Ultimate Guide to Estate Planning

Transcript

Mike:

Welcome to another episode of Mike on money. I’m your host, Michael Reese, certified financial planner, founder of Centennial Advisers, and of course, creator of the prosperity planning system. Today, we are going to talk about estate planning and what I like to call the hierarchy of how your money gets and how your assets get, if you will, from one side of the probate river, if you will, to the other side. So this is going to be a great episode. I know you’re going to like this now, before we dive in, as we do every week, what do I say? Well, if you’ve been watching, you know, I’m going to say, Hey, if you like this, click the little thumbs up button like this video, subscribe. If you haven’t done that already. And of course share with your friends. If you have comments below, you can leave them. You want to talk to us. There links all that good stuff. So let’s go ahead and dive in about what I call the probate river.

Mike:

So here we go. While you’re alive, you have a variety of assets. You might have a home or two or three. We have investment accounts like IRAs and 401ks, and you know what else? Life insurance may be. You’ve got joint accounts, there’s cash at the bank. And basically this is my catch all phrase. You have probably got a bunch of stuff, right? We got cars, you know, maybe you’ve got collections. You know, you’ve got your jewelry at home. You just have stuffs, you know, all over the place. And the question is when you die, how do we get it over to your beneficiaries in an easy manner, right? We want it to be easy and we want it to be fast and we want it to be private because there’s something in the way, it’s this blue thing here. We’re going to call this the probate river.

Mike:

And what I mean by that is if you don’t have things set up the right way, you have to take all this stuff. And it goes through probate before it gets to your beneficiaries. Why is that a problem? Well, number one probate is it’s public. It’s easy for beneficiaries to raise their hand and say, we don’t like that. And next thing you know, you got a big old probate fight going on. So it’s, it’s public. It’s easy to to, to argue. It’s, it’s expensive a lot of times. And of course the more they argue, the more expensive it gets, you know, it’s just like, it’s, it represents everything you don’t want. Unless of course you hate your children and you’re looking to cause them headaches right then I guess it’s okay. But most people, that’s not the case. Let’s talk a little bit about how do we get assets across that river, right?

Mike:

Without falling into the probate river. So what we need to do is we need to build a few bridges and there is a hierarchy here that we follow. So what you may not know is when you die, there’s a process that we follow in that the court system saw that everybody follows in how your assets get from point a where it is now you to point B your beneficiaries. All right. So here, here’s our first bridge. And please pardon me as you’ll you should already be able to tell I’m not the world’s greatest artist, but here we go. Here’s bridge. Number one, we’re going to call this bridge. It’s a bridge. We’re going to call this the beneficiary, the Benny Ben, the beneficiary bridge. Right? So what does that mean? Well, let’s pick on an IRA, right? A lot of you, you might have an IRA.

Mike:

And when you set up your IRA or your 401k, for that matter, you name a beneficiary and whoever you name bang, you’re gone. That beneficiary fills out a claims form. They send in a death certificate and boom, that money goes to them like that. It is fast, simple, easy. It is from an estate planning perspective. I think the technical word is awesome, right? It’s great. This is what we want. So IRAs 401ks four, three, B’s all those retirement accounts, Roth, IRAs, life insurance, annuities, anything with an insurance company, you can name a beneficiary and those are wonderful tools. It does not matter if you have a will. It does not matter if you have a trust, doesn’t matter what those documents say. The beneficiary bridge rules, all like we were joking earlier about Lord of the rings. Remember you have one ring that rules them.

Mike:

All right, it’s right there. It’s called the beneficiary ring. So there you go. Now closely related up, I see, I accidentally crossed that off closely related to the beneficiary bridge is the next bridge called the POD/TOD bridge. And this is really the same thing. Pod stands for payable on death. Tod stands for transfer on death, and it’s essentially, these are, it’s a piece of paper that you fill out. Like if you have a investment account, that’s in your name only right? Or enjoined name, whatever you can name a TOD. If it’s an individual account in your name, you say Joe Smith, TOD the transfer on death to Mary Smith. And the minute Joe Smith dies, it goes to Mary bang, just like that. Right? Really, really simple pod payable on death. The same time. The thing, by the way, something a lot of you might not know.

Mike:

I know it’s true in Texas. It’s true. In most states these days. I don’t know if you know this, but did you, you know, that you can actually assign a beneficiary in your home? A lot of people don’t know that, but it’s cheap. You like go to the county the county, a municipal building. You get the form it’s real easy. You know what I do? We go online, find the form online, do it. It’s easy. So here we go. Beneficiary POD/TOD. Here’s one more. I’m going to do here’s another bridge.

Mike:

I think I’ve heard some attorneys referred to this as a, maybe a contract bridge, but I might call it like a titling bridge, maybe. What if like my wife and I have investment accounts, her name’s Becky. So those accounts are titled Michael and Rebecca Reese joint account. Meaning that if one of us dies, the survivor gets the account. You might have had that happen. Maybe your parents, as they got older, put your name on an account. Like at the bank, they said, here, we’re going to add, you know, Bob is a joint account owner. We’re going to add Mary as a joint account owner. And that way when they die, money goes straight to you. It’s simple as that. So any, any contract that lists like a joint account? Maybe if it’s an LLC, maybe anything has some legal documentation like that also avoid the probate bridge.

Mike:

Now, once we get through all that stuff, we get through all of this stuff. If there’s anything left over here, the next way to avoid probate is the trust bridge. So you might say, Hey, I’ve got bank accounts. I don’t really want to do that pod or something. It’s, you know, it’s, it’s complicated. You have a trust and there you go. Now heads up, when are trust really helpful? I’ll tell you what, if you have real estate in other, you know, in multiple states, then trusts are almost a must. You know? I mean, you want to have trust. I mean, there’s a lot of reasons you want to have trust. I don’t have time to go into them today. I’m just trying to share with you. This is how we avoid probate. All right, here we go. We said, okay, we’ve named beneficiaries in our IRAs and retirement accounts.

Mike:

We’ve got pod and Tod on our investment accounts. We’ve got these different kinds tracks. You know, we’ve got our trust. Whew. Do the job. Well, maybe not. There might still be some stuff, right? Leftover it’s maybe, Hey, you’ve got that old knife collection or something. I don’t know. But maybe if things left over, whatever is left over, goes through the probate river. Now a lot of people say, no problem, Mikey, I got this, figure it out. I got me a I’ll put a w here. I got me a will. So I we’re good. And that’s so fast. A will. What is a will a will is nothing more than a set of instructions that you give to the probate judge. A will guarantees probate. Anything that goes through a will is guaranteed to go through probate because that’s what a will does. The purpose of a will is when you go to probate, it’s a document you give to the probate.

Mike:

Judge. You say who you are. You’re honorable Mr. Or Mrs. Judge. this is what my parents who just died, want to have happen. Now give me the authority to do that. Please. That’s what a will is, but you still need it because anything that’s not covered by the bridges. I mean, you don’t just want to throw to the water and hope it works out. You want to have at least a set of instructions. So a will is kind of the last line of defense. If you will, Hey, did you catch that a will if you will, but in any event, it’s the last line of defense. If you don’t have this stuff, then what happens is all your stuff goes through probate. And then you have what are called the, the there’s like every state has its own set of rules and they might not be what you want.

Mike:

And it’s a nightmare, right? So there you go. This is how estate planning works. This is the order. Beneficiaries are number one. It doesn’t matter what your trust says. It doesn’t matter if your trust says, oh, my IRA goes to John over here. But if your IRA, the beneficiary says, no, it doesn’t go to John. It goes to Jill, guess what? It’s going to jail. Because beneficiaries trump, everything POD/TOD trump’s contracts, trump, all that stuff, all of this trumps what your trust says. And I see that a lot of times people miss that. So there you go. Really important. I hope this made it yeah. A little bit less murky for ya. That is the hierarchy. And that’s how you get over the probate river. So if you like this, Hey, give us a thumbs up. Feel free to leave your comments.

Mike:

And, and by the way, heads up, remember, I should preface this by saying I’m not a lawyer, right? I’m a financial advisor. I’m a certified financial planner. I deal with lawyers all the time. I know how this stuff works. But it’s really important that you do talk to an attorney to make sure right, that you’ve got the setup in the proper way for you. All right, thumbs up. If you like it, subscribe, share this with your friends. That’s this week’s episode or this episode, I guess we would call it. We’ll see you next time.

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