There are some people who don’t care at all about leaving a financial legacy, but for those who do, it’s important to eliminate some of the common estate planning mistakes. In this episode, we cover topics ranging from poor expense planning to outdated beneficiary designations and family conflict triggers. We also shed light on some misconceptions about transferring real estate and explain the impact of tax implications on your estate. If you want to leave a legacy without regret or legal turmoil, this episode is a great starting point.

Episode Transcript

Note: This transcript was produced using AI, so please excuse any typos and inaccuracies…

Marc Killian 0:11
It’s time for another edition of the podcast. It’s playing wise, retire free with Jude Wilson. And we’re going to talk here on episode number 110. By the way, dude, we’ve been doing this well, ya know, for just a little bit estate planning, let’s talk about building an estate plan and hopefully not having any regrets in that joker. So we want to go through and have a good conversation around this concept. And we talked a little bit about that with some of your recent guests you had on, you guys discuss some aspects of estate planning, with Merrill Bailey. So I want to kind of pick back up on the conversation a little bit and talk about leaving a financial legacy, whether it’s important or not important, whatever the case is, there’s just some things you want to make sure you’re checking off to make life easier, not only for yourself, but your loved ones when you pass on. So with that in mind, what’s going on my friend, how you doing?

Jude Wilson 0:55
I’m doing well. feeling healthy, feeling strong. I can’t complain. Hey, go.

Marc Killian 1:00
You know, anytime somebody says feeling strong, I immediately hear that Rocky theme song. Strong. So braver than me even doing a little bit of the lyrics. Well, you know, that’s the that’s the benefits and the downside of being a musician, I guess. But yeah, it’s this certain things always pop in your head when you hear him, right. So you hear certain things. And he just, that’s the, I guess that’s the beauty of not only advertising, but just whatever the medium is, right? Whether it’s music, or song or whatever, we get these ear worms and they just kind of stay in there. So good stuff. Alright, let’s jump in. Let’s talk about it. Some misconceptions, shed some light, all those things we do here on the podcast, you let’s start with failing to plan for expenses that can be foreseen not the things that can’t be. But the things that we should be really, let’s be honest, they’re coming right that you may not feel like you’re gonna get hit with it. But don’t do that hole, it’s not going to happen to me, but because health care is the big one for this animal.

Jude Wilson 1:55
Absolutely. Health care is growing at twice the rate of inflation. And so a lot of times we meet potential clients who have saved significant assets, and but yet they don’t feel comfortable with retiring because they know if they retire before getting to Medicare, that health care costs is going to is going to be significant. So clients know that health care is going to be significant, but they don’t necessarily have a plan to address it. Particularly either prior to or after retirement. And when we look at a client is firstly, looking at their estate plan, where we’re doing what we’ve talked about before our bucket plan, and part of our buckets, each bucket has a purpose and a specific timeframe associated with it. And one of our buckets is then the now bucket to cover those predictable things that will happen. We just don’t know when, like buying a new car, or, you know, some particular health care costs that happened. So it’s got to be a part of the overall plan is the gist of it.

Marc Killian 3:08
Yeah, yeah. And so you want to make sure you that you’re certainly addressing it by talking about so that you don’t drain it and drain your life savings, I should say. And really also from that standpoint of thinking about, hey, if it happens to me, what’s it going to do to my spouse, if it does drain it, right kind of thing. So you certainly want to walk down that avenue. Number two is a pretty simple fix. And you guys talk a little bit about this a couple of weeks ago, but what it’s worth bringing back up, just failing to update those beedis those beneficiary designations, some key points here.

Jude Wilson 3:36
Yeah, this is this is one that’s really easy, but gets missed all the time. So transferring assets can happen by either having an estate planning document, like a will or a trust, but they can also happen by designation, which basically means when you open your account, you have a beneficiary on them. And so a common mistake that we see often when we go through our process with a new client on board is we do a beneficiary audit, and we look at all the accounts, look at all the accounts that can have a beneficiary on them. And just check in because let’s face it, a lot of us, this might be our second marriage, we might have been divorced and and things changed in life. But we never went back and changed the accounts to make sure they’re in line with where we are currently. So this one is a really simple fix, but one that people forget all the time. And thankfully, with our beneficiary audit, we’re able to help clients through that.

Marc Killian 4:39
Yeah, and don’t forget all the other little things too. We sometimes tend to think of listing our beneficiaries on something like an insurance policy, but don’t forget it. There’s your 401 K, your IRA a lots of other little things as well. So keep that on the list and make those changes. Number three, failing to take steps to avoid conflict amongst the family members. Clearly, this is something that we want to have happened, but many couples wind up going well, my kids won’t do that. You know, it’s funny I was I was woke up the other day and my wife was watching some TV and taking a nap. And it was some TV show on and when I came to Lee literally were it was a situation where the ex wife was talking to the new wife about not being in control of the money being left to her kids, the ex wives kids, there’s like, Oh, don’t worry, I you know, I’m good person, I’m a fair person, I’m going to do things, you know, the right way. And I think we all have that mindset, that heart to say, well, we’re going to do the right things. But Money makes people funny, right? So whether it’s your kids or whatever the case is just get the conflicts out of the way dude, versus allowing them to brew someplace because if there’s a chance, they probably will

Jude Wilson 5:40
look, I’m gonna use that from now on Money makes people funny. So I quick story. There’s my favorite story that I tell clients about this particular situation. We do some intensive continuing education classes, keep up with what’s going on in the industry and financial planning, right. And in one of my continuing education courses I was taking, the instructor talked about a new york city worker who would work for the State of New York, or the city of New York, I’m sorry, for over 3040 years he had gotten married, was married for about 20 years got divorced. It was an amicable divorce. He and the new wife became friends with the ex wife. They raised their kids together, the ex wife never got remarried. They went on vacations together for the next 1015 years really had a life that was kind of joint. I think we talked about this. Yeah. Yeah, I may have mentioned it before the the husband passed away. And the biggest asset that he had, besides his house, was his pension fund in the will left the pension fund to his existing wife. But he never changed the paperwork with the city of New York to name the new wife, the beneficiary. So when he passed away, because the beneficiary Trump’s the will, the new, the ex wife receive the pension fun, and you see where I’m going? She did not give a dime to the new wife, even though they had been friends for decades. Yeah, so I say all that to say communication is key. Understanding what you want to happen, because a properly drawn estate plan is really control from the grave. And understanding how you want to leave your assets and who you want to leave it to. is the is the is the foundation.

Marc Killian 7:37
Yeah, cuz again, Money makes people funny, right? So didn’t matter that they were friends for 30 years, right? Or whatever the case is, and so often them again, we think, okay, you know, my kids won’t fight about our whatever we leave them behind. But if you don’t spell it out, you’re just even if you’re right, right, why take the chance, just spell it out, get it done, get it put, and set communication is the key and just have that peace of mind knowing that your kids can’t fight,

Jude Wilson 8:02
right? Yeah. And there could be little things outside of money, like, you know, mom’s wedding ring. So it doesn’t necessarily have to be a big account. It could be little things that you want spelled out so nobody’s fighting.

Marc Killian 8:14
Exactly. Okay. Number four, transferring real estate while still living judice is usually I can’t think of a scenario. Maybe you can. But I can think of a scenario where this is a good idea where you’re transferring real estate while you’re still alive versus at death, because you’re really taking a few things away from your heirs. And lots sometimes people think they’re being clever doing this, and it’s not usually not a good idea.

Jude Wilson 8:36
Yeah, I tell you two big mistakes that are associated with this one. A lot of times people do this, so that if they need to qualify for Medicaid, they’re showing less assets and could possibly qualify. Well, people sometimes don’t realize or don’t know, Medicare’s pretty smart. Medicaid is pretty smart. They have a five year look back. So they’ll pull those assets back into the calculation. So that’s one big mistake. The second big mistake is really having control over that asset and potential liability situations. Because if if you no longer own that asset, and you name your your adult child as the owner, if he or she gets into a car accident and gets sued, that asset could possibly be bought into into the into the into the lawsuit. Yeah, exactly. So So there’s a bunch of reasons why this probably those that makes sense for a majority of people, I can only think I actually I can’t even think of one maybe one instance where it might make sense to transfer the asset but majority of people it doesn’t make sense. Yeah.

Marc Killian 9:47
To your point, right. I mean, so nursing homes, look at this information. They have that look back period, it becomes an asset to whoever you sign on over whether it’s through an accident through a divorce, right the next spouse could go after There’s just a ton of little things to highlight where it says, and you’re, you’re robbing them of the step up in basis cost,

Jude Wilson 10:06
if you buy an asset for dollar, and now that asset is worth $5 into the future, if you sell it, you have to pay capital gains on the growth between that $1 and $5. But if you give that asset to your beneficiaries, when you pass away, they get what’s called a step up in basis, meaning, now they own the asset at the current value at the date of your death. So the $5 is now their basis. So they go turn around and sell it right after you pass away. They’re avoiding capital gains tax, because now they have that new cost basis. So maybe a little complicated, but basically, you’re you may be giving away a very valuable tax deduction, your heirs,

Marc Killian 10:52
I mean, think about Florida, right? Let’s say you bought a beach house or some sort of vacation thing for 100 grand back in the 80s. And now it’s worth a half a million dollars, right? Or let’s just go easy money are easy numbers went from 100 grand to a million dollars, let’s say, Well, you know, what, if you leave that to your heirs upon your death, and they sell it for a million in one buck, they’re only paying taxes on the one bucket. Right? Exactly. So what you know, don’t otherwise they’re paying tax on the 900 Grand, which they’re not gonna be happy with you about so. And you don’t want to do that either. Right. So efficiency, and that, honestly, that’s another piece that kind of goes right into my last one, that’s kind of a kind of tax is obviously a tax conversation there. So just not understanding the tax implications of your estate, you want to make sure that you’re checking these boxes as well, for like one of those reasons we just listed.

Jude Wilson 11:37
Absolutely. You know, when you when you’re talking about tax implications, one that we look at all the time is leaving an IRA. And there’s a couple of different ways to look at it. While you’re living, do you do Roth conversions of your IRA so that when you leave that IRA to to your beneficiaries, they have two advantages, the number one advantage is that that asset can grow tax free for the rest of their life. But also, the other thing to look at is when a non spouse is inheriting that IRA, those dollars are mandated to be forced out of that IRA over a 10 year period of time. And so making sure that the your beneficiary has that flexibility of how much to take in when over that 10 year period of time. That’s important, because they may have a big earning year, and they have to lump all of the income from the IRA on top of their big earning year might kick them into the next higher tax bracket. So there’s a lot of planning that goes along with what to do with your IRA. And that needs to be proactive. That’s the word that I use all the time. We need to be thinking about these things well, before they have Yeah, tax

Marc Killian 12:56
efficiency can be a huge deal for not only yourself while you’re still around in your own retirement, but also how you leave things to your heirs. And nobody wants to you know, give the you know, the government more money than we have to give them because it’s like, they have a real good track record of spending it efficiently. So you want to make sure that you’re you know, again, taking that into account with your estate planning conversation. So if you want to have an estate plan, rolling with no regrets, then see there’s some of the items you want to certainly check off and go through. And if you need help with that, well, Jude and his team is here to help do so. And of course, he’s also got great connections with others, you could check out some past episodes where we had some folks on talking about some more conversation pieces around estate planning. And that’s very important piece of it. So check those out if you’d like you can find those simply by subscribing to the podcast. And you know, going back a couple episodes, checking out those in the description box there. You can also subscribe to this podcast simply by going to Jude’s website, lots of good tools, tips and resources at centrist fs.com That centrist F s.com. Again, you can subscribe to the podcast, you can probably you can probably sign up for what your newsletter reaches out to you guys just tons of stuff you can do there if you need some more information or just get on their calendar and come in and talk about all the things that you need to talk about for your retirement journey. Dude, thanks for hanging out my friend. Hey,

Jude Wilson 14:13
it’s always a pleasure. I hope people got really value added today.

Marc Killian 14:17
Yeah, man and we are into September with this episode so you know what it means football time so yeah, go knows maybe we’ll have yourself a good one. As the weather is starting to cool a little bit. It’ll be a little bit more comfortable out there. And we’ll see you next time. Stay safe and sane. And we’ll see you later here on Plan wise retire free.

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