Planning Your Legacy: A Guide to Wealth Transition & Beneficiary Management
In this episode, we'll cover:
- The intricacies of retirement accounts, including IRAs and Roth IRAs.
- The impact of recent rule changes, like the ten-year distribution rule.
- The importance of beneficiary designations and how they determine where the funds go.
- The significance of having a trust and ensuring it's properly funded.
- The role of successor trustees and professional trustees in managing your assets.
- How to navigate family dynamics and potential conflicts.
We aim to provide you with practical knowledge and advice on a topic that can often be overwhelming. So, stay with us as we demystify the posthumous management of your investments, helping you make informed decisions and plan for the future.
If you have questions about your specific situation or would like to share your thoughts, please don't hesitate to reach out to us. We're here to help you navigate the complexities of estate planning and investment management.
Remember, it's not a one-size-fits-all scenario and taking the time to plan now can alleviate stress and potential conflicts for your loved ones later on.
If you have any questions about the topics discussed or want to schedule an introductory call, feel free to reach out via phone or email.
https://ascendinvestment.com/
(801) 476 - 1200
Transcript:
00;00;06;21 - 00;00;20;13
Speaker 1
Hello and welcome to your investment partners with Paul and Garrett, where we talk about all things financial, focusing on helping you plan, keep and grow for a successful future. If you're new to the podcast, welcome and if you're tuning in again, welcome back and thank you for listening.
00;00;21;00 - 00;00;40;28
Speaker 2
Hello and welcome to your investment partners with Paul and Garrett. Today we talk about what happens to your accounts after you're gone, before it needs to be signed. Beneficiaries need to be contacted. What actually happens? We'll walk you through the process as well as discuss common mistakes and pitfalls that can easily be avoided if done correctly. Every situation is different and these are just general tips.
00;00;41;06 - 00;00;51;09
Speaker 2
But if you have questions about your specific situation, please reach out either by phone or email. My name is Garrett Smith and we look forward to having you with us today. Well, welcome back. Here we go again.
00;00;51;26 - 00;00;53;27
Speaker 3
All right, let's get started.
00;00;54;11 - 00;01;01;09
Speaker 2
They talking about what happens to all the accounts in the event of death. It's going to happen to all of us.
00;01;01;15 - 00;01;09;00
Speaker 3
Sure. Yeah, That's one thing that's certain, right? Wasn't there somebody said there's two things. Certain death and taxes or something like that.
00;01;09;00 - 00;01;09;07
Speaker 2
Yeah.
00;01;09;08 - 00;01;10;25
Speaker 3
Mark Twain, maybe. I don't know.
00;01;11;19 - 00;01;16;08
Speaker 2
It's probably goes a long ways back. Think those two have never ceased to not be a thing?
00;01;16;09 - 00;01;36;14
Speaker 3
Yeah, I think one of the reasons this is coming up right now is we have had a couple of clients recently pass away. And so we're kind of going through that process with the with the heirs of, you know, kind of walking them through what to do and how things work. And so we just that's a good subject to discuss.
00;01;37;07 - 00;01;59;14
Speaker 2
Yeah. And wanted to kind of lay out how different accounts act and, you know, what parts come into play, how the money flows and the instructions from there because, you know, once, once you're gone, it's kind of a set at that point. Yes, it is what it is. You know, and it's there's just not much tweaking afterwards that, you know.
00;02;00;12 - 00;02;16;11
Speaker 2
And so I think probably the first thing we should start into is just general retirement accounts, IRAs for one case, any Roth IRAs, those are treated differently than like a joint account. But I think if we start there, I think that's a good place to start.
00;02;17;02 - 00;02;39;07
Speaker 3
Yeah, those are those are the most you know, those are the most straightforward ones, I would say, because those those type of accounts all work off of a beneficiary designation. Now, a lot of people think of they have a trust that that that the trust will kind of dictate where the funds go. But that's that's not necessarily the way it works.
00;02;39;08 - 00;02;56;00
Speaker 3
If the if the money is titled in the name of the trust, then that is true. But retirement plans have you know, they all have beneficiary designations. And so the beneficiary designations will determine where those funds go.
00;02;56;22 - 00;03;27;09
Speaker 2
Yeah. And that supersedes any other written instructions. Right. Whoever's the beneficiary listed on an account, you know, once again, these are typically IRAs, four or one case names that have individuals on them. Mm hmm. Like a like a retirement account. Can't be owned, generally speaking, by a trust. It's got to be owned by an individual. And so those accounts, whoever's listed as the beneficiary on there, is the one the will inherit the dollars.
00;03;27;23 - 00;03;51;01
Speaker 2
And there are some interesting rule changes over the last few years about this ten year distribution rule. So if you have an IRA, mom passes away and there's three kids that are listed on it, if there's required minimum distributions, those continue. But also the dollars in the account need to be fully pulled out over ten years of post-death.
00;03;51;08 - 00;03;54;05
Speaker 2
Mm hmm. They may need to be all all the way out.
00;03;54;05 - 00;04;20;26
Speaker 3
Which is complete opposite of what it used to be. The buzzword 20 years ago was a what they called a stretch IRA. And it's basically, you know, just stretching these IRA dollars out, you know, basically until the person who passed away would have been 115 years old. So, you know, you go from, you know, stretching these things out an average of 30 years and compressing it down to ten years.
00;04;20;26 - 00;04;28;01
Speaker 3
So that brings in a lot of more, you know, tax planning that you have to kind of work through and things like that. Yeah.
00;04;28;01 - 00;04;50;26
Speaker 2
And it because usually if you get extra income, usually the inheritance hits in your higher earning years. Mm hmm. Generally speaking, is mom or dad or passing away. Your children are older in years. Mm hmm. Probably earning more money in a really high tax bracket. And then you have this IRA that's now triggering if you have deferred tax dollars in there, that's adding into the tax burden.
00;04;51;20 - 00;05;14;02
Speaker 2
And so this is some planning that now with this ten year rule we are getting ahead of with our clients to maybe minimize that impact if that's going to be passed on to the kids. You got to you know, really you have to think through and make sure it's not a surprise to anybody about how those dollars are going to be taxed when because it can go from a really efficient tax bracket to a really inefficient tax bracket.
00;05;14;09 - 00;05;21;05
Speaker 2
If someone's in higher earning years and paying higher taxes than, say, mom or dad or grandma grandpa was.
00;05;21;17 - 00;05;51;22
Speaker 3
And the other thing that can complicate that is sometimes we'll see people have their trust on is their beneficiary of their IRA, assuming that that's the way to do that. And that's you know you really want to avoid that unless there's some, you know, special needs interests or some things like, you know, just an unusual situation. Maybe you have a child that's not good with money and they're, you know, would just use it improperly.
00;05;51;22 - 00;06;21;11
Speaker 3
And but generally, you want to name individuals as as the beneficiaries. For example, if somebody has four kids, the, you know, mom or dad passes away, the kids inherit the money, it's going to go four ways. And then each of those children can determine how fast or slowly, to a certain extent, to take out the funds. If the trust is named as the beneficiary, then all the money's got to go into the trust, get taxed and then distributed to the kids.
00;06;21;11 - 00;06;31;21
Speaker 3
And so it just piles up that that tax burden. You know, it's obviously going to get taxed a lot more aggressively if that's the situation.
00;06;32;07 - 00;06;53;11
Speaker 2
Well, and that's one area that we were always encouraging clients to be, is the sooner the dollars can get separated between the beneficiaries, the better. Yeah. You know, if that that's where most of the conflict comes in. This is pre division. Mm hmm. Because once it's in everybody's name, then they can make the decision which is best for them.
00;06;53;14 - 00;06;53;25
Speaker 3
Right.
00;06;54;04 - 00;07;16;15
Speaker 2
Their family, your kids, and take in their personal circumstances. And that's why another reason why we're big fans of having individuals named us as the beneficiaries on these retirement accounts. Because then it's just clear separation and kind of how it works through our offices is somebody passes away, we get a death certificate and and start the process to open up accounts in the name of each of the beneficiaries.
00;07;16;24 - 00;07;38;26
Speaker 2
And if there's four of them and it's split 25% to each of them and you just take the holdings and split it 25% and put it right into their account, and then you work with that individual and say, what do you want to do? Do you want to continue? Do you need, you know, then you can start the planning process over with that person in their specific situation and it doesn't matter what somebody else is doing.
00;07;38;27 - 00;08;03;18
Speaker 2
Right. And that's a really clean break on those accounts, which is which is a good thing because that's where the family conflict comes in, is if somebody is waiting on somebody else to make a decision or there's, you know, kind of conflicting goals there. And so to get those everybody's accounts and then make the decision about what they what the beneficiaries want to do individually just relieves a lot of stress on on a family.
00;08;03;19 - 00;08;34;05
Speaker 2
Sure. So those are the, you know, IRAs for O in case those retirement focused accounts, whether it's Roth or just a traditional IRA. Those rules. So and and so, you know, it's always worth any time we sit down with clients, we're always reviewing beneficiaries because those change. Sometimes there's you know, occasionally a beneficiary predeceased you and you need to update that about what you want to go there and or or maybe it kid's having a rough time and a lump sum of money might not be the best thing for them at.
00;08;34;05 - 00;08;34;20
Speaker 3
The time.
00;08;35;00 - 00;08;58;24
Speaker 2
Or but you can also add charities or different organizations as beneficiaries. It doesn't have to be individuals, right? And that can be a great tax efficient way of passing some money on to a charity. If if that's your intent to leave a a taxable IRA to to the church or a charity. And, you know, they could be great benefits of of that.
00;08;59;05 - 00;09;24;03
Speaker 3
Especially for large estates. That's a that's a those are good funds to to put to a charitable organization because they are taxable if there's plenty of other dollars in addition to the IRA money. You know we have people that'll set up foundations and the IRA will go to the charitable foundation and then and then be distributed over a period of years to two different charitable organizations.
00;09;24;04 - 00;09;26;12
Speaker 3
That's a that's a really good planning to also.
00;09;26;24 - 00;09;36;26
Speaker 2
And that's one thing we always remind clients of, of whatever you want to have happen can happen. We just got to make sure it's in writing and it's clear before you go, right?
00;09;37;04 - 00;09;37;12
Speaker 3
Yeah.
00;09;37;20 - 00;09;58;00
Speaker 2
You know, it's whatever scenario you want to dream up or do you know can be accomplished, may need to, you know, bring in some more detailed language, particularly in a trust account or something like that, to make sure that the rules are clearly laid out and probably a really big discussion with your successor trustees. But but really, anything is possible.
00;09;58;09 - 00;10;04;23
Speaker 2
It just needs to be done clearly before you go, because undoing or rewinding something is.
00;10;05;10 - 00;10;13;26
Speaker 3
And then kind of updated fairly regularly, you know, at least every year, you need to kind of take a look at it and see if anything's changed.
00;10;14;18 - 00;10;39;12
Speaker 2
Right. And I think that kind of leads into kind of another other classification is is kind of the nonqualified money that's outside of these retirement accounts. So these are joint accounts, trust accounts, accounts that are held just in your own name, but they're the ones that you're paying the capital gains taxes on and your ordinary income tax on that kind of as you're paying the taxes as you go, if you will.
00;10;40;09 - 00;10;56;13
Speaker 2
And one nice thing about a trust is, is you can lay out what you want to have happen in the event of your death. But trusts only work if they're funded, right? So you need to get you know, usually it's best to get your home in the name of the trust as well as your investments accounts in the name of the trust.
00;10;56;13 - 00;11;00;28
Speaker 2
If there's no assets in the name of the trust, well, it's kind of worthless.
00;11;01;19 - 00;11;21;01
Speaker 3
Yeah. For example, if you have a if you recently set up a trust and and you've got your investment accounts, let's say there's a $500,000 in investment account and it's it's in joint tenants. You know, if you pass away there's just two, there's just two people. Yeah.
00;11;21;27 - 00;11;22;21
Speaker 2
Listed on the account.
00;11;22;21 - 00;11;48;10
Speaker 3
Then it's, you know, it's going to go to the person who is surviving. The trust will have no impact on that because the, the title of the account was not put into the name of the trust. So funding, if you have a trust, make sure it's funded. Make sure that your, you know, your assets are in the name of the trust because titling is really critical when it comes to, you know, the flow of money after death.
00;11;49;19 - 00;12;06;04
Speaker 2
And one good thing to check on the home, obviously, you know, when you if you're setting up a trust, discussing with your attorney about the best way to go about this. But if when you get your property tax notice every year, just looking how that's titled on there is is a good way to see if what what's going on with the property.
00;12;06;04 - 00;12;24;28
Speaker 2
You know, is it in an individual's name, is it in the name of the trust? You know, how is it titled that can helps clear up those the real asset side of the balance sheet And then and then the, you know, investment side, you can just look at your statement. What's the name on there? You know, as your trustee, there's usually going to be your trust name as well as the date that the trust was formed on the account.
00;12;24;28 - 00;12;48;13
Speaker 2
And that's how it should show up in the titling of the account. And that, you know, just always keep an eye on that. That's the way that it is. And then the instructions can follow based on what the successor trustees are guided to do in the name of the trust. And, you know, I think this brings up one point, too, is you may may also get let's say you have three or four investment accounts for different reasons.
00;12;48;25 - 00;13;07;17
Speaker 2
And and, you know, two of the three are named in the trust and the other one's held just in your name. Generally speaking, that that third one still has to go through probate. Judge, You got to get it signed off so it can then be pulled over into the name of the trust or whatever the instructions are there.
00;13;08;07 - 00;13;16;07
Speaker 2
So it just adds a complex layer into the planning process of not getting these accounts all the way title into the name of the trust.
00;13;16;28 - 00;13;39;01
Speaker 3
Right? As far as a trust account, from from our perspective, you know, it's a little bit more complicated to get the distribution done on a trust account than it is an IRA account because, you know, we have to send in the trust documents and and have the back office look at them. And, you know, it's just it's just more of a process.
00;13;40;00 - 00;13;57;04
Speaker 3
We have to make sure it's the latest trust and that the trust wasn't changed and that everybody buys off on who the trust, you know, successor trustee is. And so it is it is a little bit more complicated than the beneficiary designations in retirement accounts, for sure.
00;13;57;21 - 00;14;19;12
Speaker 2
Yeah. And we always appreciate an introduction to the successor trustees. A lot of times we're already working with them. You know, we like to work with multi-generational families. That's always our goal was to work with the kids as well as the parents, just because that allows us to build a lot of continuity in that retirement plan of kind of maximizing that estate tax and investment plan idea.
00;14;20;12 - 00;14;29;20
Speaker 2
But an introduction about, you know, who you're talking to, knowing the professionals and in everybody's life so you can make that contact. And it's not a surprise when it happens.
00;14;30;26 - 00;14;57;08
Speaker 3
And that can be done, you know, either with full view of accounts and what's going to happen and how much money's there or, you know, basically just just introductions with no discussion of, you know, what what what funds are available and things like that. It's really the privacy issues are really important. Sometimes people are reluctant to let their kids kind of know where they're at, which is completely fine.
00;14;57;08 - 00;15;02;15
Speaker 3
But just having the introduction and the beginning of a relationship there is helpful, for sure.
00;15;03;06 - 00;15;12;16
Speaker 2
Yeah. And I guess maybe touching on this point off of what's your opinion on one trustee, successor trustee to do you name all the kids?
00;15;12;16 - 00;15;12;26
Speaker 3
Hmm.
00;15;13;03 - 00;15;14;05
Speaker 2
One. Yeah.
00;15;15;01 - 00;15;45;17
Speaker 3
You know, that's always such a, such a, such a tricky situation for sure. You know, just personally, you know, my dad's getting elderly. He's he's 83 now, and I used to be the the the sole trustee, but he just kind of redid some things. And, you know, I just thought I don't you know, even though I'm the probably the best equipped of the siblings because this is the business that I live in.
00;15;46;09 - 00;16;08;13
Speaker 3
I asked him to put my brother on as a as a coach trustee, and that way, you know, we'll be kind of working through it together and and it'll just, you know, reduce my anxiety about how do my siblings feel about what I'm doing there. So, you know, I think, you know, it depends on how many kids I mean, I'm the second of 12 kids.
00;16;08;13 - 00;16;32;23
Speaker 3
So it's it can be a little bit complicated there. But but I think, you know, for the most part, it's probably if it's going to be kids, it probably should be, too. You could also think about just a professional trustee, your CPA, your attorney in conjunction with one of your kids. That's another acceptable way to get a professional trustee in there.
00;16;32;23 - 00;16;44;07
Speaker 3
That's if you don't have anybody in the family that's that's reasonably adept at financial matters. You're probably better off with a with a, you know, a professional trustee.
00;16;44;15 - 00;17;09;14
Speaker 2
Yeah. As well as I think bringing a professional trustee can be beneficial in if you always have siblings that always disagree. Right. You know we've seen that where just two people can't get on the same page, right. Bringing in a third voice or another voice to help navigate that. Also, maybe somebody who's maybe a child or a beneficiary that's not in the best situation to inherit some money could use some gains.
00;17;09;14 - 00;17;33;04
Speaker 2
I think a professional trustee and especially in a situation of of, you know, special needs, I think a professional trustee can go a long ways in there, obviously talking to an attorney and making sure those the wording is is in the trust document so that it's in a way that you you know, you want it to go because the the successor trustees are just there to help execute what's written in the trust.
00;17;33;04 - 00;17;42;02
Speaker 2
It's not like they make up whatever they want to do, right. They're just following the instructions that are in the trust and and so, you know.
00;17;42;04 - 00;18;01;21
Speaker 3
Well, it's really critical to make sure you do have a trustee that's competent enough to follow those instructions. You know, there's a lot of legal liable party if you don't follow the instructions of the trust and somebody complains about it, if you, you know, kind of skew things your way just because you're the trustee and think you can get away with it, that is that's a big no no.
00;18;01;21 - 00;18;07;18
Speaker 3
And you want to make sure that you don't have somebody doing that, that that maybe doesn't know better.
00;18;08;00 - 00;18;32;00
Speaker 2
Yeah, I think we we see that situation start to creep up is let's say mom is the only one that's left having a really hard time. The successor trustee, everybody knows who it is. It's one child and they start spending mom's money to take care of mom. But there's also kind of some rollover benefits to help that successor trustee go into the store to get some things for mom and me.
00;18;32;00 - 00;18;52;15
Speaker 2
And we just put it all in mom's card. And so I just think if you're the successor trustee, you do everything in your power to keep your stuff and your parents stuff or whoever it is, separate. Yeah, You know, be as clear as you can about how the funds are flowing because you just never there's no reason to have that disagreement.
00;18;52;16 - 00;18;52;28
Speaker 3
Right?
00;18;53;00 - 00;19;01;10
Speaker 2
You know, just keep those as separate as you can. You know, it's it's mom and dad stuff and your stuff and they are just in separate buckets.
00;19;01;20 - 00;19;10;12
Speaker 3
Yeah. Family dynamics are complicated enough and you throw you throw money into the mix and it can get it can get sour pretty fast. So be careful there.
00;19;10;21 - 00;19;32;02
Speaker 2
Yeah. So I think that's kind of highlights the major accounts and kind of how it works on our end and, and it's like anything, it's a process. You know, typically those IRA accounts go a little bit faster because the instructions are there trust accounts and especially joint accounts or accounts in your name. Those take a lot longer if you need to get a judge and attorneys involved.
00;19;32;29 - 00;19;56;04
Speaker 2
But just setting up those account and working through the distributions takes time. It's not a fast overnight situation for your successor trustees. And and I think if you can kind of have that in mind and and coach the beneficiaries, whether they know dollar amounts are it all or just that it's a process that's overnight event and you know keep on it and keep working through it.
00;19;56;04 - 00;20;21;24
Speaker 2
But there's no it just doesn't happen as quickly, especially once you get an insurance company involved. Sure, there's a longer payout period. You need to submit the paperwork and funds need to be verified before any payout happens. So just keeping in mind that that it's a process. And if you're the successor trustee, you stick with it. It feels like there's always one more form to some, you know, hang in there and just just keep at it.
00;20;22;18 - 00;20;37;01
Speaker 3
Yeah. And eventually it eventually happens. Sometimes, depending on how many moving parts and how many accounts and how complicated it is. You know, sometimes it goes pretty fast month. You know, sometimes it takes six months to get it all taken care of.
00;20;37;01 - 00;20;56;25
Speaker 2
So yeah, but, you know, like, obviously for our clients, we're here to help you every step of the way. Succession trustees, beneficiaries, you know, we want want to be involved and help you make it as smooth as we can. I think that's was the major areas I wanted to touch on that it's a process, not an event, but every place has something to go.
00;20;56;25 - 00;21;06;12
Speaker 2
And with the biggest caveat of if you want something to happen, you can just make sure you do it while you're competent and healthy. Make sure all the changes.
00;21;06;12 - 00;21;07;26
Speaker 3
And then review regularly and.
00;21;07;26 - 00;21;11;10
Speaker 2
Then review regularly. Yeah. All right. Okay. Till next time.
00;21;11;10 - 00;21;14;05
Speaker 3
Thanks. Take.
00;21;14;05 - 00;21;30;29
Speaker 1
Thank you for tuning in and listening to your investment partners with Paul and Garrett. If you like what you heard, be sure to subscribe to our podcast on iTunes, Spotify or wherever you get your podcasts. Also, visit us as an investment dot com where you can subscribe to our newsletter to keep you up to date. See you in the next episode.
00;21;31;08 - 00;22;08;05
Speaker 1
Kessler Norman and Ride LLC, DBA Ascend Investment Partners is a registered investment advisor. Advisory services are only offered to clients or prospective clients where our firm and its representatives are properly licensed are exempt from licensure. No advice may be rendered by ASCEND Investment partners unless the client service agreement is in place. The opinions expressed in this podcast are for general informational purposes only and are not intended to provide specific advice, performance data, or recommendations that any particular security portfolio of securities, transaction or investment strategy is suitable for any specific person.
00;22;08;15 - 00;22;45;12
Speaker 1
This program is only intended to provide education about the financial industry. All opinions contained in this podcast are subject to change at any time without notice to determine which, if any, investments may be appropriate for you, please consult with your financial advisor prior to investing. Any past performance discussed during this podcast is not guaranteed of future results. As always, please remember that all investing involves risk and possible loss.
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