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When is it time to get an estate plan? Or, if you already have one, how often should it be reviewed? And how do the requirements of an estate plan differ if you’re a dentist? Wills, trusts, tax planning, asset protection—not the most exciting topics to bring up at family dinner. But the same people who join you at the table will be glad you planned ahead and kept them from having to track down all your assets. In this episode of Dentist Money™, Reese welcomes estate planning attorney, Andrew Howell, who explains why there’s more to estate planning than most people think. He describes what happens if you die without an estate plan, three common fallacies about estate planning, and how a properly structured estate plan will protect your wealth while you’re still living.
Reese Harper: Welcome to the Dentist Money Show. I’m your host, Reese Harper, and this is the place where we help dentists make smart financial decisions. I have shipped in a special guest today from up in the mountains of Utah where I caught him fly-fishing. And he just happens to be one of the most successful estate planning attorneys in the region, and I was able to get him down here from fly-fishing day, so I appreciate that. This is Andrew Howell. Andrew, thanks for coming on the show today man. I really appreciate it.
Andrew Howell: Absolutely. My pleasure; I’m excited.
Reese Harper: Andrew and I have been colleagues for a while. I’ve seen a lot of the work that he’s done, and I just thought it would be great to bring him on the show and talk about a topic that’s really applicable to our clients. It’s one that a lot of people are either tackling for the first time or maybe wondering what they signed a few years ago. That’s the topic of estate planning, right? Tell me a little bit about what estate planning is for people who don’t know, and when they hear their wealthy friends who have an estate plan but they don’t know what that means—what does it mean?
Andrew Howell: Yeah, it’s a really good question. Estate planning is all I do. I’m not a litigator; I’m not a criminal law attorney or anything like that. What estate planning is, is actually a broader topic than most people think of. When you hear that phrase, you immediately jump to “wills” and “trusts” and “what happens when you die?” Certainly that’s all part of it, but what’s part of your estate is everything—everything you own, all your assets, your business interest, money in the bank. And you think of planning—well it’s not just planning a death, it’s also planning around those assets during your lifetime. Estate planning brings in topics of asset protection planning, tax planning, charitable giving, and all these different kind of other ancillary aspects to it. I think what we will talk a lot about today is sort of that first, fundamental level with estate planning that everybody ought to think about doing if they haven’t, or updating if they haven’t looked at in a while, which is that will, trust, power of attorney document—kind of that family protection component.
Reese Harper: Tell me a little bit about this—you kind of clarified this initially, which makes me think it must be an issue. You said, “this is all I do.” Is it common for attorneys, when you say I’m not a litigator; I don’t do family law; I don’t do bankruptcy. It’s more common for attorneys to do a lot of different things, correct?
Andrew Howell: It has been definitely in the past. I think we’re seeing more and more specialization. Estate planning has always been one of those areas of the law that it was really easy to dabble in. “Hey, I’ll do your bankruptcy and I’ll also draft your last will and testament.” It’s just gotten so much more complicated, and as a result we really do specialize just in that area.
Reese Harper: Well it seems like that would be a good thing when you’re looking for an attorney—if they do ten types of law, and they also do estate planning, it seems like it’s a lot more complex than people realize. It’s not just as simple as all trusts are created equal and all wills are the same. Specialization seems like it’s important, but it seems like a lot of attorneys do a lot of different things. Why do you think that is? Why do attorneys have so much going on sometimes and maybe don’t focus on one area like estate planning? Or why is it kind of the thing that gets added on to all the other services rather than being a core focus of someone?
Andrew Howell: That’s a really good question. Your audience being dentists can probably sympathize with where you have a lot of specialization within the dental industry as well whether it be cosmetic, child care, any of those types of issues. I don’t understand why people choose to center their legal practice around a whole bunch of legal areas. What I really think it boils down to is the amount of work that attorney has. If you have enough work to specialize in an area, then you’ll do that, right? You get better at it; you understand the law; you understand the case law that backs up all of that law, and you really do come into that core understanding. You want and expect, especially again with the listeners that are listening to your podcast here who are dentists and professionals—they have outgrown LegalZoom as soon as they graduate. It’s just one of those deals.
Reese Harper: I’ve seen a lot of attorneys that practice a lot of different areas of law, and it doesn’t necessarily mean that they can’t do a good job at estate planning, but it’s kind of like a financial planner that says, “I work with everyone.” And in my experience, that’s why we specialized and picked the dental occupation as the soul focus of our efforts—not because we don’t know anything about any other occupation, but because you just get better at addressing the issues. And I think focusing on estate planning is similar. And it takes a lot of effort; it’s kind of risky initially turning away other work and staying focused.
Andrew Howell: And it’s not sexy either. When you go to law school, you are very much geared in the law school process to become a trial lawyer and litigate and be the next Perry Mason. It’s one of those things that I had always known I wanted to do estate planning. I had come from that background—members of my family had been involved in estate planning for a long time. I had seen that even before I went to law school. When I was in law school I knew what I wanted to focus on and took the classes that were necessary to do that. I didn’t do moot court or any of those things that were really geared toward litigation.
Reese Harper: Yeah. Let’s back up now to the dental questions. I’ve prepared some, and I think you’ll be able to answer them really easily. If I’m a dentist, I’m out of school and five years in. I might be worth negative $250 grand; I’ve just borrowed $800 grand to buy my practice, and when I bought it from the gentlemen I bought it from, the patient base declined like crazy on me, and I owe more than it’s worth. I have a ton of student loans because I’m an orthopedo graduate from UCA. I’ve got that scenario, and then before we talk about the wealthy issues, because I think there’s a lot of listeners who have a net worth exceeding five to ten million dollars, and that’s a different estate planning question. Then you have people who have a negative net worth. Why do I need an estate plan if I’m broke and have no money? It sounds like something only rich people need, so why do I need an estate plan if I’m broke?
Andrew Howell: Yeah, and I get that question so often. One of the first things that I always like to tell people is—usually you find out people are worth a whole lot more than they think they are worth. You start looking at their balance sheet.
Reese Harper: It’s so true. Every time we start working with somebody they will say, “Oh gosh, I feel kind of embarrassed. I don’t have a lot going on.” I’ve even have people that are worth tens of millions of dollars, and they say, “I would consider myself like the average person.” People don’t consider themselves wealthy, even if they are wealthy.
Andrew Howell: Exactly. That’s kind of the first issue, which is that people are probably wealthier than they think of. The other issue is determining: what is wealth? And what we are talking about here? And certainly when we are talking about financial wealth, your question is completely apropos. But the way we look at the estate planning issue is one of control. Seventy percent of the population doesn’t ever do their own estate planning. It’s just not a fun thing to think of, no one wants to meet with a blood-sucking vampire lawyer like me and talk about death and taxes. It’s just not a real fun topic.
Reese Harper: You’re not that bad. You talk about fishing, ok?
Andrew Howell: There you go. But what most people don’t realize is when you haven’t done your own estate plan, it’s been done for you. And every state in the nation has a law that governs how your assets are going to pass if you have failed to plan otherwise. So when I think of estate planning in my mind, I’m kind of a control freak. I like to have control; I like to make my own decisions; I like to decide if I couldn’t make my decisions who would be making my decisions for me. I don’t want necessarily the court to decide all of that for me. And coming in and doing your own estate planning is allowing you to do just that—take control of your own life. Decide who the guardians of your minor children should be as opposed to again relying on the court to determine what’s in their best interest. And I don’t bad mouth courts; I really do honestly believe that they try to do the best they can. But in my mind, I think my wife and I have a better idea who should be the guardians of our children than that court is going to decide. So again it’s this issue of control.
Reese Harper: For me, I think my kids will be fine. They will just run out in the woods and survive. But I can understand where some people will be worried about their kids.
Andrew Howell: Absolutely, but so you have a dental client who comes out of dental school, and they’ve got this student loan debt. They have got debt from the purchase of the practice, and they’re going, “wait a minute, I don’t have this big stash of cash.” Well, they are very much on the foundation level of their life in a whole bunch of different ways. And certainly the financial assets that they have is one aspect of looking at the estate planning process, but there’s so many other things going on as well.
Reese Harper: So let’s back up to this scenario—I’m a dentist, I’m three years out; something happens to me unfortunately, I pass away or I become disabled, or I have an injury that takes me out of practicing. Whatever the issue is that makes it impossible for me to make decisions. Let’s say I pass away, and my spouse is left with children. What decisions does the court have to make in order to properly settle my estate? What decisions have to happen when I pass away, and then what decisions have to be made if both my spouse and me leave our children and neither one of us were around? Is it the same decision, or is it a little bit different?
Andrew Howell: Assuming you had no estate plan? So let’s take a hypothetical, let’s say that something happens to you Reese and we found out that you’ve got a bank account.
Reese Harper: It would be a pizza accident. I overate; I had a weekend binge. I was in Boston, and I just went to Tito’s and I overate. That’s the hypothetical, okay?
Andrew Howell: You pass away and we found out that in your personal name you’ve got a bank account with a hundred thousand dollars in it. Well, what would happen is your wife would go down to the bank. Let’s say it’s at Wells Fargo. She goes down to the bank, and she tells them her husband has passed away. According to the pro bank law, which is the law that would govern how your assets pass when you haven’t done your own estate plan. Again I mentioned that law earlier, it’s called the probate code. What the probate code would say is she the rightful heir to your estate, so she would go down to the bank and ask the bank to give her that money. And the bank would look at her and they would say, “Mrs. Harper we’re so sorry for your loss, but we really don’t know who you are. And according to our records, this bank account is in Reese’s name, and we need to see the court order that authorizes us to turn those assets over to you.” So that’s where she has to go and hire a lawyer who charges her a bunch of money to file a bunch of documents with the court. Those documents that get filed with the court open the probate. And she now at the court level gets appointed as the person representative, or sometimes in the past it’s been referred to as the “executor” over your estate. Once the court has appointed her in that position of power, she then can go back to the bank, show them these court orders that authorizes her to get access to those accounts, and the bank will turn the assets over to her. It’s time consuming; it’s expensive. You’re dealing with lawyers and you don’t have immediate access to assets. This whole probate process doesn’t happen overnight.
Reese Harper: Okay, so that’s one of the things that would be a pain. What about if we were both to pass away, then there are the other issues you mentioned about kids and guardianship. A lot of people don’t know what that means.
Andrew Howell: Yeah, so you both pass away. You both have a pepperoni overdose.
Reese Harper: My wife doesn’t eat pizza. Salad, chicken, kale overdose.
Andrew Howell: What would happen now right is that we still have to go through probate, but now it’s on both of your assets—anything that was in your personal names and so forth. And probate quite honestly is not as big of a deal as it used to be. There are many other techniques that we can utilize to help avoid probate. But the biggest issue in that case of you and your wife both passing away, is what happens with your minor children? Not necessarily, who is going to be in charge of the money that might come to them from your estate—who’s going to be in charge of them? Who is going to have custody, raise them, love them, and nurture them as close as you would have otherwise been able to do? That goes to the court to decide, and the court tries to make that determination based upon the standard that we call the best interest of the child. And so the court sort of looks at your friends and your family and really anybody who is willing to serve in that role as guardians, and they will say, “Ok who is going to do the best job in the court’s opinion?” The other issue of course is that the assets that you do have would then be divided equally amongst all your kids. They would be held in custodial accounts managed by a court-appointed custodian. So the court would come in and say, “Ok first guardianship—who would have custody and raise the kids the best way, but then in regards to custodianship—who would be the best to handle the money that you left them.”
Reese Harper: A local county probate court has a judge and that judge determines. Or is it a clerk or somebody—who is it? What kind of competency does the person have that makes that decision?
Andrew Howell: It would be the judge, and again you would have your family members and so forth that would probably come in and try to petition to be that.
Reese Harper: The judge listens to what they have to say. It might take a while, but ultimately they are going to decide who are the guardians. And guardians are in charge of custody of the kids.
Andrew Howell: Custody, what kind of medical care they are getting, where are they living—all of those types of things.
Reese Harper: So when it happens, just because someone says they are going to be the guardians doesn’t necessarily mean that they live with those people? They could live with somebody else? My brother could be the guardian, but my kids don’t live with him or is it pretty common that the kids live with the guardian?
Andrew Howell: It would be pretty unique for them not to live with the guardian.
Reese Harper: And then the person that’s the custodian of the money is usually a separate person from the guardian?
Andrew Howell: It can be. It might not be—again it depends on who wants to do it. I think that we have this delusion of grandeur that if something happens to me there would be all these people fighting to have custody of my kids and watch over their assets. But it’s not a fun job. It’s a labor of love, and that’s another problem here is when you’re doing your own estate planning you get a chance to talk to those people and make sure they are willing to do it.
Reese Harper: So ultimately, is there any other major decision making that has to happen besides the money and the care? There’s the guardians and the custodians—is there a different name for the person who does the money?
Andrew Howell: If it was a court-appointed person we call it a custodian. And the other issue is deciding when the kids get access to that money. Typically it would be at eighteen, sometimes twenty-one where the kids would then have immediate access to the share of estate that you leave them.
Reese Harper: Legally that’s usually what happens, right? And the court is not going to say something more subjective than that usually?
Andrew Howell: No, the most they will do is extend it out to twenty-one. And at twenty-one they will get it all. I don’t know what you were like at the age of twenty-one…
Reese Harper: I was really responsible.
Andrew Howell: Exactly, right?
Reese Harper: You laugh at me!
Andrew Howell: Well no, I would like to think I was responsible at that age, but I also made a lot of mistakes. And what a lot of money is to an eighteen year old is probably a lot different than what we think a lot of money is at our age.
Reese Harper: Now we have a good picture of this issue and what happens to young kids in a young family. If I do an estate plan in advance of having this event occur, that allows me to select different people in a really costume way—to have things happen the way I want to have them happen.
Andrew Howell: Yeah, so what happens is, if you were to pass and you do have your estate plan done—you have a last will and testament that lists out who the guardians of your kids are going to be. What will happen, is there still needs to be a guardianship appointment, but the court will look at your last will and testament. They will assume that you and your wife have your child’s best interest at heart, and most of the time they will go with the guardian that you have chosen in your last will. The bigger thing is in regards to the assets and handling those assets. With a trust, if you have the trust be the vehicle that deals with the assets when you pass away, in that trust you and your wife can make it so the assets stay in trust for a longer period of time for your children’s benefit. First of all, you can choose the trustee that’s going to be in charge of those assets and controlling them and managing and watching over them, and you can also put additional conditions on when those assets are actually going to wind up in the hands of your kids. Sometimes we will suggest, even in my own situation, that if something happened to my wife and I, my children won’t receive anything outright ever. And instead they will have trusts for their entire lifetime. Now they get to have control of their trust at some point in time, but we are creating much greater asset-protection planning for them when they actually receive those assets because it never became theirs outright.
Reese Harper: So let’s talk a little bit about the difference between how you would consider doing estate planning for a dentist and maybe a schoolteacher or someone who was getting a W2 as an executive here. Why would a dentist doing estate planning have different considerations than an average employee?
Andrew Howell: Yeah, great question. Again one of the real important tenants of estate planning is asset-protection planning. In my experience with my dental clients, you have more liability risk on a daily basis. And there’s two different liability risks that we like to talk about—one is what we call an asset based liability risk. A lot of my dental clients own their locations; they own their office complex, the brick and mortar where they are practicing out of. They are seeing patients and they are coming on their premises all the time and if something were to happen—everyone talks about the cliché slip-and-fall event. We wouldn’t want that dentist to own the property in their personal name have a slip-and-fall event occur and then they get sued as the owner of that property directly. Sometimes we like to separate that out and use things like a limited liability company to own that property and then have a rental agreement between the practice and that LLC to rent the property from them. The dental clients also have a tendency to have very valuable equipment—these x-ray machines cost $83,000 depending on what one you are looking at. And where all of the dentists’ liability risks really reside in the practice—this is where they are meeting with patients and so forth—why hold that equipment that’s really valuable in the practice where a lot of the liability risks resides? You want to hold that equipment outside and again rent that equipment back to the practice. So I guess with a dental client you have the asset-based risk, but then you have the personal risk, sort of what we call the direct-based risk. Which means they are out practicing—meeting with patients and performing personal services; it’s like me providing personal services with a legal client. And if something goes wrong, that dentist is going to get sued personally. There’s this heightened liability risk just because of their profession and again some of the assets they hold.
Reese Harper: Isn’t it also true that let’s say I’m kind of a high profile personal at some level—people know that I own my own business; I have a practice; I’ve been relatively successful; there’s all kinds of surveys online that show I’m the top five incomes in the country. Does that put me at risk in situations that I wouldn’t probably normally be quite as much of a target for frivolous lawsuits?
Andrew Howell: Absolutely. What we’re talking about right now is again the sub category of asset-protection planning. And this is the hottest topic in estate planning right now. We are asked to speak two or three times a month on this topic. And the issue with asset-protection planning is that the best time to do it is when you have absolutely no reason to do it. So if you come in and you try to move all of your assets around in such a way that you no longer own then and you had had some sort of even or lawsuit that occurred, it looks a lot worse and loses some of its credibility.
Reese Harper: It might be harder to defend as a credible instrument at that point, right?
Andrew Howell: No question.
Reese Harper: What about car accidents and incidents that aren’t really related to my practice? Do those affect my assets the same way as if I’m committing personal malpractice in my day-to-day operation?
Andrew Howell: Yeah, and to more fully answer your question you had asked before, asset-protection planning is sold in a very disingenuous way these days. There’s a lot of fear mongering about asset-protection planning because you walk out your front door, and you’re going to get sued. I’m not a big fan of selling it that way. We do live in a litigious society—there’s twenty-one million new law suits that were filed in the United States last year, and unfortunately the bigger the bulls eye on your forehead gets and the deeper your pockets look, the more likely you are to get targeted for one of these frivolous law suits. So, no question.
Reese Harper: One thing I know I get asked a lot is—this is kind of the segment of a lot of my expert interviews where I say, “you’ve got to pitch-me.” You and me are friends so you can take this the right way; I don’t like spending money on expensive legal work. It’s a pain in the butt, and you’re just going to charge me twenty grand. Why can’t I just buy a bunch of insurance? If I just get a ton of insurance and that way it can kind of handle some of the asset protection stuff that you’re talking about. Can I do that? Is it a way to save money? What is the biggest argument for why I need an estate plan because I’m cheap and I don’t want to spend the money.
Andrew Howell: So there’s a lot going on in that question. The way that I answer that depends upon the topic. If we’re talking about basic estate planning—wills and trusts and why do I need it? That’s the obvious one—hey are you not planning on dying? Asset-protection planning is a little bit different in how you show its importance. The way that I view asset-protection planning is as a game. And I honestly don’t mean to minimize its importance by calling it a game—it’s a very important game because it’s going to get played against you. The reason I like to call it a game is there are just hundreds of different ways to play this game, and there are many tools and techniques when it comes to asset-protection planning. And anything from insurance to limited liability companies to asset-protection trust to going to the Cook Islands and creating an offshore trust there. Those are just all different tools and techniques when it comes to asset-protection planning. So insurance in my mind is always the first line of defense.
Reese Harper: Why not have it, right?
Andrew Howell: Absolutely. I have tons of malpractice insurance. I have five million of umbrella policy on my homeowners. It lets me sleep well at night, but that does not mean that I don’t also have a whole series of LLCs, an asset-protection trust and so worth. It’s another tool because what I do in my daily life and practicing law—I love what I do; I love helping clients and meeting successful people and so forth—but I’m also there to make money. It’s my job, and what I want to do is try to separate that aspect of my life that is making money, take that money across the table and in some other way try to protect it. That’s going to be a very common thing for everybody that’s listening to this podcast, because even though they might be five years out and have all of this debt, I will tell you that my dental clients are some of the most successful clients that I have ultimately speaking.
Reese Harper: Yeah, long term. I was just in Boston driving in an Uber ride from the convention center back out to my hotel, and randomly enough the Uber driver was some insurance internal guy that was supposed to track down where people’s money was located. Like if the insurance company was suing somebody it was his job to try to figure out the paper trail. And he kept talking about how certain people had a really complex entity structure and they would just kind of give up on it. They would just think it was going to be too much of a pain to unwind and they weren’t going to tackle it. Do you find that there’s some truth to that?
Andrew Howell: There’s a ton of truth in that. The estate-planning community is fairly small. We have a tendency to know each other around here, and there are a couple of planners in our area that are known for that. Very complicated plans, very expensive plans, and it’s not that they aren’t valuable in some kind of way—the problem is the client forgets about it the minute after they walk out the door.
Reese Harper: That’s the thing: if I don’t know what I did then what?
Andrew Howell: Asset-protection plan requires you to give it respect. You have to run it the right way, and I always get people that come to me and say, “oh we haven’t done our corporate formalities. We haven’t had our annual minute meeting for years and years.” And I say well, “Okay, those are important things to do, but the bigger things are the transactional—like hey we’ve been buying groceries out of the company account.” Everything that goes on with your entity creation—I don’t care if it’s from your corporation that’s providing your services or if it’s the LLC that owns your building, you have to give that company integrity. You have to give it respect, because if you don’t you run the risk of what we call a corporate veil piercing argument which is somebody suing you is going to go through your entity and come after you personally. The way they show that is if you haven’t given the company respect, why should your creditor have to give the company any respect either? So yes, with asset-protection planning, the more complicated you get, the more protection you do get as well as long as you run it the right way. If you don’t run it correctly, it’s all gone. It’s all for not.
Reese Harper: No question. I think that’s really good insight. I think it probably becomes increasingly important as people’s net worth starts to increase. It’s important day one, but as you start to have liquidity—a lot of listeners to this podcast understand how to calculate their net worth at some level; they know the difference between how it changes every quarter or every year. It seems like as liquidity increases and people’s asset increase, and the size of their financial statement increases, this asset-protection becomes more and more important. Going back to the estate planning—you’ve got this basic, fundamental estate planning that everyone should probably engage in sooner than later in their career to establish guardians you feel like you have confidence in, some level of financial control that you decide you want to have that custodian or those guardians use your resources to take care of your kids the right way. That seems like something everyone should do, and do it sooner than later. How often do I need to review that estate plan itself? Let’s talk about that component to wrap that segment up. How often do I need to look at it? I probably don’t even remember who my guardians are the year after I sign that trust. Maybe for a year I will remember, but two years I’m probably starting to forget what happened. Do you find that’s the case with some of your clients?
Andrew Howell: Yeah in fact I have some data on that. My partner and I wrote a book about a year and a half ago, and when we were doing some of the research for that book, it came out that on average if you have an estate plan it hasn’t been reviewed in nine years. A lot changes in nine years. Think of the growth in your children, the sphere of influence with friends and family and the dynamics that change there.
Reese Harper: The fight you had with your brother-in-law and now you don’t …
Andrew Howell: I tell people this all the time and nobody believes me. The busiest day of the year for me is the Monday after Thanksgiving, and it’s because everybody has been with their family for four days, and they now want to cut them all out of their estate plan right? I suggest to my clients that work with me that they think about their estate planning once a year. And how I help them do that is they get a letter from my office every year that says: hey guys it’s been a year since you thought about your estate planning. Again I have no delusions that half of those clients if not more don’t just throw that paper in the trash and say, “gosh I wish that guy would leave us alone.” But we ask questions in that letter: hey do you still like the guardians, and these are the guardians you’ve appointed. And do you still like the trustees? It allows the client to kind of look at that and go, “oh wait a minute, that sister of mine really did tick me off.”
Reese Harper: So in the letter you remind them of key issues and say: are these all okay? If not let’s make some adjustments.
Andrew Howell: Exactly, and I always encourage clients to be proactive during the year and call me or shoot me an email, and then we try to be proactive with clients as well if there’s a change in the tax laws or something like that, we try to let all of our clients know, and those letters probably will be coming this year.
Reese Harper: A lot to change this year. So maybe look at that issue once a year—what about my asset protection? How would that change? Because the average dentist according to the research that we’re doing—it depends on their income level, but if someone is earning north of $350,000 or $400,000 a year, their net worth could be changing between $200-$400,000 per year, sometimes as much as $500,000 per year. That can make a pretty big difference in the asset protection needs that someone has over a pretty short period of time. So how often should I look at that and have my attorney review my financial statement, review all the assets that I’ve accumulated, the new sizes that they are and then provide me recommendations? How often should I do that?
Andrew Howell: Again once a year. That’s part of our yearly review if we’ve done an asset protection plan for a client as well as just their basic estate plan, we want to review that as well. Typically with some of these asset-protection plans there’s obligations in regards to payment and different transactional matters that need to take place the right way. And this is some of the complexity that you were talking about earlier that some people find in their asset-protection plans that they don’t like following through with. And so I’m always of the belief that: why not do more than is required? What are you showing, that you gave the company more respect than you actually had to? That’s a good thing, right?
Reese Harper: So can you just do it for me so I don’t have to think about it?
Andrew Howell: I wish. We can do a whole lot, but you have got to be engaged.
Reese Harper: Do you think that’s part of the issue sometimes with estate planning and asset-protection planning is it requires some engagement, some involvement? Let’s say 10% of the dentists in this country listen to this podcast, which would be a stretch but we’re getting close. Let’s say even if I can get that many listening, maybe a third of them are paying attention to what I’m saying right now; the other two thirds are working while they are listening. If that few of people listen and feel the importance of this issue, isn’t it partially the attorney community and financial advisor’s community to raise awareness a little bit? Because I feel like they don’t really know. I think more people would probably do estate planning and do asset-protection if they understood what it meant and felt like it had some urgency to it? I think they feel like it’s kind of voodoo stuff that’s going on and they are not rich enough to really have to worry about it.
Andrew Howell: I agree with what you say, but I also think it’s a scary topic. I find a lot of times, even if there is one spouse that is interested in talking and dealing with it, there’s the other spouse that might say, “hey I don’t want to talk about this stuff.”
Reese Harper: It’s easy to just say, “let’s do it next year.” I think especially the asset-protection side starts to get difficult to understand when the timing is right.
Andrew Howell: On the asset-protection side, it’s one of those deals that I do view it as a spectrum of different tools that we can use, and the spectrum of these tools fall on from simple things you can do that give you a little bit of asset-protection planning to some very complicated things that you can do like going again offshore and creating a trust out of the country and moving your assets there. Somewhere in that spectrum you try to find the ideal spot for a client that allows them to pass what we call the pillow test—which is that they can go home at night, put their head on their pillow and fall fast asleep knowing that they are well protected. And that degree of protection and that mental state for each person is different.
Reese Harper: I think you should do a commercial with the MyPillow.com guy. Right when you said that I thought of that.
Andrew Howell: That’s what we should do, right? Give a free pillow with an estate plan.
Reese Harper: Tell me what some new trends are in estate planning and how things are evolving right now. What are some new things that you feel like are happening in recent years?
Andrew Howell: We will talk practically and then we will talk philosophically. Practically speaking, we are going to see some changes in the estate-planning world this year. I was in a tax-planning conference in Florida in January and spent five days trying to learn what the heck is going to go on this year with the taxes, and there’s still a whole lot up in the air.
Reese Harper: Everyone in Florida is just sitting around being retired wondering why their taxes are going up. It’s Florida.
Andrew Howell: And they are hoping that the taxes are going to be going down. Just on the estate-planning front, Trump has talked about getting rid of the death tax and congressional republicans seem to be on board with that. We think that the estate tax probably will go away this year. As much as we think it will go away, we do think it will come right back. We think there will obviously be changes in corporate tax rates and some other things there. We are going to see an overall trend here through the Trump administration of lower taxes and deregulation and so forth, now who knows? Donald Trump went to Washington not to make any friends, and he’s doing a really good job. Who knows? I think we are going to see some things there. From a philosophical standpoint, we are seeing some really interesting trends in estate planning. Generations are starting to view the overall passage of wealth in different ways, and our generation—the generation that is now coming in to their professional lives and starting business and practices—have a different view about this passage of wealth and what wealth is. Again a broader definition, not just that money that you have in the bank; it’s also a collection of your successes. And our generation is certainly concerned about passing wealth on to our children, but we have also seen the downside of inherited wealth that has been unharnessed or undirected. We always hear of trust-fund babies or what we call trustifarians, and there’s a real movement to try to curb what we see are three main fallacies within estate planning right now. The number one fallacy being that your over-all net worth can be found on a balance sheet, and again it’s not. Human-life value—your experiences, what you’ve done right, your successes and failures and so forth are important for your family to understand as well. The next fallacy that we will see a lot of times in estate planning is that if passing some wealth is good, then passing even more wealth is better. And we have all seen this inverted u-curve that there’s a diminishing rate of return on the amount of assets that you do pass. The Warren Buffet statement of: give your kids so much that they can do anything, but not so much that they can do nothing. And then the third fallacy we’re seeing is that when you want to do your estate planning, the first person you should speak with is an estate-planning attorney. No, in our mind when we want to work with a client, we like that client to come in and understand who they are and what they want in regards to their estate planning so that we can build the bridge to get them there. So often a client will come in and they don’t know what they want, and then it’s the lawyer telling them what they want. Then whose plan does it really become?
Reese Harper: Then it doesn’t really last, because they didn’t choose it. So your first thing you said was this idea that historically, people felt like the value of their estate was in the number on the balance sheet—how wealthy they were was their legacy.
Andrew Howell: Take the greatest generation, right? Our grandparents. A lot of them lived through the Great Depression or at least they had after effects of the Great Depression. The Great Depression was a lot different than what we lived through with the Great Recession. With the Great Depression, people weren’t eating. With the Great Recession, we were unhappy.
Reese Harper: The people that are in their seventies, eighties, nineties—what was the mentality that came away from it?
Andrew Howell: When you don’t have something, what becomes important? Having assets. Having that financial wealth, that security. That’s what became important to that generation. And so much of the estate planning that is done today is seventy-to-eighty years old.
Reese Harper: My little girl had a birthday this week; she turned three. And I saw the letters that come from different people in the mail. And it’s interesting to see my grandparents—even though they don’t value money and aren’t the wealthiest people. They went through the Great Depression and did a lot of good in their lives but didn’t end up with a ton of wealth, but my grandma gives out $35 with every grandkids birthday. It’s a real value that she feels proud to provide that. It’s a huge part of her wealth to do that for the number of grandkids that she has. But I don’t know that people today feel that way. Birthdays pass and you don’t think of giving $30 away to your nieces and nephews.
Andrew Howell: Take it one more generation forward—you have the baby boomer generation, our parents. Living through what is arguably the most affluent time in American history where there were assets—there was a lot of liquidity and prosperity and so forth. And then what became? You’ll see the studies that show that generational level sees inheritance far less important than the generation prior because again in their mind it was quality of life. They wanted to enjoy the quality of life they had.
Reese Harper: And do you see that accentuated with the millennial generation right now?
Andrew Howell: You know, I actually see it a little bit different. You have generation X, Y, the millenials, and everybody has a different focus. There’s a lot of negativity and criticism of the millennial generation right now—no work ethic and all these different kind of things that we hear.
Reese Harper: True.
Andrew Howell: Simon Sinek does a great video on the millennial generation. I feel that the generations coming up don’t see this as an either/or, where our parents or grandparents saw how you need to structure your overall estate for profit, right? Getting that money, and getting it tax efficient to that next generation. Where our generation might see a mix of both: yeah we want to provide a great level, but we also want to make sure that our kids are productive in their own right. And I think millenials think absolutely in terms of profit; they understand what a dollar can do for them. But they also have this other aspect of wanting to create a social impact. They want to leave something more than themselves afterwards, and I admire that. Granted I agree with some of the things in regards to Simon Sinek and what he said in that video, but there is this complete generational shift to when it comes to estate planning and what it’s causing is a complete disconnect, that when you have a client that comes in with that kind of mentality: I want to create an estate plan that passes on more than just my financial wealth. Then you run them through what a traditional estate planning model would be, their documents come out do not reflect anything about what they actually wanted to have happen. I would say that is the biggest trend that we’re starting to see.
Reese Harper: The core of our listeners are late thirties, forties, and early fifties. We have clients in their sixties, but that’s probably 10-15% of our customer base. The core are late accumulators; they have millenials as children, and it plays a component in how they are thinking. You and I have referenced this video a little bit of Simon Sinek a few times—I’m going to let you tell me one or two highlights from that video that he was talking about when it comes to social media and the way that millenials think or the way millenials are and why they are that way.
Andrew Howell: The fascinating thing in his video was the culture that the millenials had been raised in. That I think was the most telling. There’s no first place: everybody gets a prize; participation awards; all of those different kind of things.
Reese Harper: Baseball lost its first-place trophy. Now it’s Most Valuable Player, but everyone on the team got one right?
Andrew Howell: Exactly, and what that’s doing is it’s causing that generation to not learn defeat and not learn the fact that failure is a part of life. In my life just speaking personally, failure has been a huge part that has allowed me to grow in ways that I never would have had without that failure. And this idea of keeping failure away from your children is just a complete mistake. And that’s one of the things that we talk about again in this book Entrusted that I’ve mentioned we wrote—we go through these seven core principles that we have found with our very wealthy families that they have been able to implement within their family dynamics to try to help get rid of some of these feelings of entitlement that we are seeing more and more prevalent in that millennial generation.
Reese Harper: Let’s talk about those real quick. You probably have them memorized. Let’s talk through a few of them or try to get through all seven of them maybe not on a higher level. But this book Entrusted that you guys put together—I know the focus was trying to bring this estate planning process, this idea of responsibility for your estate and how you’re going to be perceived, the legacy you leave. Let’s talk about these principles you feel like are important.
Andrew Howell: And maybe rather than going through them one-by-one, let me tell you kind of the overall philosophy. I guess the way that I view this is that a lot of people think of their family one of two different ways. There’s the traditional family model where the mom and dad are up at the top—matriarch and patriarch of the family and kids and grandkids are underneath them. Another way to think of it is Mom and Dad are the nucleus; they are at the center of the family and then rating out are the children and grandchildren and so forth. As long as Mom and Dad are in the center of that family, they’re going to keep gravitationally everybody together. Everybody is having dinner with each other at Thanksgiving and so forth—why because we’re going to Mom and Dad’s house. But the problem with families and the dynamics that they have and also how their estate planning perpetuates that dynamic is that when Mom and Dad pass away, there’s nothing holding the family together anymore and so the kids spin off and go on their own tangents; you find a lot of families that aren’t having Thanksgiving dinner with each other anymore, and then we do have this saying in the estate planning world that you never truly know a person until you share an inheritance with them. So you have this family potential conflict that comes into play—so the idea behind the book, and we use this analogy a lot in the book, is of a bridge. How do we bridge the gap between those two generations? And rather than taking in this notion of Mom and Dad being at the center, why not put who the family is as a family in the center, right? What makes the Harper family the Harper family? What’s important to you; what are your core values and your mission statement? What do you want to have happen in regards to your family overall? And instead of putting Mom and Dad at the center of the family and everybody branching off of them, have that family core mission—that purpose that the family has created together through bridging this gap as the center, and Mom and Dad are just one cog off of that and when they pass away, well it’s still all together and the family is working together toward some common goal or at least ideal in philosophy.
Reese Harper: Yeah, I think that’s really important to have core values whether it’s guiding a business or guiding a family or guiding a nonprofit. Those core values can be stronger than a person.
Andrew Howell: And it’s the guiding light, right? Again somebody comes in to me and says they want to do an estate plan. What that says to me is: I’m concerned about my family; I want to do something that perpetuates what I have built in the most productive and protective way, but they don’t understand necessarily why. A lot of times one of the first things we will ask a client is not: what do you do; how much did you make; what’s your net worth? It’s what do you want to accomplish? Tell me in an ideal world after something happens to you, how do you see these assets pass in a way that is going to keep your kids from sitting on the couch and eating bon bons?
Reese Harper: Which overall is not a bad plan. Just kidding. This has been a great conversation Andrew; I really appreciate it. I like the idea of throughout your life revisiting this idea of estate planning and core values, and it seems like it’s a healthy way to think about financial planning generally. It’s bigger than just the numbers.
Andrew Howell: Well it’s part of it, right? And that’s another thing Reese is with what you do and there’s other professionals we interface with all the time that have to make up that core team for a client, and the team approach is an extremely valuable one.
Reese Harper: Well, thanks so much for coming in. We will look forward to having you again back on the show. Once you write another book you can come tell us what it’s about.
Andrew Howell: Sounds good.
Reese Harper: Thanks again and we will look forward to having you back on again soon.
Andrew Howell: Thank you very much, Reese. I appreciate it.Estate Planning