation and information, then usually they will talk to you, at least give you something. So.
Grant McKeehan: And that's, that's helpful. And that is planning that everyone can do on their own.
Michelle Moses: Yeah. And let's not forget the [00:38:00] crypto accounts, which is kind of how we got started earlier when we were talking, um, like crypto accounts, I make sure that I tell my husband, okay, this is where, you know, cause if you lose the, the, the.
Sign in for those things, then, um, it's a real headache. So I make sure that he knows how to get into those. So yes, there's some things that you can do on your own. Um, I think for a state planning of making the list and all of that, and then at minimum having a will, but, um, you know, a trust.
It can take you a long way and we'll have lots of documents, but you've, you've got to be willing to also kind of put in the work for when you do get the trust, because I do find that people get the trust and then they don't fund it because it was already a lot of time and effort to get that document in place.
And so then retitling the brokerage accounts and going to the bank and retitling their cars, um, tends to be something that they kind of miss. And then you've just kind of wasted your money. Uh, forgetting the trust, because if you don't fund it, if, and by funding it, [00:39:00] I mean, changing the title of your assets to the title of the trust.
That's what we mean by funding the trust. Your trust is like a person and you need to put that person's name on your accounts in order for it to work. That's the way that I describe it.
Grant McKeehan: Yes. Okay. You know, and occasionally there is a. checking account that a client says, well, we would prefer to keep it in our names.
Okay. You know, I'll play ball. Um, I don't love it, but if we're going to keep an account in our names, then let's at least put a beneficiary designation on that account that says when we're both gone, pay to. Our trust. So it becomes a trust asset. And again, keeping that account out of probate.
Michelle Moses: Well, and even if you miss one truck, so if you had all of your assets in the trust and you missed one account, isn't it pretty easy to go to the court and say this one thing was missed and just have it thrown in there?
Uh, I, I, I, I, [00:40:00] I wish,
Grant McKeehan: I wish. Okay. Every state law is different. Um, In Arizona, we do have a couple of end runs around probate. Um, however, they are of limited use. You can transfer personal property with a maximum value of 75, 000 by affidavit. Okay, so there's Without using probate. Um, you have to meet all the requirements.
For real estate, if you have real estate that didn't make it into your trust while you were alive, Um, we can use an affidavit to transfer the real estate to your trust, but we, as I get on my soapbox, have a very antiquated 100, 000 limitation. Oh, wow. Okay. And so if you, if you know of a House available in Maricopa County for under 100, 000.
Please call me because I would love to purchase it That is far too low. I'm [00:41:00] sorry But in any event if your personal property or your house exceeds those values It's not
Michelle Moses: gonna yeah
Grant McKeehan: If you don't have a beneficiary deed on the real estate or you don't have beneficiary designations on your account You're then calling someone like me and having to listen to me explain You Why we have to prepare upwards of 15 documents just open a probate proceeding to, to eventually take title out of a decedent's name and put it into a trust for just one account.
Correct. Okay.
Michelle Moses: And then back to the real estate. So when we're talking about putting in, putting real estate into the trust, let's pretend they're buying a new house.
Grant McKeehan: Perfect.
Michelle Moses: You would buy a new house in your name and then you immediately. Change it to the title of the trust. Is that right?
Grant McKeehan: Well, actually I prefer that my clients who have signed their trust agreement originally purchase their next home in the name of their trust.
Okay.
Michelle Moses: So the offer [00:42:00] and everything is going to be in the name of their trust.
Grant McKeehan: A thousand percent. Okay. And so, um, you may either You have options. If you want to, you can give your realtor a copy of your signed trust agreement or, um, Arizona law permits you to present what's called a certificate of trust, which is just a snapshot, a few pages of your trust agreement, the name of it when it was created and who the trustees are, but it doesn't
Michelle Moses: give any details about what's in it.
And that's what I like about it. And that's what most people give me. to title their brokerage accounts is just this little one to two page document.
Grant McKeehan: That's right. So what I want my clients to do is go to car dealerships, you know, and, and, and bring their trust certificate with them because if they're ready to buy a car, then I want their trust to purchase that car.
Michelle Moses: Okay, wonderful. That's good. This is, I think that's a good, um, everyday tip because I had always heard that you do it in the name of the clients first and then you basically like quick claim deed it into, [00:43:00] um, Is that the right terms with the trust or you change the title?
Grant McKeehan: I mean, I, I do see that, but, um, if the lender understands that, that it is a revocable trust and if the same person or persons that are going to be the borrower are also the settlers and trustees of that trust, then it's, it's usually kosher.
Michelle Moses: Okay. All right. Well, great. Okay. We're going to kind of change.
I want to change tax to the secure act. Do you feel like we've missed anything on the revocable trusts or living trusts? Okay. I think we've gotten some great information. Uh, and so this is, we're, we're kind of changing, uh, Okay. I don't know that we're changing topics, but the secure act is more about taxes.
And we're going to be talking about retirement accounts in regard. And when you inherit an entire retirement account. And so I'm talking about 401ks, any IRA. So that includes Roth IRA, simple SEP IRAs, things like that. [00:44:00] If you were to inherit these, um, there is a new tax law change. Well, I don't know. It's new 2020.
But I don't feel like that it has gotten enough press. And this is why I want to do a podcast about this is because especially for people my age, I am 47 years old. Um, and when you are in your fifties, my experience is that those are your prime money making years. That is when people are making the most money in their career.
That's when they save the most, but it's also when their parents pass. And, um, this is when you're going to be inheriting a lot of this. And what the SECURE Act, um, did is it changed, uh, it from being able to inherit an IRA and then stretch it out over your lifetime. So you would look at this, not you would, but you know, the companies would, they would look at, um, Your life expectancy chart.
And then, you know, they'd say, okay, you're 47 years old and you're expected to [00:45:00] live until you're, you know, 87. So we're going to stretch this out over the course of your lifetime. And so then I might only get, it depends on the size of the IRA, obviously, but I might only have to take out like 3, 000 a year, and then I would be taxed on that as if it is just income, because remember you have put all this money into an IRA and never been taxed on it.
So until it's taxed, it's not really your money. It's held into an account that is for your benefit, but it is not really your money until it is taxed. And so once you take that money, it's taxed 100 percent as income on the top part of your taxes. So, um, what has happened is that now you have to get all that money out in 10 years.
And so I've been talking to my clients about this, especially ones that are like 85, you know, Hey, your kids are going to have to take out This IRA money in 10 years, we really need to plan for this. And it's a surprise. And I think it's a surprise because the media did not cover it. [00:46:00] And, um, I would like to shine some light on this.
So, um, have you seen this come across your desk? Have you seen anybody concerned about this? Or do you think that I am making a big deal out of nothing?
Grant McKeehan: Well, yes, it's, it's a major change because as you said, for decades, we have relied on the ability for an adult child or an adult grandchild who inherits an IRA or a 401k from their parent or from their grandparent, that they would be able to simply take small, uh, Minimum distributions from that IRA over their lifetime, and Congress has pulled the rug out from underneath our feet under this SECURE Act, um, which stands for, by the way, setting every community up for retirement act.
I'm not sure how well it sets us up for retirement when we [00:47:00] now are going to have to take an entire IRA in 10 years that we could have otherwise taken over 30 or 40 years. But in any event. This is clearly a revenue raise, uh, effort by Congress. And as we all know, we have a lot to pay for particularly with all of the bailouts, uh, that, uh, that happened.
And then of course, all of the COVID relief that happened over the past couple of years.
Michelle Moses: Right. And so I get why they did it. I get that they need the tax money to pay for everything else. However, I get very, I'm very upset because people are going to be in their prime moneymaking years and then they're going to have to take this out in 10 years.
And so what I want to talk about is how can we, what are different strategies that we might be able to. lessen the blow. I don't know that we're going to get around it, but how can we lessen the blow? And so that's what I want to talk about today. So what I have been encouraging my clients to do, um, is to take out just a little bit more if they don't, you know, cause some [00:48:00] of these people, I mean, we're talking millions of dollars inside of one IRA, you know, and they got three kids.
I mean, this is going to be catastrophic when these kids inherit this. I mean, they're going to be taking out hundreds of thousands of dollars a year. Um, and so what I have been encouraging is, um, taking out some more money because they are living so frugally. Uh, can you take out an extra, uh, You know, whatever that amount of it, let's say 25, 000.
It might be 50, but, you know, after you do that over the course of different years, um, we can then position that money into different instruments that would then possibly pay out, um, to their kids, uh, of a more, um, Realistic timeline, I think
Grant McKeehan: I like that, particularly if we're going to be sensitive to tax brackets, and so if you're lucky enough that the client with a large IRA like that is in their retirement years and perhaps is not in as high of a tax bracket as their adult [00:49:00] children who may be in their prime earning years, then yes, I mean, first, I mean, for common sense, my goodness, enjoy Uh, some of your retirement account that you've worked your whole life, uh, the idea, the goal, you don't win the game merely by having the largest retirement account in the world, because as you've said, we now have this, this stringent IRS requirement that we have to pay the tax on it within 10 years after you die.
So, uh, yes, I think that's wise.
Michelle Moses: Okay. Well, good. I'm glad. Um, and. The, I think what I didn't specify when we were talking about Securex, it's only when it's a non spouse beneficiary. So let's go back over. So if, if you have a spouse as a beneficiary, the same rules apply. Your spouse can inherit as much money as, as, uh, It's only when it's the second parent to pass, whereas this becomes an issue, but you can name, uh, you can name what the [00:50:00] children that are the incapacitated children, let's put it, what do you call it?
Grant McKeehan: So, right. So under secure, um, as you said, You know, for your, your, as, as Natalie Choate, who is an expert in this field, she calls it a plain old, uh, designated beneficiary. We're talking about, okay, I want to name my adult children, or maybe an adult grandchild as the beneficiary of my IRA. Um, for those types of plain old designated beneficiaries, they're going to have to take the entire IRA out and pay income tax on it within 10 years.
The SECURE Act did preserve some exemptions. You're right. Um, we may leave an IRA to a surviving spouse and he or she still has the ability to take the distributions, not over the 10 year period, but rather over his or her life expectancy. And so that the stretch planning, the deferral of the income taxes is still possible for surviving spouses.
[00:51:00] Secure also included four other narrow exceptions. to this 10 year rule and any of these four beneficiaries can take out the IRA over their life expectancy. And so those are minor children at least until they turn 21 and then they have the 10 year rule applies. If the beneficiary you name is disabled legally, Or, uh, chronically ill, the distributions to them may go over their lifetimes, not over 10 years, um, and so those are some exceptions.
The other exception that applies is if your beneficiary is less than 10 years younger than you, for example, that could be a domestic partner, uh, Or perhaps it's a sibling that you're leaving your IRA to. If you name someone who's less than 10 years younger than you as your beneficiary, they also can stretch the IRA distributions over their lifetime and are not [00:52:00] subject to this 10 year rule.
Michelle Moses: And this is the part where I was making jokes about how people are going to start. assigning beneficiaries to their IRA that it's just going to be, you know, their step kid or, you know, different things like that, just so that they don't have to pay the taxes, but we'll see what happens. I mean, there hasn't been a lot of fallout from this yet.
Um, but yeah, there are some exceptions to the rule, but if you don't fulfill one of those rules of having within the 10 years or chronically ill child or a minor child, um, then it will have, you will have to pay this out over the 10 years. Correct.
Grant McKeehan: Right. This is the key thing here is this is these retirement accounts are pre tax assets.
And so the income tax really drives the bus here. One thing I like to do for clients that are charitably inclined is to talk to them about would they possibly consider leaving some or all of their IRA to a [00:53:00] charitable organization, such as a university or a church or St. Jude's, because under the tax laws, when those charitable organizations receive a distribution from an IRA, even the entire IRA, they don't pay a penny.
in federal income tax. Right. So if you are charitably inclined and you're trying to decide which assets you might want to leave to charity, an IRA is at the top of my list.
Michelle Moses: Okay.
And I think another thing that the secure act did too, was it allowed for, I think, easier, they allowed you to put a trust as a beneficiary to a retirement account.
And, but, and I'm not going to say that you couldn't, you could do that before, but you had to write the trust in a certain way for it to be legal. Correct. Or for it to not. Live on into perpetuity, I guess I should say, and so now the SECURE Act has changed it so that you can name a trust as the beneficiary, correct?
Grant McKeehan: Yes, so, um, we can still use what are called accumulation [00:54:00] trusts, which in a nutshell means the IRA can be distributed to the trust, and then the trustee has the option to either distribute the money outright to the beneficiary, Or they can accumulate it for the beneficiary in trust for disabled or ill beneficiaries or minor children, we can use a life expectancy table to make those distributions.
On the other hand, if the trust beneficiary is an adult child or an adult grandchild, then the IRA has to be emptied out into the trust within 10 years. But the nice part of it is, yes, we still have the flexibility to use a trust to give the beneficiary some protection.
Michelle Moses: Some credit protection. Absolutely.
Okay. And we didn't even get into that. The credit, the credit protection that a trust might provide. Um, if, even if your business got into trouble or, I mean, I guess any reason that you would, um, be [00:55:00] sued, um, some of your assets are protected and a trust does provide some of, some of that protection. Um, but there's not a whole lot of, Ways I think around the Secure Act 10 year plan other than trying to get it out.
And then I think the planning comes after you're already taking it out. Do you want to put it into a Roth IRA? Can you put the money into an annuity? Um, there are certain insurance products to where you could set it up and they would, um, you know, I haven't even explored like buying life insurance and then having them be the beneficiary of that.
Um, and there's a lot of things that go into the life insurance. So. So, um, okay, well, I just wanted to touch on that, so I don't know that there's a whole lot to talk about other than you need to be aware of it and you need to go talk to somebody about what you would want to do if your IRA was, um, needing to be emptied out in 10 years, how do you want that money?
You know, it kind of changes the planning doc, I should say.
Grant McKeehan: Absolutely. Be prepared and prepare your beneficiaries for the tax hit.
Michelle Moses: Yeah. Okay. Well, Grant, [00:56:00] thank you so much for your time, for coming on here. I appreciate it.
Grant McKeehan: Thank you. Enjoyed it.
Michelle Moses: Okay. And, uh, be sure to leave a review, leave us some questions, um, subscribe to the podcast and thank you so much for listening.
You guys have a great day.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.