Motley Fool Money - Give Your Family the Gift of an Estate Plan, and Ask the Same of Them

Starting point is 00:00:02 How to prepare for when you're not able to manage your money temporarily or eternally. That and more on this Saturday personal finance edition of the Motley Fool of Hidden Gems Investing Podcast. I'm Robert ProCamp. And this week I speak with Attorney Jill Mastriani about why you and everyone in your family should get an estate plan. But first, some headlines from the past week, starting with interest rates jumping to levels not seen in years. The yield on the 10-year treasury reached 4.6 percent. And the yield on the 30-year treasury got over 5.2 percent, the highest rate in two decades. perhaps most noteworthy is that the yield on the two-year treasury has spiked from 3.4% before the

Starting point is 00:00:42 start of the war in Iran to now over 4%. The two-year treasuries often consider the bond market's prediction of where the Federal Reserve will or should be headed. And if it's right, the Fed will more likely be raising rates than cutting them over the next year or so. Higher rates aren't just an American phenomenon. Yields around the world are going up. For example, yields in Germany are at levels not seen since 2011. In the UK, rates are as high as they were in 2008, and in Japan, rates are are at levels not seen since 1997. The global bond market is likely responding to rising inflation and rising government in debtness, both of which can increase the riskiness of bonds, leading some investors to sell their bonds, and prospective investors to demand higher rates

Starting point is 00:01:22 to compensate for the risks. As rates rise, bond prices fall, which is why the overall bond market is actually down slightly for the year. It's because of times like these that I believe you should keep any money you need in the next year or two in cash and not in stocks or bonds. And to find high-yielding savings counts for your cash, visit Motley Full Money at full.com forward slash money. Now, rising rates also means that it costs more to borrow money. The rate on the 30-year mortgage is up to 6.7%, according to Mortgage News Daily, after beginning the year at 6.2%.

Starting point is 00:01:52 And the share of new mortgage applications that are adjustable rate mortgages has reached the highest level of the year at almost 10%. Our next item comes from an article on Real Claire Markets from Don Chance, with the headline, your financial advisor may cost more than your doctor. Here's the math. An annual physical, including blood work and x-rays, costs roughly $400, while a client with just $100,000 in assets paying the standard 1% advisory fee pays $1,000 a year. A client with $500,000 pays $5,000 a year, and that figure just keeps going up along with the level of assets. The article argues that the advisory industry thrives on economies of scale

Starting point is 00:02:31 that benefit the advisor and not the client. As Vanguard founder John Bogle observed, managing twice as much money cost the firm essentially the same, yet fees scale with assets anyway. In the article, Mr. Chance does acknowledge that advisors do provide value, particularly in behavioral coaching, keeping clients invested through volatility, retirement projections, other financial planning services. And I agree, which is why I often recommend that even dedicated do-it-yourself or check in with a financial planner every five to 10 years or so, maybe right before you retire, just to get that expert, objective, second opinion. But if you're paying an advisor an annual fee based on the level of assets, calculate how much that's actually costing you and determine whether those

Starting point is 00:03:09 fees are a good investment. And also consider an advisor who charges by the hour or project or maybe a flat annual fee. And now for the number of the week, which is more than 25 years. That's how long it took for Intel stock to finally exceed its dot-com peak. Share price hit $75 in August of 2000, but then began a long slump, reaching as low as $12 a share in 2009. However, it was a $75,000. However, since the end of March of this year, Intel stock has almost tripled to $118 as of this taping on the morning of May 21st, finally blowing past its previous all-time high set more than a quarter century ago. It's yet another illustration that while the overall U.S. stock market has always recovered from bare markets, usually within two to three years, individual stocks are a different

Starting point is 00:03:55 story. If you're going to own them, stay very diversified, especially if you're not quite yet in an experienced investor, and consider complementing your stocks with a collection of local. cost index funds. Up next, what should be included in your estate plan when Motley Fool Hidden Jems Investing continues. Dell PCs with Intel Inside are built for the moments that matter, for the moments you plan and the ones you don't. Built for the busy days that turn into all-night study sessions, the moment you're working from a cafe and realize every outlet is taken. The times you're deep in your flow and the absolute last thing you need is an auto-update throwing off your momentum. That's why Dell builds tech that adapts to the way you actually work, built with a long

Starting point is 00:04:36 lasting battery, so you're not scrambling for the closest outlet and built in intelligence that makes updates around your schedule, not in the middle of it. They don't build tech for tech, say, they build it for you. Find technology built for the way you work at dell.com slash Dell PCs, built for you. Well, my friends, I have bad news. You and everyone you know at some point is going to pass away. And before then, you or the people you love may become physically or mentally incapacitated. But despite these certainties of possibilities, most people don't have an estate plan, and if they do, it's often outdated. Here to explain how you can protect yourself, your family, and your assets with an estate plan is attorney Jill Mastriani, the host of the Death Readiness Podcast. Jill,

Starting point is 00:05:25 Jill, welcome to the show. Thank you. Thanks for having me. So let's start with the basics. What's your definition of estate planning? Well, first I would say figuring out what is going to happen to you if you can't take care of yourself. And then as a secondary matter, figuring out what's going to happen to your stuff when you're no longer alive. So that involves all kinds of things. You think about everyone you know, everyone you love, every one to take care of, and as well as everything you own, If you don't have an estate plan, what happens when someone dies or becomes incapacitated without it? So if you become incapacitated without an estate plan, then there's a process called getting a conservatorship or a guardianship where the court determines who is going to be responsible for making decisions for you. This process is long and it's often quite expensive.

Starting point is 00:06:22 And if you're going to see a family disagree, this is where they're going to disagree. this is where they're going to disagree the most because it's someone taking care of not only financial matters, but also taking care of medical decisions. And a lot of people disagree about how that should go. I think that you're highlighting one of the most important points of estate planning. A lot of people think in terms of money, costs, lawyers, but one of the biggest things that it will accomplish is if you have an estate plan, you're going to avoid a lot of family strife. Yes, and I have found that people are more willing to accept decisions that you might have made about your end-of-life care or who you want to be making decisions on your behalf. If you have those conversations with your family in advance, so it's not as well, I chose my son, but maybe everyone else is thinking, oh, it's because he pressured me to choose him. But if I have those conversations in advance with the entire family as to what I did and why I did,

Starting point is 00:07:24 did it, people are more likely to accept that decision. So what happens if someone passes away without an estate plan? Well, there's always a plan. It's not as if someone dies and then we just wonder forever what is going to happen to their stuff. There is a plan. So for assets that you own jointly with somebody else with a right of survivorship, then that asset is just going to go automatically to the joint owner for an asset like a

Starting point is 00:07:53 retirement account like an IRA or 401k, you might have a beneficiary designation, like I have named my husband as my designated beneficiary. So that's just going to go straight to him without anybody doing anything. But those assets that I own individually in my own name where I haven't named any type of beneficiary, that's going to go through a process called probate, which is a court administrative process to figure out where your stuff should go. And if you don't have a will, then the state essentially creates one for you and says, who among your family members gets those probate assets? And that's an important point in that when it comes to the laws about a state planning, it's very specific to the state, right? So someone like living in Virginia,

Starting point is 00:08:46 like I do, may have a different situation than someone who, lives in another state, Michigan, Tennessee, California, because each state has their own laws. Right. Each state has its own laws. And what I was surprised to learn about Michigan where I live now is that if I am married and I do not have children, but I do have a surviving parent, then the state says that my assets don't just go to my surviving spouse. They also go partly to my surviving parent or parents, and that is not the case in Tennessee, where I practice. Some other aspects that some folks may want to consider when it comes to state planning is, for example, what would happen to my kids if my kids are minors when I pass away,

Starting point is 00:09:34 maybe who will be the executor of my estate, what I want to happen to me when I pass away in terms of my funeral expenses and where I want to be buried, all these other things that perhaps people either aren't thinking about or don't want to think about, but are decisions that have to be made? There are so many decisions that have to be made that I think it causes some paralysis and people don't start because they don't know where to begin. For example, I think a lot of young couples, they don't plan because they can't agree on who the guardian of their young children should be. But that decision, it's far more unlikely to happen than, say, one parent dying. And if you don't plan for the event of that one parent dying, then you've got a situation where

Starting point is 00:10:23 you've got a young surviving spouse who's splitting the assets among their minor children and themselves. So what I try to tell people is do not try to figure out everything 100%. Just start, make the decisions that you can and you're far better off than having made no decisions at all. So if someone listening to this says, okay, it's about time I got my estate plan or maybe my estate plan is pretty old, what's the first step they should take to get an updated estate plan? The first thing I always tell people to do is start with the information that's available to you. You don't need to go and hire an estate planning attorney right off the back. figure out what you own, how you own it, whether you own it jointly or whether you own it individually,

Starting point is 00:11:12 and figure out whether you have any beneficiary designations or payable on death transfers, for example, on a bank account. Because I would hate for someone to say, okay, I know I need a will, I'm going to go to attorney and get a will drafted. And it turns out they don't even have any probate assets. there are no assets that are going to be governed by that will. For example, I do not have any probate assets. Everything is passing by a joint ownership or beneficiary designation to my husband if I predecease him. So if I got angry and changed my will and said he doesn't get anything, he still gets

Starting point is 00:11:52 everything. So I think estate planning can be expensive. So make sure you understand whether you actually need what you're at. asking for or you're going to see an attorney who can actually explain that to you. Because I think with the state planning, we hear so many, you should do this, you should do that. But I think where we need to take a step back is, well, I am an individual person. And maybe what I need is not the same thing that my cousin Bob needs or that my, you know, neighbor Joe says I should have done. So really figuring out what you need for yourself specifically and what it makes sense to spend money on.

Starting point is 00:12:34 If people dig into this topic, they're going to learn about probate. And you mentioned, you know, that you won't have any assets that pass through probate. That seems to be a common goal. So tell us a little bit more about probate and why someone might avoid it. And do you think in some cases, people are taking extreme steps to avoid probate? I think that this is another one of those shoulds. You should avoid probate. But I don't think that that is a universally correct statement. I do not have any assets in what is called a revocable trust. So for example, if my husband predeceases me, then all of my assets have turned to probate assets and they are going to pass according to my will. They'll go through a court administration and then they'll end up with my

Starting point is 00:13:27 kids. For me, I don't think that probate is very complicated. Now, I don't live in a state where people think that probate has to be avoided because it's either extremely expensive, extremely long, or just extremely onerous. There are states where, for example, an attorney or an executor can charge fees based on the value of a probate estate. So in California, if you own a home and that goes through probate, you're going to be paying a percentage of the value of that house. And that's not taking into account the mortgage. It's not lessened by the amount of the mortgage. It's the fair market value of the house. You're going to be paying fees based on that value. Yes, I would say avoid probate in California if you can because you don't want to pay a fee

Starting point is 00:14:20 just based on how much you own. But here in Michigan or even in Tennessee where I practice, I don't find probate to be all that difficult. And most people, even if their goal is to avoid probate, even if they've paid astronomical amounts for estate planning documents with the intent to avoid probate, they actually don't do all the necessary steps to avoid probate, like funding the trust, keeping it funded if they buy something new, putting that in the trust, so they're not going to avoid probate anyway. I think it's a bit of a marketing tool, to be honest, you're going to end up going through probate anyway, just go through probate, except if you live in a state like California, maybe Florida, where it's a really big deal and it costs a lot of money.

Starting point is 00:15:07 So we've mentioned wills and trusts. So as you explore state planning, you'll at least be evaluating whether those are necessary in your situation. Any other legal documents that will likely either be part of an estate plan or at least will be under consideration. Sure. And I would say that with revocable trust, and we just talked to, about it as a probate avoidance tool. I also like revocable trust for individuals who are older and perhaps are having their children participate more in their finances and their care. I have found just from a practical standpoint that if you have someone serving as trustee of a revocable trust, institutions are far more likely to accept that trust document and the trustee's

Starting point is 00:15:54 authority, then they might be to accept another document, which is a power of attorney, which gives someone the authority to make financial decisions for you or with a health care power of attorney to make health care decisions for you. But the revocable trust can be a tool, not just for probate avoidance, but for administrative ease for adult children and their parents. You would get the power of attorney, for example, if you were managing your parents' assets, maybe they were incapacitated or just they wanted your help. We had a guest at a previous show, Beth Pinskner, who talked about how she was trying to manage her mother's affairs and had actually a lot of trouble with banks honoring the power of attorney.

Starting point is 00:16:42 Yeah, and I actually did a whole episode on the sort of the practical problems with powers of attorney and how you can try to avoid them by taking certain steps, but you can't avoid everything. And I I get where the bank is coming from. It's a huge liability if they accept a power of attorney and someone takes money that they shouldn't be taking. So I understand their perspective for sure. But that's the document that a lot of us have. So there are ways that you can take proactive steps while everybody is still competent and healthy to make sure when there is a crisis or someone loses capacity that you have the authority you need. It's just that we're so busy.

Starting point is 00:17:24 generally going through our lives that we don't think, okay, I'm going to take these extra steps now to make that future a situation even easier when we don't see it right in front of us. When it comes to an estate plan, and this comes from my personal experience, I'll just say that it's, it seems important not to ignore all your stuff, right, the stuff in your closets, your garage, things like family heirlooms, home movies, jewelry, sentimental knick-knacks. And I say this because recently one of my relatives died and a family fight erupted over who would get a collectible music box owned by my grandmother. So how do you think people should factor all that type of stuff into an estate plan? So if you go to an estate planning attorney, you are likely going to

Starting point is 00:18:05 pay by the hour. So having that attorney account for every knick-knack or family heirloom, it could get quite expensive. There are some states that allow you to do sort of a written memorandum to accompany your revocable trust or your last will and testament, where you can actually write down these objects or items of tangible personal property yourself and say, okay, this jewelry box, you know, goes to Sal Smith or something like that. Also, when I draft documents, I always have language in the section about tangible personal property that there is one person is generally going to be the executor whose decision is final and binding. You can also have different methods of how people choose an item that they might want.

Starting point is 00:18:55 I also think at the end of the day that we as adults, you know, need to realize that while we might be grieving and that might cause our emotions to be heightened, there is only one music box or there's only, you know, one sewing machine or whatever that item is and we can't split it in half. So even in our grief, we do need to try our very best to be reasonable. Also, I think if you know that there are items that your family might fight about, the same thing goes for, you know, talking about who you might name to make decisions for yourself if you're incapacitated. Talk to your family about what they might want or who you might be giving things to.

Starting point is 00:19:39 So everyone sort of knows what your intent is, and at least that's not one of the open questions. So let's say someone put all the time and effort into getting an estate plan, but of course, life changes, things happen, our assets change. So how often should an estate plan be updated? Well, I think estate plan, if we're talking about the documents only, I personally look at mine every three to five years. I would love it if my clients looked at theirs every three to five years. I don't think that happens. But I think what can, you know, be even more important than the legal documents themselves is actually all the other information that's important to us. For example, every year I update what I call just my information sheets. And these are just free worksheets that I have available on my website. So whether it's updating all the information about our various dogs or updating my health information sheet, what my doctors are now, what medications I take. Because all of those things are going to change pretty quickly,

Starting point is 00:20:48 or even one of the sheets might be your financial information, just keeping everything, all the information surrounding your estate plan up to date. I think that not only will that be useful to somebody in a crisis, but it's actually useful for your life to have that information updated when you go on vacation, when you need somebody to step in and help out. So there are crises that we will experience in our life where this information is going to be useful. And these crises will often not result in our death, but we still do want to have information accessible to other people so they can help us. And that's a good point, right? All that information as well as your estate plan, right? You want someone to be able to find it when they need it, but you also don't want

Starting point is 00:21:35 it just like laying around on the kitchen table either. So how do you recommend that people store their estate plan as well as all that important information. You know, maybe you have a safe deposit box somewhere. Where is the life insurance policy? Where is the list of accounts? How do people put that somewhere where the right people can find it, but not anyone can find it? Well, I would say don't put it in your safe deposit box at a bank anyway, because once you die or you are no longer available to access that safe deposit box, it's going to be quite difficult for the people who need that information to access it. I think it really depends for people on what they're comfortable with. I personally don't have a very secure system for my own stuff. I have a fireproof,

Starting point is 00:22:23 waterproof, waterproof storage bin. It's not even locked where I keep all of that information. I don't have a lot of people coming into my house. So that's not a concern for me, but the people who need to know about it, know where it is. So I think it needs to be accessible to the people who need it, but not accessible to the people who don't. And I think that you know that based on your own circumstances and who's coming in and out of your house. And that's what my wife and I have as well, is a fireproof, waterproof box, and our kids who are now adults, know where to find it in case they need it. Excellent. Ideally, everyone in your family will have an estate plan, right? Because if they don't, you may be the person who pays the price. And it may be a price in actual

Starting point is 00:23:04 money, delays, family strife. So what can people do to do? sort of nudge their parents, siblings, kids, and other relatives to also get an estate plan? Well, I think this is where a lot of people kind of approach things the wrong way. Because if we're telling someone that they should be doing something, it's really more like a reprimand, I think. And the more you reprimand somebody, the less they're going to want to comply. I think that I am very fortunate in that the people in my life who need to do. do planning, like my father, my husband, they are happy to see what I'm doing and kind of model that behavior or I model for them. And I'm also happy to share information. For example,

Starting point is 00:23:52 when I sit with my dad, who will be 80 this year and we update his health information, which we do annually, I also give him a copy of my health information that I update annually because I spend the summer with him. And if there's an act, or anything, he needs to have it. So it can't just be us going to our parents and saying, we need all this information about you because you're going to be a burden and we're going to have to deal with it. And that just doesn't go over well. But showing them maybe what you're doing and what you're willing to share with them if that's a safe thing to do. I think getting away from all the shoulds and maybe active participation is really helpful. Also, there are a professional. Also, there are

Starting point is 00:24:38 professionals that help gather all this information and organize it. So not just your estate planning attorneys, but actual estate organizers. And I find this really helpful for adult children and their older parents who maybe don't even live in the same place. Maybe when they're talking to each other, they want to talk about the grandkids. They don't want to talk about financial accounts, but they both know that things need to be organized and accessible. So getting mom or dad connected with one of these people and these services to get everything organized into, you know, some online repository that the kids can access and have information. That's great too. I mean, I had suggested to a friend, give it to your dad for Father's Day and it's going to benefit both

Starting point is 00:25:26 of you. I think trying to be creative about solutions and, like I said before, not to come at it in an antagonistic way is always the best way to go. Well, this has been. This has been, and very helpful. Where can people go to learn more about you and the work you do? Well, my website is just death readiness.com and my podcast is the death readiness podcast. I do practice law in Tennessee. I am working on getting licensed here in Michigan. But one service I do offer to people nationwide is an estate plan audit. A lot of people don't even know what their estate plan documents say. and that's something that is a good place to start before you actually go ahead and engage someone to draft whole new documents. All of that information is available on my website, as well as those free information worksheets that I mentioned earlier.

Starting point is 00:26:23 Well, excellent, Jill. Thanks so much for joining us. Thank you very much. Hey, y'all, it's Kelly Clarkson with Wayfair. Ever order furniture online and wonder what if? Like, what if it doesn't hold up? That sofa was four days old. You should have ordered from Wayfair. With Wayfair, there's no what if. Just style you love and quality you can trust. Visit Wayfair.com.

Starting point is 00:26:40 Wayfair, every style, every home. It's time to get it done, fools. And whenever I discuss estate planning, I always think of Bob Hasmiller. A longtime Motley Fool member who manages his family's finances and a really, really good guy. Every year he updated what he called a letter from your dead husband, which was a document that listed everything his wife needed to know after he passed away. Where all the accounts were, how everything is managed, information about other assets like Stargeon. its collectibles, which trusted professionals and relatives to turn to and who to avoid. Tragically, Bob was killed in a bike accident at the age of 70, very soon after he retired. His wife Sue wrote a book about losing Bob entitled Resetting, an unplanned journey of love,

Starting point is 00:27:21 loss, and living again. In the book, Sue wrote that Bob's letter helped her gain a financial footing after his death because his instructions were, quote, like a perfect recipe for mom's apple pie. She also wrote that the letter, quote, was the only way he could safely and lovingly let me know every single detail of every single thing I would ever need to know financially and much more. So make sure to create your own document that lays out everything your relatives would need to know if something happened to you. You can get a checklist for creating that document by doing an online search on the terms Motley Fool, a letter from your dead husband. And folks, that's the show.

Starting point is 00:27:55 Thank you so much for listening and thanks to Bart Shannon, the engineer for this episode. As always, people on the program may have interest in the investments they talk about and the Motley Fool may have formal recommendations for or against, so don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Full on, everybody.

Motley Fool Money - Give Your Family the Gift of an Estate Plan, and Ask the Same of Them

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