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Are you one of the 7 out of 10 Americans who don’t have a will or estate plan?
On this episode of the Dentist Money™ Show, Reese interviews Brent Andrewsen, estate planning expert at the Kirton McConkie law firm. As a practice owner with a growing net worth, you’re probably aware that you should do some basic estate planning. Reese and Brent discuss why that should start early in your career.
Where do your assets go, or who will raise your kids should something unexpected happen? Listen in as Reese and Brent deliver advice your family needs you to hear.
Reese Harper: Hey Dennis, money show listeners. It’s Reese Harper here, today I get to dive deep into one of my favorite topics, the details of estate planning. How do you title your accounts? What is an estate? What kind of trust do you need? What are your kids going to do with all that money you’re leaving. These are the questions of the day. Enjoy the show. It was one of my favorites in the last few months. I hope you learn as much as I did.
Speaker: Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors or Registered Investment Advisor. This is Dentist Money. Now here’s your host, Reese Harper.
Reese Harper: And welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, excited with a special guest in studio today that has a lot of interesting information for you guys to learn about a topic that have people have been pinging me inside of Facebook for the last few months on and we’ve decided to do another episode on the deep dive and kind of high level for those of you who don’t want the deep dive, we’ll do a little both today of estate planning. I’d like to welcome, Brent Andrewsen to the show today. Brent, thanks for coming on.
Brent Andrewsen: Thanks for having me.
Reese Harper: Yeah, me and you have had a chance to meet each other this year and work on some work together and I’ve been impressed with your perspective and kind of the approach you take and I just saw. Let’s have Brent give his take on the right way to approach certain estate planning issues and estate planning in general so.
Brent Andrewsen: So I graduated from law school back in 2000. I went to school back East and Virginia at Washington Lee University. And near the end of law school I had had a professor who recommended that I really think long and hard about going into estate planning. The last thing I’d wanted to have anything to do with was taxes, but he and another professor said, “Really Yada, look at that. That’s a great area to in which to practice.” And so when I graduated, I joined a firm in Ohio and was part of their probate group.
And so right out of the gate I did a lot of estate planning and trusts and estate administration. And by the time I left thereafter four years, that occupied 75% of what I did. The balance was more on the charitable planning or nonprofit side of things. And what attracted me to Kurt McConkey was the fact that they actually had a really good estate planner at the time, they only really only had one other estate planner.
And they had a gentleman who did a lot of nonprofit work who had been doing it for 30 plus years. And I felt like it would be a good spot for me to come in and be part of both of those teams. And since then we’ve grown out our group and have seven or eight attorneys specializing in estate planning, and or a nonprofit planning. So it’s been really good.
Reese Harper: So tell me a little bit about the size of estates from the low end to kind of the high end that you’ve seen kind of in terms of net worth and asset levels that you’ve been a part of planning with. What does that look like in your career?
Brent Andrewsen: So career-wise, I’ve seen everything and worked on estate as large as a couple of billion with a B, all the way down to, I’ll never forget doing some work for somebody that asks us to help this neighbor of theirs. And we went ahead and did it and got a call from them later saying, “Hey, this lady died and we’ve got a whole bunch of bills that have been pouring in, but we’ve learned that there’s only about $1,500 in the bank account. What do we do?” Oh, well, you can just do nothing. Let the creditors open the estate if they want to. And about a day later, accounting sent our bill to me saying, “Hey, this client hasn’t paid their bill.”
And I realized we were one of the creditors and we just let it die. So we’ve had a state’s as large as, like I said billions all the way down to folks who are insolvent.
Reese Harper: Yeah. That guy didn’t pay the estate planning invoice.
Brent Andrewsen: Right, now the sweet spot, a lot of our clients, I would say fall into the million and a half to two million to probably 10 or 15 million. There are a lot of good, higher net worth decent net worth clients, particularly here in state. And yet we also have some very large clients. We have a pool of clients that we would classify as high net worth or even ultra high net worth. And even though we’re the largest firm, I think sometimes people are surprised that we’re not the most expensive place to get their estate planning done.
Reese Harper: Yeah, well I’m going to go down a lightning round here of some questions that I know people have thought about or thinking about as they go into this estate planning decision. One of them is, I don’t really understand what an estate is anyway. What’s an estate?
Brent Andrewsen: That is a great question and it depends on the context. So without getting too technical, I usually tell people to think in the broadest terms. The estate is what they own and what will pass upon their death. And frankly the IRS when it gets into a state taxes kind of has that same basic perspective. What is it that you control or have some influence over that is going to pass to your death.
Now there are some places where that definition is narrower and it’s important when you engage in estate planning to recognize where that is. And that’s one of things we help guide people through so that they make sure that everything is in place so that their “estate” passes the way it’s supposed to. A far too often, people think they’re going to engage in the state planning and sometimes even engage in their own estate planning and download something from the Internet only not realizing that maybe a certain set of documents doesn’t actually transfer all their estate.
You have to engage your estate based on what comprises your estate. So again, it’s that broad thing, but then when people start looking at a little more narrowly, you start saying, what do I own? How do I own it? Do I have any contracts out there that may be will pass property at death like life insurance, retirement plans? So again, I try and get people to think of that in the broad sense.
Reese Harper: So our audience is familiar with the concept of a net worth, which is all your assets minus all of your debts, that makes up your net worth. That’s some of the stuff that will pass. But what you’re saying is the definition extends sometimes broader than that, but in many times, not the broad broader than that would be that sometimes you might have some kind of an agreement or some kind of a contract in place that still requires some kind of explanation at least upon your passing. Correct?
Brent Andrewsen: That’s right. And that’s good to keep that in mind. Although I love the concept if your already helping people focus on their net worth, that list of what comprises our net worth often will be most of their estate. Again, you might not include a life insurance policy that doesn’t have any cash value in their actual net worth because there’s not an actual, there’s not anything that comprises a current value-
Reese Harper: But it will be-
Brent Andrewsen: …but it will part [crosstalk 00:07:20]. Yeah. So, absolutely.
Reese Harper: And to keep that in mind, your net worth gets expanded essentially when you pass away. If you have life insurance in force, even if it’s just term insurance that makes your estate get instantly bigger. And that’s one of the things that we’ll touch on here and a little bit when we dive into insurance. So my estate is basically everything that I’m worth that’s going to pass on, but it’s not necessarily, I mean, my debt does affect the size of my estate, right? If I have a $500,000 house and I owe 400,000 on it, my estate or would that word state kind of to me sound to most people, it sounds like stuff, but it really kind of means value to some degree, right?
Brent Andrewsen: That’s exactly right. Although from an estate perspective, you would say the entire home is part of your estate. Now unfortunately, in that scenario you just gave, if someone dies, the bank is going to ask for that $400,000 to be paid off. So at the end of the day, the true estate is just a $100,000 of equity.
Reese Harper: Yeah. Let’s give a quick tangible example. I know this is very basic, but if I did own a $500,000 house and I have a $400,000 mortgage on it, and I pass away, what happens if that house is only in my name?
Brent Andrewsen: So if the house is only in your name, your family is going to need to go through a process to make sure that the home gets properly transferred. So if it’s just in your name and you have a spouse, then your spouse, as long as you don’t have children from another marriage, is going to be the primary beneficiary of your estate.
So in order for her, if we’re talking to Reese, in order for her to acquire ownership of the home, she would need to go down to the probate court, be appointed as the personal representative of your estate, and then she would have to transfer the home to herself and work with the bank to determine whether or not the bank is going to call the loan or refinance the house and let her go ahead and take over the mortgage.
So again, there’s a several steps that happened with the bank in the mix, but purely from a transfer standpoint, someone with authority or with an interest has to go down and get appointed by a court in a case like you gave, in order to get things transferred.
Reese Harper: That’s in my local county, correct?
Brent Andrewsen: Correct. Wherever you were living at the time of your death.
Reese Harper: So the reason I asked that question for listeners here is not because I don’t know the answer, but I do want you to go through this kind of explanation, this isn’t a thing they think about that often. And the example you just gave right there, the thing I wanted to highlight is it’s not a very simple process, that is one asset that we would have to do that with. But there’s a lot of things that if you haven’t done planning in advance, you’re going to have to go through a similar process like that for a lot of different items. Right?
Brent Andrewsen: That’s correct. And if they’re all in one state, it’s fine. But particularly here in Utah, we find a number of clients who may be because they have some family or other connections to Arizona and Nevada, Idaho. It’s not uncommon for our clients to own some property out of state. And what people don’t realize is that exact process has to be duplicated in every state in which you own, especially real property. And so it can be quite laborious and a little bit expensive for your heirs to even go through that because…
Reese Harper: Just a little bit bigger of a pain for the most part.
Brent Andrewsen: Yeah. That’s exactly why.
Reese Harper: Just the pain.
Brent Andrewsen: So when we talk about estate planing, we’re going to talk about some ways to avoid that painful process.
Reese Harper: So how many people across the country right now would you guess, I know this is speculating, but of there’s people that probably don’t have a net worth that even gets to that million and two million dollar range. Our audience, fortunately for many of them, they went to school for a long time and they have a bigger estate. So[inaudible 00:11:39] audience and your estates, but the most people listening to this do have an estate that merits some kind of consideration of planning.
How many people though, in that camp do you think have actually done something? If you had to say, Okay, I’m going to have 10 people come into your office randomly selected, what would you think the ratio of people who have done something? Just like anything.
Brent Andrewsen: I can speculate after 20 years of experience.
Reese Harper: Yeah, I like speculation.
Brent Andrewsen: But I’ve also read Forbes and Fortune have done studies from time to time.
Reese Harper: Actual data is better if you do have this.
Brent Andrewsen: And over the last 20 years, every study I’ve ever read always comes out with about the same numbers. Somewhere between 65 and 70% of the people either have no planning or their circumstances, desires, have changed enough that their current plan and if they had some, doesn’t do what they want it to do. So seven out of 10 people-
Reese Harper: They’re probably thinking it does.
Brent Andrewsen: They often do. But when they come in to see us, I would say, I mean obviously they’re coming to see us. It’s closer to 100%, don’t have what they want. But, I’d say those numbers probably bear out. It surprises me sometimes to meet with professionals, CPAs or even other attorneys that in their mid to late 50s finally say, “Oh, I had to get my estate planning.” And you look at them and say, “You don’t have your planning done at all?”
Reese Harper: If you’re listening to this. One of you has probably done this in the last year or two and you feel on top of it. And the one of you who’s listening is just like, “I still haven’t done that at all.” And then the other one, whatever you have done your titling the accounts, the assets, the debts you’ve added, the second location you’ve added, the rental that you’ve added, the cabin you’ve added, the investment accounts that you’ve opened, the new retirement plan that you have, they’re not incorporated properly into whatever documentation you’ve put together for your estate. So just keep that in mind.
Brent Andrewsen: Kids get older kids, kids age.
Reese Harper: What are the other triggering issues?
Brent Andrewsen: I would admit to be in that camp of the one third that actually my wife reminds me every time we go on a trip that our kids have gotten older. We now have an adult daughter who’s been married and she’d really like her named as the guardian of the two minor kids we still have at home. And it’s a simple update that-
Reese Harper: Yeah will get to it in the next few months.
Brent Andrewsen: I spend more of my time just getting clients stuff taken care of. So one of these days our kids will actually be designated to the right people.
Reese Harper: Yeah.
Brent Andrewsen: These are normal things to, financial planning is often the same way I lump estate planning into financial planning. And our process that we work with, with clients incorporates trying to make this estate planning topic at least surface every time there’s a trigger event, but at a minimum every couple of years, I feel you should be proactively looking at something. If your net worth starts to get to the point where it’s 10 million or more or tens of millions of dollars, it’s probably an annual consideration that you really need to dive deep.
The best engagements we have, the most efficient engagements as well. And clients are often cost sensitive and-
Reese Harper: By efficient you mean the ones that don’t cost as much?
Brent Andrewsen: That’s exactly right.
Reese Harper: Yeah.
Brent Andrewsen: Oh and they actually go faster-
Reese Harper: Faster.
Brent Andrewsen: I mean, when clients come to us and they simply are trying to do everything on their own, and we highlight the things we need to be able to do a good sound job for them, it takes some awhile to gather it together.
Reese Harper: Yeah.
Brent Andrewsen: It’s quite a bit of a different process when they have a good financial advisor because they show up having prepped the client for the kinds of information, frankly having helped them organize their financial affairs and understanding their financial affairs in awake in order to develop a true sound net worth statement for instance. They’ve been through all of the things that we’re going to ask about to determine how and what to do as it relates to the estate planning. So I would-
Reese Harper: Isn’t it just part of it just being able to find everything, knowing what the list is? Is it kind of a big deal?
Brent Andrewsen: Absolutely what the list is because again, as I talk about, as we get into some of the deep, maybe a little deeper dive on what can be done or what should be done, it really depends on what’s on that list because the assets on the list might be held in a particular way already. They might already be subject to a body of law that causes them to pass a particular way at death, different from probate.
And so seeing the list allows us to identify those assets that might otherwise be subject to probate, which you’ve talked about or might have something else that we would look at and say, now you just told us you wanted to do x, y, and z. We can do that in the following way with these assets, but these other assets in order to make that go xyz, then you and your financial advisor are going to need to change some beneficiary designations or do some other things.
And so we get through that process and that discussion much more quickly working with the client and their financial advisor and even better inappropriate cases, the financial advisor, their CPA and we coordinate talk and make sure that everything has been captured to make sure that their planning is done in a way that addresses all of their wishes, but also touches on other things like income tax planning and retirement planning and all the things that you and we and the CPA are looking at for them.
Reese Harper: Yeah and they’re definitely… I feel like each my personal perspective is informed by the attorney in a unique way. And I feel like the CPAs also informed by my perspective and your perspective and I just feel the advice that I’ve been able to see clients receive on estate planning is the best advice is one where the estate planner, the estate attorney is often informed, is armed with the most information and the most perspective, the broadest perspective possible. And that usually comes from incorporating your CPA and your financial advisor into that conversation.
And a lot of people say… I’ve seen a lot of financial advisory firms in the last few years try to put all the services under one roof, right? A lot of CPA firms do this-
Brent Andrewsen: Multi firms.
Reese Harper: Multidisciplinary practices.
Brent Andrewsen: So you got financial planning and legal and tax all under one roof. And what I’ve found is that’s been kind of the reaction to the reality of needing to collaborate, right? Needing to collaborate and so one of the first things people think of is like, let’s just put them all in a building. And then if we get them all in a building then it’ll work better.
And I think in some cases that can be true, but I’ve seen many cases where they’re all in a building but they’re still not actually collaborating. And so at some point the person who understands your taxes the most and the person who understands your legal stuff the most and the person who sees your net worth and your investments the most they need to talk.
And if that’s under one roof or that’s in three different buildings, it won’t really matter, they still got to talk. They got to collaborate and the process has to be happening. And to me some of that’s on I think the financial advisor to some level to be a little bit proactive there because they’re kind of that quarterback. But I think the client sometimes needs to really bring those people together too and kind of make sure that they’re all talking if the client can make that happen once a year it just makes a huge difference.
Reese Harper: Absolutely.
Reese Harper: Ryan and I are pretty easy to talk with and so are other advisors, let’s just find a time that works for you so we can start a conversation about how to take control of your financial future. Give us a ring at 833 DDS, plan to set up a free consultation or just go to the website at dentistadvisors.com and click book free consultation.
Reese Harper: Anyway, let’s dive back into some pragmatic next steps. So I don’t want to go down to the county office and have to retitle things and then drive to Wyoming and get my cabin also retitled and refinanced and maybe they call the loan owner, I don’t know. And then I want to avoid this. So, the first thing that I can do is I can set up a trust, right? What is a trust? Is that what I do? Everyone tells me that’s what I’m to do-
Brent Andrewsen: Sure.
Reese Harper: Do I set up a trust?
Brent Andrewsen: Yeah. Let me just touch on two other things. I mean it’s probably important to recognize that in addition to probate, there are two other ways property actually passes a death without getting too technical. Just one example is by operation of law. So if you’re married, most people in most states, they will have husband and wife loan their property jointly with rights of survivorship or in some states however broad this podcast goes, some states they call it tenancy by the entireties.
That form of ownership causes the survivor automatically to become the owner. You don’t have to transfer, you don’t have to go to probate. So spouse who’s on the title with the other spouse jointly with rights of survivorship automatically becomes the owner. So operation of law is one way. So after the first death, it’s usually not a problem. The second way property passes a death is by contract. And that’s where I mentioned life insurance 401k as well. A trust is actually a really special type of contract that you put in place and take an asset that might not otherwise be subject to contractual provisions and suddenly subject them to a contract.
Reese Harper: So backing up?
Brent Andrewsen: Yeah.
Reese Harper: So the first way is by operation of law. What types of assets might pass that way? Yeah, and there’s listeners in every state on this podcast.
Brent Andrewsen: So, just for ease of understanding. Then again, if you’re husband and wife in some states you’re automatically deemed to own it jointly with rights of survivorship, in many other states. It actually, if you pulled the deed to your home, you’d probably seen language you’d never noticed before. That says jointly with rights of survivorship and the primary asset I think we see is the home. It’s not uncommon though to see bank accounts, brokerage accounts. We’ve even seen some business interests closely held business interests, LLC interests, corporate stock that has John and Jane Doe, joint tenants.
That’s another shorthand for jointly with rights of survivorship. And so I would say homes number one, bank accounts probably number two, brokerage accounts and other assets often get titled in joint tenancy.
Reese Harper: So, different, all financial accounts, any financial account has some kind of titling and you’re kind of referring that to operation of law where the contract you’re saying, I think you said 401k might be in there or specific retirement accounts might be in the other-
Brent Andrewsen: That’s the other contracts side.|
Reese Harper: On the contract side. So non 401k non retirement accounts, but still financial accounts, investment accounts, everyone’s picking what kind of and honestly quite haphazardly sometimes.
Brent Andrewsen: That’s right.
Reese Harper: But you go on your app and you set up a betterment account or a wealthfront account-
Brent Andrewsen: And you put has you both-
Reese Harper: You don’t know. It’s like you’re like j-w-r-o-s common. I don’t know. I just want to invest in some stocks.
Brent Andrewsen: Right, right.
Reese Harper: So you just go, the question is, it would be interesting for everyone listening to think about your accounts right now. All the financial accounts you have and any asset you own, how is it owned? How is it owned? Do you own it? Is it jointly, contractually with your spouse? Are there any other types of ownership besides individual and joint that you’d like to address?
Brent Andrewsen: Well, another form of joint ownership, you could have, you mentioned tenants in common.
Reese Harper: Yeah. It’s a common ticker.
Brent Andrewsen: Yeah tick is a term used out there for particular types of investments that are real estate, usually tenant in common. So if I’m going to sell a tenants in common interest in a CVS pharmacy, I’m thinking of some investments clients have made 50 people are going to own that CVS pharmacy by owning a one 50th interest or larger a percentage if that’s what they invest. But they actually are simply a part owner in the property. And we see that sometimes moms and dads will sometimes transfer the family cabin to their kids as tenants in common, not jointly with rights of survivorship, so that when the four kids die, they’re 25% interest passes on to their kids.
And so we see that tenant in common ownership as another form of joint ownership.
Reese Harper: Yeah. So you probably have some sort of joint ownership to see their tenants in common, or you have a joint with rights of survivorship, which automatically makes the whole asset be in the surviving spouse’s name. And then you have individual ownership and all of those could apply to your real estate assets or your business assets depending on how you set up your LLC paperwork or escort paperwork or how you set up your accounts at the financial institution, right?
Brent Andrewsen: That’s right. And one of the things, I think sometimes people hear about this or they may have researched a little bit. And so we’ve had clients who’ve come to us and said, “Well look, I know that this will pass automatically at our death. So we’ve gone ahead and had our title company set up a deed, transferring our home to our children with rights of survivorship so that when we die, so we own it along with the kids so now I don’t need to do any more estate planning.”
And the first question I asked them, “Okay, well based on that form of ownership, if you understand it a little bit, what happens when one of your kids dies?” ” Oh, well we didn’t think about that.” Because usually people want their children’s portion to stay in the family.
If they have grandchildren from that child, they want that piece to stay with the family. Well if you title everything jointly with rights of survivorship thinking that you’re going to die before your kids and that is often what happens. But that creates a gap in your actual wishes and desires when your child now predeceases you and the only survivors are the remaining kids and now you’ve squeezed out those grandkids from any inheritance which really usually is not people’s intent.
So that gets us to why a trust becomes so important into the planning is because again, you rather than worry about joint tenancy with rights of survivorship, you take those assets and put them in trust subject to a trust agreement. And that trust agreement will then dictate what happens upon death. And then you can lay out the plan. You can say I want it to go in equal shares to my kids, but if a child does die, I want their share to go to somebody else.
Reese Harper: Yeah. Well there’s a lot of ways to design a trust. A lot of different ways. I think that for our time today, what I want to kind of hit on is making sure people have a vernacular a little bit around this whole topic. So, what type of regular old trust would be this contractual type that you’re talking about that would solve my probate avoidance kind of issue?
Brent Andrewsen: So basic trust that we would call a basic estate plan trust is what we call a revocable living trust. Meaning it was created during life. It actually comes into being during life because the agreement is signed, it is amendable or revocable or changeable by the creators of the trust. So any of the folks listening out there who create a trust like this, they would have power to change it later. And they lay out in an agreement what the rules of the trust are during their lifetime, upon their death, at certain stages after their death. And they also get to dictate who’s in charge. So they create it-
Reese Harper: Who are the common people in this trust that I’m going to involve with me or am I the only one that’s really involved here?
Brent Andrewsen: Normally you’re the only one who’s involved. Unless there were some reason we’ve had this sometimes with elderly clients who say, “You know what, I don’t want to handle my affairs. So I’m going to set up the trust. I’m going to name one of my kids as the trustee right now, or at least daze co-trustee with me. I’m going to be the beneficiary until I’m gone and then the kids will be.”
But most of them, I’d say 98% of the time, the creators of the trust or are, we’ll just call them husband and wife or mom and dad. They create the trust for their benefit. And for that reason, they stay in as trustees of the trust. So there’s really kind of three hats that people wear that the grantor or creator. They’re the beneficiary, meaning the people for whose benefit these assets are held and then the person who holds the assets and manage it is a trustee and most of the time the people creating the trust where all three of those hats initially, so for all intents and purposes as if they really haven’t done anything different, their life doesn’t change that dramatically.
It really becomes just a titling issue. But by doing that upon their death, then someone else becomes a trustee as spelled out in the agreement and it’s much easier than having to go down to court like you would with probate instead. The person you’ve designated as the successor trustee just fills that role, comes in, takes control of the assets and then follows the instructions in the agreement.
Reese Harper: I know that you always take an approach of simplest approach that actually works.
Brent Andrewsen: That’s right.
Reese Harper: Which I have always appreciated. How do you view? When would it make sense to set up two trusts? Because a lot of times people would call that like the AB trust or right or a buy. There’s a lot of different names I’ve heard going round and forth.
Brent Andrewsen: Yeah. Well, the primary reason we used to do it were the estate tax laws. First of all, the estate tax exemption was so much lower than it is today.
Reese Harper: It used to be only a few million dollars.
Brent Andrewsen: When I started practicing law it was 600,000.
Reese Harper: And now it’s closer to-
Brent Andrewsen: 11.4 million.
Reese Harper: 11.4.
Brent Andrewsen: Per person.
Reese Harper: Yeah.
Brent Andrewsen: But they also added a provision a few years ago that allowed a husband and wife if they’re married to share the exemption. So they each get 11.4 which means together they can share 22.8 but again, because it didn’t use to be combined, we used to say, “Well you need to separate your assets out because each spouse-
Reese Harper: Was entitled to.
Brent Andrewsen: …needs to own as much as possible. Otherwise you lose the exemption-
Reese Harper: So you might’ve seen that more now,
Brent Andrewsen: Historically.
Reese Harper: For people that don’t know, there’s an amount of money that you can be worth when you pass away, that you are not taxed at that’s what Brent was just saying about the 11.4 million. It used to be that that amount, the exemption is what they call it, used to be a lot lower and you’d have to pay tax on anything above $600,000 when Brent first started. Now a lot of people don’t have taxes due.
If you’re in this regular range that we were talking about earlier, but it’s not uncommon for our listeners to have a net worth that exceeds that amount. So anything above 22.8 million today would be considered taxable.
Brent Andrewsen: That’s right.
Reese Harper: And as a rate similar to income tax, that’s a little higher-
Brent Andrewsen: 40% basically.
Reese Harper: Yeah. And so just backing up to this thing about one trust versus two, that was probably why two existed. And it can protect against, it can be a little bit harder for creditors to figure that out and maybe go through the effort of breaking that down.
Brent Andrewsen: That’s right.
Reese Harper: But maybe today it might not have. Would you recommend that being something that in today, this calendar year would make as much sense?
Brent Andrewsen: Yeah, it just depends. That’s why I say circumstantial. I would say the vast majority of the trust we create based on where the law is today and what family circumstances are even for dentist or doctor clients is to create the joint trust. It’s easier, it’s clear, it works, it accomplishes their objectives, that it most closely approximates how they’re managing their affairs-
Reese Harper: Thinking about it.
Brent Andrewsen: Thinking about it, manage it. But that said, we do have clients occasionally that may be are engaged in a riskier type of a practice. I can think of some surgeon clients some dental clients that actually, maybe are performing maxillofacial surgery and those sorts of things. A more sophisticated practice, maybe more subjective. What they might do is say, “Well look, I’m going to transfer some of our assets to my spouse and let them be in his or her name and then have him or her set up the trust so that again, if I’m ever exposed to a malpractice claim, they’re limited to going after me.”
And that gets muddied up a little bit if they have a joint trust because then it becomes less clear whose assets they are. And so a creditor might go after that. So that’s one example where in this day and age we still might create-
Reese Harper: Consider it.
Brent Andrewsen: …a separate trust.
Reese Harper: I think that’s great insight and I want to just highlight that I think that all of these tools apply at some level. You and I have both had clients that… some clients need asset protection trusts, some clients need charitable trust, some clients need much more sophisticated irrevocable trusts.
Brent Andrewsen: Complex corporate plans with S corporations and LLCs and other vehicles that take care of tax issues and asset protection and within their business sphere.
Reese Harper: Yeah. The larger your income. And to me in estate planning in particular, the larger net worth becomes the more likely it is for you to need sophisticated planning.
Brent Andrewsen: That’s right.
Reese Harper: And it’s important not to just minimize the fact that you might be one of those people that really does need complicated asset protection planning, charitable planning. And that’s going to go beyond the scope of our podcast today. But I think we can have another interview where we dive deep into charitable giving and grand tour trusts and irrevocable trusts and irrevocable life insurance trust and a lot of other vehicles that I think are applicable to some of our listeners.
And I think as your net worth grows and as your income grows, just be aware that man it, especially when you start having a multimillion dollar net worth or a million dollar net worth, you need to have basic estate planning immediately order to be financially responsible as your net worth grows and climbs and you start approaching that $10 million mark and you’ll know if you’re tracking it.
Even if you’re at that five to six dollar million mark, more sophisticated plannings often needed even in today’s estate planning environment where estate taxes are higher.
Brent Andrewsen: That’s right.
Reese Harper: But take that we’re trying to emphasize this idea that complexity actually creates problems with estate planning in some cases because the more complex your plan, the more likely it can be to get unruly for you to forget things, not manage it properly. Kind of just chalk it up to that thing that you did that you’re done with but you don’t understand it and so you don’t use it.
Brent Andrewsen: That’s right.
Reese Harper: And I think Brent and I are both worried about that, but not trying to minimize the real complexities that come up as your net worth climbs.
Brent Andrewsen: I’m glad you mentioned Reese, the importance though of having that basic planning because I think sometimes the higher net worth clients overlook the fact that at least that basic planning has to be in place for them. Even if we’re layering on some more complex tools because their situation warrants it, their desires warrant it, you’re always starting from that baseline of making sure that these basic issues are covered.
Probate avoidance, the basic allocation of their assets to either their heirs, their kids, grandkids, to charity, wherever they want to. Those basic documents always need to be put in place regardless of the additional planning they may need. Another couple of titles that are part of an estate plan because when we do estate planning, we’re not just concerned about the death of the individual planning, but we’re also concerned about what happens if they become incapacitated.
So we usually do powers of attorney and healthcare directives. And under those two documents, the person doing the planning actually appoints an agent for healthcare purposes and an agent for financial purposes who if they become incapacitated, the individual becomes incapacitated. Those people step in to help pay the bills to be in effect their guardian, but without having to go to court.
So, I usually encourage clients to pull out their estate planning documents every three or four years, dust them off, look at those things, who they named, how they’ve outlined the beneficial interest that their successor beneficiaries are going to have. I mean that’s a lot. It’s often true that that parents don’t want their kids to immediately receive an inheritance at age 18 for instance, when they’re supposedly adults.
And so there might be some, some stage distributions at age 25 they get a third age 30 they get a third and at age 35 they get another third. So I usually say every three or four years, pull the documents out. Look at who you’ve named, look at how things are going to be divided and distributed to the kids. And then is that what you currently want?
When people are having a hard time making decisions, because these are sometimes hard decisions for people to make. I try and say, “Well look, think about a three to five year window. If you were to die in the next three to five years, don’t think about dying 50 years from now because we can’t plan for everything we try. But just if you were to die in the next three to five years, what do you want to have happen? Who Do you want to be in charge?”
And if you can look in that narrow of a window than the fact that your dad maybe is a little bit older than you think to administer a trust 40 years from now. But if that’s who you’d want to administer things, if you die in three to five years, then pick your dad. Anyway, I try and give clients that kind of guidance, think three to five years and then in three to five years, pull out your document to say, “Now if I die three to five years from now, is this still what I want to have happen?”
Reese Harper: Yeah. Okay. Last question I think might apply to most people here. Let’s say my net worth is starting to skirt. I’ve got a $5 million net worth, I’m might be getting close to a $10 million net worth and I still have some life insurance. If I have a $10 million net worth and I’ve got five to seven million dollars of life insurance, depending on how much of the 10 million I guess is in my own name which we don’t really always know, but it could be joint or in my name.
If it’s in my name jointly or in my name individually, then that plus my life insurance becomes my current estate, right?
Brent Andrewsen: That’s right for estate tax purposes.
Reese Harper: For state tax purposes. So is there a point where you’d be like in today’s market with 11.4 million being the exemption per person, is there a point where you’d say, “You guys need to think about putting because to give the audience some context.” There are trust types that you can stuff life insurance into to kind of help remove it from your estate. We talked about that just a second ago. Is there a point where you’d recommend doing that for someone where you’d be like, “Hey, it’s time to consider this or not.”
Brent Andrewsen: No certainly. And one of the interesting things about estate tax laws presently is I think we’re maybe for the first time in a political environment where there’s at least a chance that we’re going to go back to a lower exemption. As a matter of fact, the current $11.4 million exemption, which will probably go up slightly next year because it’s pegged to there’s an inflation adjuster.
In 2026, it goes back to 5 million adjusted for inflation. So, we’re already in an environment where this 11.4 million is not permanent. And depending on who wins the White House or the Senate or the House, it might change. So I have been telling clients if your combined net worth starts bumping over the 10 million, 11.4 million, and in particular, if that’s just your otherwise liquid estate or your tangible assets, intangible and tangible assets, and then you have life insurance, then let’s really start looking at maybe still some simple planning strategies to make sure you’re never going to have to pay estate taxes.
Reese Harper: Okay.
Brent Andrewsen: Unless your estate, maybe that stock you invested in takes off and you’re worth $100 million.
Reese Harper: Okay.
Brent Andrewsen: There’s a different scenario, but yeah,
Reese Harper: Yeah. Hard to gauge that though.
Brent Andrewsen: But if you’re more than 11.4, it’s worth taking a hard look at what type of… there’s a variety of types of ways to get that, some of that money out of your estate. But that’s kind of when you should start thinking about it.
Reese Harper: In today’s market.
Brent Andrewsen: That’s right. Especially if you’re 11.4 million. If you got 11.4 million, a home worth a million and a business worth a million and $9.4 million worth of stocks and bonds. Again, there’s some relatively simple but tried and true estate planning strategies, which might include just make sure you have a private holding company, put your assets into an LLC because there’s some ways to value the LLC less the total value of its parts, if that makes sense.
You can take some discounting and all of these, the IRS has approved. And so again, back to the overall philosophy, try and keep things as simple as possible for as long as possible. If you’re right around that 11 million, well, let’s look at what you own and how you own it and how much life insurance and let’s maybe add a couple of simple additional pieces to your estate plan that will keep your estate below those exemption amounts for a period of time.
Reese Harper: Now, the easiest way for me to get my estate down below that is I could gift a fair amount of it away to charity, correct?
Brent Andrewsen: Correct.
Reese Harper: Now so as long as I’m only keeping in my estate or to my heirs, the amount that’s below the estate tax limit and I’m donating the rest, then I don’t have an estate tax problem.
Brent Andrewsen: That’s right. The simplest estate plan for people who know how much they want to go to their kids or heirs, and if it doesn’t exceed the estate tax exemption, we simply put a provision in your trust that says anything over the amount that can pass free of taxes will go to charity. Now you don’t have to put all sorts of other crazy trusts in place and you can even actually create some charitable vehicles that your family can be involved in for a period of time as long as they want to and get all the tax benefits, pay no estate tax. And so it’s a pretty simple way to deal with this issue.
Reese Harper: I have a lot of dentists who are pretty charitably inclined people for the most part and lot of our audiences as well. And sometimes they’ll get scared into an estate tax planning strategy. Not realizing that when I say, “Well, do you want your kids to get $100 million or?” “No way. I only wanted them to get a little bit at certain ages.” Or their goals of what they actually wanted to have happen and then what they’ve implemented or just not the same.
But the idea that they might pay some tax on some amount of money was so compelling as almost like I don’t want to say it was used as a fear tactic because a lot of it’s compelling just to think that you’re going to pay taxes anyway. But in many cases a strategy might’ve been proposed that was really maybe unnecessarily complicated when all they wanted to do is get a certain amount to their kids and then say, “After that I wanted to go to my university of Pennsylvania, or I want it to be at Midwestern or I wanted to go my dental school plus these colleges, plus this church plus this nonprofit plus the Red Cross.”
Brent Andrewsen: Yeah. I think one of the things that sometimes gets missed, because I always say don’t let the tax tail wag the dog. I mean the reality is really sitting down and helping the client understand what their wishes are because sometimes they don’t fully know. But you start talking through these concepts and-
Reese Harper: And walk in and get him to articulate it.
Brent Andrewsen: Yeah. And they start articulating that. But if you can… I agree and it seems because of things the billionaire challenge, if you haven’t heard of the billionaire’s challenge, Warren Buffet, Bill Gates got a whole bunch of other billionaires to basically say they’re going to give the bulk of their estate to charity. And the concept that I always butcher that Warren Buffet has said is, “Look, I want my kids to have enough money so they can do anything but not so much money that they can do nothing.”
And a lot of clients are saying that same thing. Now there are degrees. I mean Warren Buffet’s amount, I can’t remember how much that was. It was going to go to his kids. I thought that would be enough for me to maybe do nothing. But I get the concept and so we’ve had clients who are saying-
Reese Harper: So relative.
Brent Andrewsen: It is. That much for my kids would be a million bucks. I don’t want them to have more than a million bucks. And so when you start talking through that then you can start saying, “Look we can keep your estate planning super simple. Are you charitably inclined?” If you really only want this much to stay within the family and there are ways to do that. We can create a grandchildren’s scholarship fund. I mean there’s so many cool things you can do.
Reese Harper: And you can just spend it real fast.
Brent Andrewsen: Then you can spend it.
Reese Harper: That’s the crazy thing.
Brent Andrewsen: The best thing.
Reese Harper: Yeah. It’s not actually that hard to spend a lot of money in case those of you are wondering it. It goes pretty fast.
Brent Andrewsen: I think statistically within 18 months, people who inherit money or win the lottery, 18 months and it doesn’t matter the amount we’re talking hundreds of millions, millions, hundreds of thousands gone in the first 18 months.
Reese Harper: I’ve witnessed that in my career and it’s amazing how a billion dollars can actually get spent faster than you’d think.
Brent Andrewsen: Yeah.
Reese Harper: It’s just takes a private jet and it’s an island and it’s your own yacht.
Brent Andrewsen: Baseball team.
Reese Harper: And then a minor league teams is all you got left for, you don’t even have room for a major. You can’t get a sports franchise anymore for that much. So you couldn’t spend it really quickly. And it’s just interesting to see how the same financial stress and pain and challenge is always there no matter how much money you make.
Brent Andrewsen: That’s right.
Reese Harper: And it is nice to have a little bit of leftover money though. I think there is a point where it’s nice to be able to go to dinner, not stress it out. Well, thanks for sharing that Brent. It was a good conversation. We covered a lot of ground today and I think it will be really helpful for our audience so.
We will put all your contact information in the show notes and people will know how to get ahold of you there. I just appreciate you taking the time today. Any last minute thoughts for our listeners?
Brent Andrewsen: No, just I love this area of law because it’s so real. I’ve got kids, I’ve got a wife, I’ve got parents, I’ve got grandparents, I’ve had people die and these sorts of issues come up. And that’s what I love about it. It’s real. What we’re talking about, whether there’s a lot of money or a little money, we’re really just talking about people and so again, making sure things are in place. I’m passionate about it because that helps people navigate life.
I had my mentor say all the best planning in the world can’t make an otherwise dysfunctional family functional, but poor planning or no planning can make it an otherwise functional family dysfunctional in a heartbeat. And so get your stuff done.
Reese Harper: Thanks Brent. That was great advice. And we look forward to having you back on soon.
Brent Andrewsen: Thanks. See you.Getting Organized, Estate Planning