speaker-0: When you have really small kids, the risk that you're running there is that if they if you were to pass and let's say that life insurance policy, ⁓ or that 401k or that IRA, the thing that has the beneficiary designation comes into effect and the spouse is already gone. So let's say that like plane crash scenario where you're both gone, all of a sudden we're down to the kids and they're like eight. You know, now we've got a chunk of money that's gotta go to a minor, which legally can't happen. So now we have to open a guardianship estate to ⁓ collect that money and then it's gonna sit there ⁓ you know and be managed by the guardian of the estate ⁓
speaker-1: All right, what is up and welcome back everyone to another episode of the Practical Planner Podcast. I'm your co-host, Thomas Coleman. And here with me today is Lisa Weigel. So if you guys didn't check it out, we've already done one episode with her. ⁓ you can get to know her from the last episode. She's basically new here at Wealth, ⁓ practicing attorney before it, and just a wealth of knowledge. And we actually have her on for a second episode today, but it's really to talk about kind of estate planning for new parents. And we didn't we couldn't think of anybody better than Lisa because she recently did a presentation for your was it your daughter's school? Your daughter's school on this exact topic. so I think what we all know is that estate planning is something that people know they need to do, they never want to do it, and there's these just points in life that actually push them to do it. And having kids is probably number one. I think there's like, you know.
speaker-0: My daughter's school, yeah. Elementary school.
speaker-1: Getting married is a good one, starting a business is a good one, you know, life change like spouse passing away or somebody in your state plan passing away. ⁓ but I think the one that we see people actually take action on is kids. Why why do you find that to be the case?
speaker-0: It is definitely a case. And I will say, you know, anecdotally, like I was a practicing attorney for I think I've I'd probably been practicing for seven years but and I still didn't have an estate plan. I could I think I started like a bunch on my laptop, you know, I'd be like, ⁓ I should really do this for me, my husband. ⁓ and it took having my first daughter before I actually like put pen to paper, we signed something. So I'm just as guilty as anyone else. ⁓ but I think it's just a lot of it is, you know, when you have you know, minor children, all of a sudden you're like, ⁓ you know, I if I were to go tomorrow, like I this is gonna be a big mess. ⁓ and I think it's both that and then also sometimes what I see ⁓ what I've seen in my practice is on the flip side, like dealing with a parent that is, you know, elderly or sick, that's another big driver for for people in like my generation, particularly like the sandwich generation, to be like, Okay, I don't wanna leave my kids in the same type of position. ⁓ but yeah, as soon as that first baby comes, I think that's I usually that's when I would usually get the first call.
speaker-1: Yeah, I feel like you're kind of an adult, but once you have a kid, you actually feel like, okay, I'm actually an adult. I need to get serious and get things done. And what are those boring things on my to-do list that, you know, will make me feel like a better parent? And estate plan is is definitely one of them. So, you know, that happens. I, you know, I have a kid. What what are the things that I need to do to update my estate plan?
speaker-0: Yeah, definitely. ⁓ I think the biggest f in terms of thinking about your kids, the biggest thing is definitely getting a will in place. Cause the will is the document that actually is gonna nominate guardian. So that's again like a huge driver of getting people to do their estate planning when they have kids because they're thinking, like, ⁓ if something happens to me and my spouse, like if we're on a trip or some, you know, something happens and neither one of us are left, who's gonna take care of my kids? So that sort of like personal like who's gonna be, you know, where they're gonna be living, who's gonna be taking them to school, you know, all those sort of like personal care things ⁓ is, you know, when we n we designate a guardian in the will. ⁓ the second half of that, and and this is where like I try and do a lot of education ⁓ to, you know, my my kids ⁓ school fellow parents and things like that is, you know, when we think about the money piece, the assets that are gonna go for your kids, really like the biggest it's such a powerful thing to have that choice and to like put that choice down on paper so you're not just like leaving it up to the universe of like, ⁓ how how are my kids gonna get everything? Even if it's like, you know, you're thinking like, ⁓ well if it's me and my spouse are gone and we have one kid, everything goes to that kid. Well, how does it go to that kid? So are we gonna have a trust it established either at your death or during your lifetime that goes down to your kid and do they get that money outright at some point? Like just get a check? ⁓ or you know, are we gonna have somebody else manage that money for a period of time? ⁓ do they get to sort of like learn the ropes over time and then take control? All of those things can be done in your estate plan. And so that's all the stuff to be sort of thinking about and ⁓ setting out. Because if you don't have anything in most states, you know, the child will eventually get the money either when they're eighteen or twenty one, depending on the jurisdiction, which like I think when I was twenty one I thought I was really responsible. But now now knowing twenty one year olds, I'm like, ⁓ no, that's that's too soon ⁓ to get a big lot big I definitely would've got like a ridiculous car or something at that point. So ⁓ you know, just sort of thinking those choices through and how you're gonna set them up for success. ⁓ is really hard.
speaker-1: I think you made some interesting points. I think the first one is kind of like picking guardians. I think that's kind of the push. Like you'll see, hey, you're a parent, you're about to go on your first international flight with your kid that's staying home with family or whoever. Okay, well, what if something happened to both of us? Now this is the time we actually need to, you know, ⁓ get a guardian's in place. The yeah, I think a lot of people think it's a separate document, right? They think there's like, okay, you have your will, you have your financial primary return, you have healthcare directive, and you have You have guardians. It's like it's actually not a separate document. It's it's really built into the will. So I think that's important for people to know because like even when if I have clients like going through wealth, they'll be like, hey, I didn't really see, you know, a necessarily a part on that. And obviously there's like the question on it, but it's not a specific document that you click into. So I think that's really important to know. The second part you talked about here is like the asset side of things and like thinking through it. And so since this podcast is really the, you know, new parents, so parent kids are young. How do you think about doing this when kids are young? Because I think people are like, ⁓ hey, I'm doing my safe plan first time. My kids are 18 and 23. I know them, they're responsible, they can handle things, or they they can't, can drive that decision. But what do people do when they're really young and they don't know? And how do they build in flexibility?
speaker-0: Yeah, I that it's it's such an area of like sticking point where I see a lot of times people really get stuck on this of like, I just it's so hard to you don't know. Like you have no idea what their life is gonna look like, wh what kind of person they're gonna be when they become an adult, at what point they're going to be really responsible. Like maybe it will be twenty one or maybe it'll be like forty. You know, you just there's no way to predict, you know, where their life is gonna go when you just had, you know, little ones. I have a six year old and two three year olds and like Who knows? You know, I can't even tell you which of them will be the more responsible one financially at this point. So I think the thing that I always try and drive home to people is like these should be your wills and your revocable trusts, your powers of attorney, even they should be reviewed all the time. You know, I usually say like two to three years if you can, five, you know, if it's just not on your radar. But you should be d designing them and and creating your choices based on what the circumstances are today. So that's the thing with guardians. Sometimes people think like, ⁓ well, you know, my my sister is closer in age and like she would be the best to be nominating as guardian. But if it happened tomorrow, maybe your sister's not, maybe your sister's still in school or something, you know, she's like younger than you. Maybe the your parents are actually the people that should be the guardian. They're retired, they've got time, they've still got energy. People tend to like think a little too far out, I think sometimes, and that kind of gets you stuck. ⁓ and similarly with like the assets, you know, just Try and ⁓ revisit this, these plans every couple of years and do a reassessment. So, you know, again, you can't, you it's not locked if when they're ⁓ when we're talking about a revocable trust, it's not locked in stone. So you could say, like, all right, right now my kids are little. I'm gonna say at 25, they can be trustee of their trust and they can start managing their assets. Maybe when we get closer to 18, we're seeing where they are. Maybe we're like, hmm, it needs to be 35, or you know, or maybe. We're okay now. It's twenty-three, we're good. ⁓ so just kind of knowing in the back of your mind, like, you know, as long as you're still around and you have capacity, they can be updated. It's not, you know, absolutely set in stone ⁓ for these types of revocable ⁓ documents and just revisit them every time circumstances adjust.
speaker-1: Yeah, I think that's the important thing to remember is estate planning is not a one time thing. It's a thing that changes as your life changes. And all of these type of documents we're talking about now, you can change anything you want, right? Like you're not giving up assets. You are, you know, focusing on this for, you know, probate avoidance, privacy, making sure things go the way that you want to go. So if, you know, you realize kids are not really gonna be able to do this, or you realize like, hey, they might, but that's just I I don't really want them before age 30 or 40 using it for anything other than, you know. health or education or those things, you do have the ability to change it. On the irrevocable side though, do can people make some of those changes? So if say I'm, you know, setting up a trust, it's irrevocable for the benefit of my kids. It's just one for now because I think that's going to be the easiest. And I set the rules to be at 25, they can start taking out assets. Can I change that as well or no?
speaker-0: So there's definitely some interesting ways that we can build in flexibility for irrevocable agreements. ⁓ definitely much more complicated than a revocable trust where I can just do like a one page amendment and and change it. But there are definitely a lot of mechanisms in place today that allow us to make those type of changes. And they kind of ⁓ they vary state to state in terms of what's available and exactly, you know, how it has to work. ⁓ one of the things that I like ⁓ to put in, you know, to the the trust that I draft or what I drafted in when I was in private practice are trust protector. It's like basically this neutral third party that doesn't even have to be appointed right away. You can ⁓ draft the mechanism so that like the position is there. It can be filled later either by like a separate, you know, ⁓ appointment document or your successor trustee could could put that person in. But it's intended to be somebody that's not a beneficiary, that's not a trustee, that's not, you know, the grantor or the spouse, any of the family involved. ⁓ so oftentimes it's like an attorney or a CPA and they can drop in and make changes to that irrevocable agreement and amendment basically within certain parameters. So a lot of times, you know, we're not talking about changing beneficiaries, ⁓ but maybe it's addressing how the trust is gonna operate. Maybe it's changing the ages at which point the the children can be ⁓ you know, co-trustee or or successor trustee alone. So There's that mechanism that's become definitely much more popular, you know, I would say, even from when I first started practicing twelve, thirteen years ago, we didn't see them as often. And now I feel like I see them in almost every document ⁓ that comes across my desk. So ⁓ that's a really popular way. There's other mechanisms in various states. You can do like non-judicial settlement agreements in a lot of states, ⁓ where as long as everybody's on board at that point, like all the beneficiaries in an agreement, you can make an amendment to the trust. ⁓ to to make that change. ⁓ there's also judicial ⁓ settlements where you can go to court and ask the court to change the terms. ⁓ so there's definitely some mechanisms that can be put in ⁓ to allow for those type of changes. but tr definitely the trust protector I think is the most flexible and most popular, I think that we're seeing these days.
speaker-1: Super helpful. I know that's something that people would ask as they start to the irrevocable side sound it sounds scary. And obviously you can still build some flexibility in there and some provisions to make sure you can still make slight changes over time. ⁓ I think the next place to go on this conversation is okay, now I kids and I want to make sure my kids get the assets that they that I want them to have. How do we go about that by different types, right? So we have our taxable accounts, we have our 401ks and IRAs, and then we have for like life insurance and real estate. How do we make sure they go to the right people? 'Cause you know, we know, right, kids can't receive assets before they're eighteen.
speaker-0: Yeah, that's a great question. And I feel like the that's the funding piece of the trusts are definitely a a big issue. So I think if you don't have a voc or you don't have a revocable trust, ⁓ a lot of times people think like, okay, I'll put my spouse as the primary beneficiary and then I'll put my kids as the contingent beneficiary. When you have really small kids, the risk that you're running there is that if they if you were to pass and let's say that life insurance policy. ⁓ or that 401k or that IRA, the thing that has the beneficiary designation comes into effect and the spouse is already gone. So let's say that like plane crash scenario where you're both gone, all of a sudden we're down to the kids and they're like eight. You know, now we've got a chunk of money that's gotta go to a minor, which legally can't happen. So now we have to open a guardianship estate to collect that money and then it's gonna sit there. ⁓ you know, and be managed by the guardian of the estate. ⁓ or in some cases, like Illinois, depending on the value, it might get pushed into a uniform transfer to minor account. ⁓ so like a custodian account for a minor. But then at 18 or 21, depending on the type of account or the type of ⁓ estate we're talking about, it's just gonna get a check. Yeah. And so you're talking about again, potentially like let's say it's a two million dollar life insurance policy or or combination with IRAS, just a check for two million dollars to your To your kid at age 18, let's say. ⁓ so that's the that's the tricky part with the beneficiary designation. So I think a lot of times ⁓ now if people are creating either testamentary trusts, trusts that are, you know, come into effect in the will itself, ⁓ or revocable trusts during their lifetime, which then have the the subtrust for their kids. ⁓ you can name that trust as the beneficiary on the beneficiary designation for those policies. So maybe spouse first, but if spouse is not available, then it goes to the trust again as just a way to like kind of pool everything together, everything that's going to go for the kids and ⁓ integrate those, you know, t whatever the the parameters are that you want to put in control.
speaker-1: Yeah. So the trust side's pretty easy, right? So trust either is going to own the taxable account or own the business or own the real estate and it's going to flow through according to the trust, which eventually will get to the kids. The IRAs can't do that, right? So spouse first. I I think sometimes people will put the trust, which could be okay, but you generally want to put spouse first because then they're going to basically have the extended stretch on the RMDs. And then you have life insurance, you know. depends on how you want it to be. If you're middle to high net worth, you're probably having that in the irrevocable life insurance trust anyways. If not, it's gonna eventually flow down that way, same same on contingent. But then without the trust, right? Cause there are certain states that you find attorneys don't recommend trust. Like Texas is one of those states where like even a lot of my wealthy clients, a lot of the estate planners don't recommend trust because they're like people don't administer, they don't set it up correctly and probate's like six weeks long. So like who really cares? And Obviously you're still missing out on some of the privacy and and you know, maybe just it could be a little smoother. But ⁓ in those states, right, the they build trust into the will, right? Trusts are created upon passing and everything is just gonna kind of flow through to that. But do you I mean, I I'd be curious, do you ever really see people have have wills without testament trust built in?
speaker-0: ⁓ when they have kids generally know. I would say or minor children, I should say. When they have older kids, sometimes we'll see people with more streamlined wills that just say, like, okay, like you once you have a a really solid understanding of like, okay, everybody's good. They're adults, they know how to manage money, they don't they also don't have their own taxable estate potentially considerations where we're not worried about like them increasing their own gross estates. ⁓ that's when sometimes you'll see like, okay, we're gonna get a lot more simple and just say, like, okay, at my death. a third to each of my kids or whatever. ⁓ and that's fine. But yeah, I would say that's that's more common. We definitely, I mean, at wealth.com obviously we work with a lot of ⁓ jurisdictions that are that way where the probate process is way easier, ⁓ more streamlined and so we see like testamentary trust. ⁓ but you can still name those as beneficiaries for the insurance policies, which is good. Okay.
speaker-1: ⁓ okay. What else is kind of in this presentation you gave that we haven't hit on so far?
speaker-0: ⁓ we talked a lot about ⁓ how to get in addition to like obviously, you know, having your basic estate plan, your will, your trust, how do we start thinking about like saving for our minor children? That's always a big topic of conversation of like, what's the best way for me to like save for college? What's the best way for me to ⁓ put money aside for them so that you know, they that I want to give during my lifetime, that's not just like at my death. ⁓ so they can like start a business or buy their first home. a big one, especially for you know, kids of our my my similar age kids of like, you know, we've got really small kids and grandma and grandpa want to help. Like, how how do we tell them how to help us ⁓ with the kids? And so ⁓ you know, there's definitely a lot of great savings vehicles. It's definitely, you know, there's not just like a one-answer response of like what's the best thing? ⁓ so I definitely always direct people to like talk to their financial advisors about. ⁓ you know, like from an estate planning perspective, obviously gift trusts can be set up where you are setting up a lifetime trust. It's an irrevocable trust. It's for, you know, one or collectively your kids, you could do like a pot trust, ⁓ where you can put money into that and use your lifetime exemption. ⁓ maybe grandparents can put stu money in. You can put the crummy rights of withdrawal so that you can use annual exclusion gifting. ⁓ but other mechanisms like, you know, clients always want to know about like is does 529s make sense? Should I be funding those? ⁓ Roth IRAs, once the kids start working and, you know, getting their own W two income. That's always super helpful. ⁓ just these really nice mechanisms that I think it's important for kids, even like, you know, mine that are so little, like to be thinking about as, you know, they're getting older because they can be such powerful tools to even if you're just putting in like a little bit here, a little bit there, you know, that growth over time can be really, really meaningful ⁓ when they get, you know, of age and can actually use it. So
speaker-1: Yeah, I think that's an important topic because there's the I I think the point of like there isn't a right answer here because it is really goal dependent. Because if you're the hey, like I I'm a doctor, my wife is ⁓ you know, nurse practitioner, we believe in higher education and master's level and whatever, it's like five twenty-nines are gonna be really great for you, most likely, because you're a higher earner, you know, you get the tax-free growth, you might get a deduction or a credit depending on the state. You know that you really believe college is gonna exist, you know, you have the thirty-five thousand dollar Roth conversion built in. And that's really great for you. But then maybe you're the maybe a client that I work with who's like, I'm a business owner. I didn't even go to college. I'm really successful. My spouse went to college, but we don't really believe in it. Like 529 is like, you know, maybe if we have a bunch of kids, we'll do one, knowing that we have the flexibility to use a across a few, but we might not want to go that route because we don't think college is going to exist in the same form. So then they start to look at, okay, well, what about like an UTMA or a gifting trust? Well, You know, the downside of the UTMA is irreversible. It goes to them at that age. Gifting trusts, you at least have a little bit more control of when they're actually gonna get those dollars. But it's definitely more complex. It's a little bit more expensive to set up. Higher taxes in the gifting trust versus most likely versus UTMA account, you can kind of do some tax gain harvesting and some different things to be really tax efficient. The Roth is the holy grail, right? If you have any income, if your kids have any income and and you can contribute to Roth and get them set up for, you know, 50, 60 years of. ⁓ tax-free compounding, great. And then the last one is Trump accounts, right? A lot of people talk about the Trump accounts and it's great. You know, sign up for it. You're gonna get your thousand dollars if your kids are basically 2025 to 2028. The downside of them, though, well, we'll start with the good, right? You get money in, it grows tax deferred. There are some re uses that you can use it early. You're gonna have the income tax hit down the line. So it's a lot of compounding of the income tax hit. The downside is it doesn't count inside of yearly gifting, right? In the current tax law, Which most people don't know is you actually have to file a gift tax return for contributing to this account. And it's kind of like, are people really gonna do that for five grand or four grand or you know, whatever number you're gonna put in? Are you gonna go log this on your gift tax return? Are you gonna track the basis? You know, do we want a compounding issue? Are we gonna if we're gonna do the Roth conversions, great account. But are we actually gonna do the Roth conversions? Or are they gonna be 19 and still a minor? You know, there there's a lot that goes into it where I feel like until they change that law. saying that, you know, it it falls inside the nineteen K per year, I feel like they won't get used that much.
speaker-0: Yeah, I'm in the same boat. I there's been so much discussion within the estate plan community. As soon as we saw it come out and then kind of reading through it, it's like, okay, let's wait for these regs because yeah, if we can't use annual exclusion gifting, if it's not a present interest gift, that really limits, you know, ⁓ how how much people I think are gonna use them. But ⁓ I think it'll be interesting to wait and see how that happens. ⁓ But yeah, I mean, I think the other one that I always kind of remind people, especially again for those grandparents that are looking for ways to help, but you know, maybe wanna also like, you know, not use all of their annual exclusion or whatever is like the qualified, you know, gifts for education when they're making checks directly to the educational institution or the medical expenses. ⁓ you know, God forbid a kid like breaks their arm and now they have a big hospital bill that, you know, maybe your grandma and grandpa want to help with that. So those can be great because they're not eating into lifetime exemption. They're not usually an annual exclusion. ⁓ obviously the critical thing for those is like they have to go direct to those institutions ⁓ and and otherwise meet the criteria of the qualified gift. But those can be a nice way to to help out.
speaker-1: Are good and and grandparents' 529s are great too. That way they own them because they're not really included in FAFSA, which I think is helpful for some of those families that could get FAFSA. And if grandparents are just handing it to the parents to put in their own, like you don't want to lose that aid. I feel like I mean, at the end of the day, this is pretty deep into the like, hey, okay, we have we have a kid now, now why do we go update our estate plan, getting it done, reviewing it, you know, thinking about does everything flow through the way the way you're on? ⁓ you know, are we picking guardians? Like, I think the the people. In this first time is where you really need to spend time thinking about. Like this isn't a rush through it because you know you need one like, hey, is brother or sister really going to be able to handle three kids? Are they not like parents? Okay, you pick your parents, but then five years later your parents are in bad health, right? Like those are different times we need to update and change. ⁓ and then I think about like, how do we want them to get the assets? Do we want them to have it at what age, what control levels? You know, hey, we do want to help our kids, as we everybody talks about, right? You know. College costs are expensive, homes are expensive, life is more unaffordable. So like helping kids when they're younger is something most people really want to do. So balancing what type of accounts give you that flexibility at the end of the day, I think is is really important.
speaker-0: Yeah, I mean, I think like as if parents of young children don't have enough that's like constantly rattling around in their in their head. I think that's just the name of the game, unfortunately, is just constantly reassessing. And I think again, like meeting with your financial advisor to like do the modeling of like, okay, you've got a 529. What is this gonna look like? Like do the projections, especially like if you have, you know, I I've I have, you know, a good friend that has one child and know that's her w concern is like what if she gets a full ride and now I've like way overfunded this 529 and and now and the you know conversion ⁓ rough conversion so you know little in the grand scheme of things. So you know just I think always kind of every like set a reminder on your calendar and say like look let me look at my estate plan, let me look at my financial plan with respect to like the stuff for the kids every couple of years and just constantly reassess. ⁓ and and 'cause the goals are gonna shift and as your kids age and you you know, get to know them more and they become their own people, that everything, you know, tends to shift. So ⁓ just always kind of keeping that top of mind.
speaker-1: Love it. All right. I think that's a perfect way to end. ⁓ Lisa, thanks for coming on. Everybody, ⁓ thank you for listening. Please don't forget to ⁓ rate and subscribe and share with another advisor. And I will see you back here in a couple weeks.
speaker-1: All right, what is up and welcome back everyone to another episode of the Practical Planner Podcast. I'm your co-host, Thomas Coleman. And here with me today is Lisa Weigel. So if you guys didn't check it out, we've already done one episode with her. ⁓ you can get to know her from the last episode. She's basically new here at Wealth, ⁓ practicing attorney before it, and just a wealth of knowledge. And we actually have her on for a second episode today, but it's really to talk about kind of estate planning for new parents. And we didn't we couldn't think of anybody better than Lisa because she recently did a presentation for your was it your daughter's school? Your daughter's school on this exact topic. so I think what we all know is that estate planning is something that people know they need to do, they never want to do it, and there's these just points in life that actually push them to do it. And having kids is probably number one. I think there's like, you know.
speaker-0: My daughter's school, yeah. Elementary school.
speaker-1: Getting married is a good one, starting a business is a good one, you know, life change like spouse passing away or somebody in your state plan passing away. ⁓ but I think the one that we see people actually take action on is kids. Why why do you find that to be the case?
speaker-0: It is definitely a case. And I will say, you know, anecdotally, like I was a practicing attorney for I think I've I'd probably been practicing for seven years but and I still didn't have an estate plan. I could I think I started like a bunch on my laptop, you know, I'd be like, ⁓ I should really do this for me, my husband. ⁓ and it took having my first daughter before I actually like put pen to paper, we signed something. So I'm just as guilty as anyone else. ⁓ but I think it's just a lot of it is, you know, when you have you know, minor children, all of a sudden you're like, ⁓ you know, I if I were to go tomorrow, like I this is gonna be a big mess. ⁓ and I think it's both that and then also sometimes what I see ⁓ what I've seen in my practice is on the flip side, like dealing with a parent that is, you know, elderly or sick, that's another big driver for for people in like my generation, particularly like the sandwich generation, to be like, Okay, I don't wanna leave my kids in the same type of position. ⁓ but yeah, as soon as that first baby comes, I think that's I usually that's when I would usually get the first call.
speaker-1: Yeah, I feel like you're kind of an adult, but once you have a kid, you actually feel like, okay, I'm actually an adult. I need to get serious and get things done. And what are those boring things on my to-do list that, you know, will make me feel like a better parent? And estate plan is is definitely one of them. So, you know, that happens. I, you know, I have a kid. What what are the things that I need to do to update my estate plan?
speaker-0: Yeah, definitely. ⁓ I think the biggest f in terms of thinking about your kids, the biggest thing is definitely getting a will in place. Cause the will is the document that actually is gonna nominate guardian. So that's again like a huge driver of getting people to do their estate planning when they have kids because they're thinking, like, ⁓ if something happens to me and my spouse, like if we're on a trip or some, you know, something happens and neither one of us are left, who's gonna take care of my kids? So that sort of like personal like who's gonna be, you know, where they're gonna be living, who's gonna be taking them to school, you know, all those sort of like personal care things ⁓ is, you know, when we n we designate a guardian in the will. ⁓ the second half of that, and and this is where like I try and do a lot of education ⁓ to, you know, my my kids ⁓ school fellow parents and things like that is, you know, when we think about the money piece, the assets that are gonna go for your kids, really like the biggest it's such a powerful thing to have that choice and to like put that choice down on paper so you're not just like leaving it up to the universe of like, ⁓ how how are my kids gonna get everything? Even if it's like, you know, you're thinking like, ⁓ well if it's me and my spouse are gone and we have one kid, everything goes to that kid. Well, how does it go to that kid? So are we gonna have a trust it established either at your death or during your lifetime that goes down to your kid and do they get that money outright at some point? Like just get a check? ⁓ or you know, are we gonna have somebody else manage that money for a period of time? ⁓ do they get to sort of like learn the ropes over time and then take control? All of those things can be done in your estate plan. And so that's all the stuff to be sort of thinking about and ⁓ setting out. Because if you don't have anything in most states, you know, the child will eventually get the money either when they're eighteen or twenty one, depending on the jurisdiction, which like I think when I was twenty one I thought I was really responsible. But now now knowing twenty one year olds, I'm like, ⁓ no, that's that's too soon ⁓ to get a big lot big I definitely would've got like a ridiculous car or something at that point. So ⁓ you know, just sort of thinking those choices through and how you're gonna set them up for success. ⁓ is really hard.
speaker-1: I think you made some interesting points. I think the first one is kind of like picking guardians. I think that's kind of the push. Like you'll see, hey, you're a parent, you're about to go on your first international flight with your kid that's staying home with family or whoever. Okay, well, what if something happened to both of us? Now this is the time we actually need to, you know, ⁓ get a guardian's in place. The yeah, I think a lot of people think it's a separate document, right? They think there's like, okay, you have your will, you have your financial primary return, you have healthcare directive, and you have You have guardians. It's like it's actually not a separate document. It's it's really built into the will. So I think that's important for people to know because like even when if I have clients like going through wealth, they'll be like, hey, I didn't really see, you know, a necessarily a part on that. And obviously there's like the question on it, but it's not a specific document that you click into. So I think that's really important to know. The second part you talked about here is like the asset side of things and like thinking through it. And so since this podcast is really the, you know, new parents, so parent kids are young. How do you think about doing this when kids are young? Because I think people are like, ⁓ hey, I'm doing my safe plan first time. My kids are 18 and 23. I know them, they're responsible, they can handle things, or they they can't, can drive that decision. But what do people do when they're really young and they don't know? And how do they build in flexibility?
speaker-0: Yeah, I that it's it's such an area of like sticking point where I see a lot of times people really get stuck on this of like, I just it's so hard to you don't know. Like you have no idea what their life is gonna look like, wh what kind of person they're gonna be when they become an adult, at what point they're going to be really responsible. Like maybe it will be twenty one or maybe it'll be like forty. You know, you just there's no way to predict, you know, where their life is gonna go when you just had, you know, little ones. I have a six year old and two three year olds and like Who knows? You know, I can't even tell you which of them will be the more responsible one financially at this point. So I think the thing that I always try and drive home to people is like these should be your wills and your revocable trusts, your powers of attorney, even they should be reviewed all the time. You know, I usually say like two to three years if you can, five, you know, if it's just not on your radar. But you should be d designing them and and creating your choices based on what the circumstances are today. So that's the thing with guardians. Sometimes people think like, ⁓ well, you know, my my sister is closer in age and like she would be the best to be nominating as guardian. But if it happened tomorrow, maybe your sister's not, maybe your sister's still in school or something, you know, she's like younger than you. Maybe the your parents are actually the people that should be the guardian. They're retired, they've got time, they've still got energy. People tend to like think a little too far out, I think sometimes, and that kind of gets you stuck. ⁓ and similarly with like the assets, you know, just Try and ⁓ revisit this, these plans every couple of years and do a reassessment. So, you know, again, you can't, you it's not locked if when they're ⁓ when we're talking about a revocable trust, it's not locked in stone. So you could say, like, all right, right now my kids are little. I'm gonna say at 25, they can be trustee of their trust and they can start managing their assets. Maybe when we get closer to 18, we're seeing where they are. Maybe we're like, hmm, it needs to be 35, or you know, or maybe. We're okay now. It's twenty-three, we're good. ⁓ so just kind of knowing in the back of your mind, like, you know, as long as you're still around and you have capacity, they can be updated. It's not, you know, absolutely set in stone ⁓ for these types of revocable ⁓ documents and just revisit them every time circumstances adjust.
speaker-1: Yeah, I think that's the important thing to remember is estate planning is not a one time thing. It's a thing that changes as your life changes. And all of these type of documents we're talking about now, you can change anything you want, right? Like you're not giving up assets. You are, you know, focusing on this for, you know, probate avoidance, privacy, making sure things go the way that you want to go. So if, you know, you realize kids are not really gonna be able to do this, or you realize like, hey, they might, but that's just I I don't really want them before age 30 or 40 using it for anything other than, you know. health or education or those things, you do have the ability to change it. On the irrevocable side though, do can people make some of those changes? So if say I'm, you know, setting up a trust, it's irrevocable for the benefit of my kids. It's just one for now because I think that's going to be the easiest. And I set the rules to be at 25, they can start taking out assets. Can I change that as well or no?
speaker-0: So there's definitely some interesting ways that we can build in flexibility for irrevocable agreements. ⁓ definitely much more complicated than a revocable trust where I can just do like a one page amendment and and change it. But there are definitely a lot of mechanisms in place today that allow us to make those type of changes. And they kind of ⁓ they vary state to state in terms of what's available and exactly, you know, how it has to work. ⁓ one of the things that I like ⁓ to put in, you know, to the the trust that I draft or what I drafted in when I was in private practice are trust protector. It's like basically this neutral third party that doesn't even have to be appointed right away. You can ⁓ draft the mechanism so that like the position is there. It can be filled later either by like a separate, you know, ⁓ appointment document or your successor trustee could could put that person in. But it's intended to be somebody that's not a beneficiary, that's not a trustee, that's not, you know, the grantor or the spouse, any of the family involved. ⁓ so oftentimes it's like an attorney or a CPA and they can drop in and make changes to that irrevocable agreement and amendment basically within certain parameters. So a lot of times, you know, we're not talking about changing beneficiaries, ⁓ but maybe it's addressing how the trust is gonna operate. Maybe it's changing the ages at which point the the children can be ⁓ you know, co-trustee or or successor trustee alone. So There's that mechanism that's become definitely much more popular, you know, I would say, even from when I first started practicing twelve, thirteen years ago, we didn't see them as often. And now I feel like I see them in almost every document ⁓ that comes across my desk. So ⁓ that's a really popular way. There's other mechanisms in various states. You can do like non-judicial settlement agreements in a lot of states, ⁓ where as long as everybody's on board at that point, like all the beneficiaries in an agreement, you can make an amendment to the trust. ⁓ to to make that change. ⁓ there's also judicial ⁓ settlements where you can go to court and ask the court to change the terms. ⁓ so there's definitely some mechanisms that can be put in ⁓ to allow for those type of changes. but tr definitely the trust protector I think is the most flexible and most popular, I think that we're seeing these days.
speaker-1: Super helpful. I know that's something that people would ask as they start to the irrevocable side sound it sounds scary. And obviously you can still build some flexibility in there and some provisions to make sure you can still make slight changes over time. ⁓ I think the next place to go on this conversation is okay, now I kids and I want to make sure my kids get the assets that they that I want them to have. How do we go about that by different types, right? So we have our taxable accounts, we have our 401ks and IRAs, and then we have for like life insurance and real estate. How do we make sure they go to the right people? 'Cause you know, we know, right, kids can't receive assets before they're eighteen.
speaker-0: Yeah, that's a great question. And I feel like the that's the funding piece of the trusts are definitely a a big issue. So I think if you don't have a voc or you don't have a revocable trust, ⁓ a lot of times people think like, okay, I'll put my spouse as the primary beneficiary and then I'll put my kids as the contingent beneficiary. When you have really small kids, the risk that you're running there is that if they if you were to pass and let's say that life insurance policy. ⁓ or that 401k or that IRA, the thing that has the beneficiary designation comes into effect and the spouse is already gone. So let's say that like plane crash scenario where you're both gone, all of a sudden we're down to the kids and they're like eight. You know, now we've got a chunk of money that's gotta go to a minor, which legally can't happen. So now we have to open a guardianship estate to collect that money and then it's gonna sit there. ⁓ you know, and be managed by the guardian of the estate. ⁓ or in some cases, like Illinois, depending on the value, it might get pushed into a uniform transfer to minor account. ⁓ so like a custodian account for a minor. But then at 18 or 21, depending on the type of account or the type of ⁓ estate we're talking about, it's just gonna get a check. Yeah. And so you're talking about again, potentially like let's say it's a two million dollar life insurance policy or or combination with IRAS, just a check for two million dollars to your To your kid at age 18, let's say. ⁓ so that's the that's the tricky part with the beneficiary designation. So I think a lot of times ⁓ now if people are creating either testamentary trusts, trusts that are, you know, come into effect in the will itself, ⁓ or revocable trusts during their lifetime, which then have the the subtrust for their kids. ⁓ you can name that trust as the beneficiary on the beneficiary designation for those policies. So maybe spouse first, but if spouse is not available, then it goes to the trust again as just a way to like kind of pool everything together, everything that's going to go for the kids and ⁓ integrate those, you know, t whatever the the parameters are that you want to put in control.
speaker-1: Yeah. So the trust side's pretty easy, right? So trust either is going to own the taxable account or own the business or own the real estate and it's going to flow through according to the trust, which eventually will get to the kids. The IRAs can't do that, right? So spouse first. I I think sometimes people will put the trust, which could be okay, but you generally want to put spouse first because then they're going to basically have the extended stretch on the RMDs. And then you have life insurance, you know. depends on how you want it to be. If you're middle to high net worth, you're probably having that in the irrevocable life insurance trust anyways. If not, it's gonna eventually flow down that way, same same on contingent. But then without the trust, right? Cause there are certain states that you find attorneys don't recommend trust. Like Texas is one of those states where like even a lot of my wealthy clients, a lot of the estate planners don't recommend trust because they're like people don't administer, they don't set it up correctly and probate's like six weeks long. So like who really cares? And Obviously you're still missing out on some of the privacy and and you know, maybe just it could be a little smoother. But ⁓ in those states, right, the they build trust into the will, right? Trusts are created upon passing and everything is just gonna kind of flow through to that. But do you I mean, I I'd be curious, do you ever really see people have have wills without testament trust built in?
speaker-0: ⁓ when they have kids generally know. I would say or minor children, I should say. When they have older kids, sometimes we'll see people with more streamlined wills that just say, like, okay, like you once you have a a really solid understanding of like, okay, everybody's good. They're adults, they know how to manage money, they don't they also don't have their own taxable estate potentially considerations where we're not worried about like them increasing their own gross estates. ⁓ that's when sometimes you'll see like, okay, we're gonna get a lot more simple and just say, like, okay, at my death. a third to each of my kids or whatever. ⁓ and that's fine. But yeah, I would say that's that's more common. We definitely, I mean, at wealth.com obviously we work with a lot of ⁓ jurisdictions that are that way where the probate process is way easier, ⁓ more streamlined and so we see like testamentary trust. ⁓ but you can still name those as beneficiaries for the insurance policies, which is good. Okay.
speaker-1: ⁓ okay. What else is kind of in this presentation you gave that we haven't hit on so far?
speaker-0: ⁓ we talked a lot about ⁓ how to get in addition to like obviously, you know, having your basic estate plan, your will, your trust, how do we start thinking about like saving for our minor children? That's always a big topic of conversation of like, what's the best way for me to like save for college? What's the best way for me to ⁓ put money aside for them so that you know, they that I want to give during my lifetime, that's not just like at my death. ⁓ so they can like start a business or buy their first home. a big one, especially for you know, kids of our my my similar age kids of like, you know, we've got really small kids and grandma and grandpa want to help. Like, how how do we tell them how to help us ⁓ with the kids? And so ⁓ you know, there's definitely a lot of great savings vehicles. It's definitely, you know, there's not just like a one-answer response of like what's the best thing? ⁓ so I definitely always direct people to like talk to their financial advisors about. ⁓ you know, like from an estate planning perspective, obviously gift trusts can be set up where you are setting up a lifetime trust. It's an irrevocable trust. It's for, you know, one or collectively your kids, you could do like a pot trust, ⁓ where you can put money into that and use your lifetime exemption. ⁓ maybe grandparents can put stu money in. You can put the crummy rights of withdrawal so that you can use annual exclusion gifting. ⁓ but other mechanisms like, you know, clients always want to know about like is does 529s make sense? Should I be funding those? ⁓ Roth IRAs, once the kids start working and, you know, getting their own W two income. That's always super helpful. ⁓ just these really nice mechanisms that I think it's important for kids, even like, you know, mine that are so little, like to be thinking about as, you know, they're getting older because they can be such powerful tools to even if you're just putting in like a little bit here, a little bit there, you know, that growth over time can be really, really meaningful ⁓ when they get, you know, of age and can actually use it. So
speaker-1: Yeah, I think that's an important topic because there's the I I think the point of like there isn't a right answer here because it is really goal dependent. Because if you're the hey, like I I'm a doctor, my wife is ⁓ you know, nurse practitioner, we believe in higher education and master's level and whatever, it's like five twenty-nines are gonna be really great for you, most likely, because you're a higher earner, you know, you get the tax-free growth, you might get a deduction or a credit depending on the state. You know that you really believe college is gonna exist, you know, you have the thirty-five thousand dollar Roth conversion built in. And that's really great for you. But then maybe you're the maybe a client that I work with who's like, I'm a business owner. I didn't even go to college. I'm really successful. My spouse went to college, but we don't really believe in it. Like 529 is like, you know, maybe if we have a bunch of kids, we'll do one, knowing that we have the flexibility to use a across a few, but we might not want to go that route because we don't think college is going to exist in the same form. So then they start to look at, okay, well, what about like an UTMA or a gifting trust? Well, You know, the downside of the UTMA is irreversible. It goes to them at that age. Gifting trusts, you at least have a little bit more control of when they're actually gonna get those dollars. But it's definitely more complex. It's a little bit more expensive to set up. Higher taxes in the gifting trust versus most likely versus UTMA account, you can kind of do some tax gain harvesting and some different things to be really tax efficient. The Roth is the holy grail, right? If you have any income, if your kids have any income and and you can contribute to Roth and get them set up for, you know, 50, 60 years of. ⁓ tax-free compounding, great. And then the last one is Trump accounts, right? A lot of people talk about the Trump accounts and it's great. You know, sign up for it. You're gonna get your thousand dollars if your kids are basically 2025 to 2028. The downside of them, though, well, we'll start with the good, right? You get money in, it grows tax deferred. There are some re uses that you can use it early. You're gonna have the income tax hit down the line. So it's a lot of compounding of the income tax hit. The downside is it doesn't count inside of yearly gifting, right? In the current tax law, Which most people don't know is you actually have to file a gift tax return for contributing to this account. And it's kind of like, are people really gonna do that for five grand or four grand or you know, whatever number you're gonna put in? Are you gonna go log this on your gift tax return? Are you gonna track the basis? You know, do we want a compounding issue? Are we gonna if we're gonna do the Roth conversions, great account. But are we actually gonna do the Roth conversions? Or are they gonna be 19 and still a minor? You know, there there's a lot that goes into it where I feel like until they change that law. saying that, you know, it it falls inside the nineteen K per year, I feel like they won't get used that much.
speaker-0: Yeah, I'm in the same boat. I there's been so much discussion within the estate plan community. As soon as we saw it come out and then kind of reading through it, it's like, okay, let's wait for these regs because yeah, if we can't use annual exclusion gifting, if it's not a present interest gift, that really limits, you know, ⁓ how how much people I think are gonna use them. But ⁓ I think it'll be interesting to wait and see how that happens. ⁓ But yeah, I mean, I think the other one that I always kind of remind people, especially again for those grandparents that are looking for ways to help, but you know, maybe wanna also like, you know, not use all of their annual exclusion or whatever is like the qualified, you know, gifts for education when they're making checks directly to the educational institution or the medical expenses. ⁓ you know, God forbid a kid like breaks their arm and now they have a big hospital bill that, you know, maybe your grandma and grandpa want to help with that. So those can be great because they're not eating into lifetime exemption. They're not usually an annual exclusion. ⁓ obviously the critical thing for those is like they have to go direct to those institutions ⁓ and and otherwise meet the criteria of the qualified gift. But those can be a nice way to to help out.
speaker-1: Are good and and grandparents' 529s are great too. That way they own them because they're not really included in FAFSA, which I think is helpful for some of those families that could get FAFSA. And if grandparents are just handing it to the parents to put in their own, like you don't want to lose that aid. I feel like I mean, at the end of the day, this is pretty deep into the like, hey, okay, we have we have a kid now, now why do we go update our estate plan, getting it done, reviewing it, you know, thinking about does everything flow through the way the way you're on? ⁓ you know, are we picking guardians? Like, I think the the people. In this first time is where you really need to spend time thinking about. Like this isn't a rush through it because you know you need one like, hey, is brother or sister really going to be able to handle three kids? Are they not like parents? Okay, you pick your parents, but then five years later your parents are in bad health, right? Like those are different times we need to update and change. ⁓ and then I think about like, how do we want them to get the assets? Do we want them to have it at what age, what control levels? You know, hey, we do want to help our kids, as we everybody talks about, right? You know. College costs are expensive, homes are expensive, life is more unaffordable. So like helping kids when they're younger is something most people really want to do. So balancing what type of accounts give you that flexibility at the end of the day, I think is is really important.
speaker-0: Yeah, I mean, I think like as if parents of young children don't have enough that's like constantly rattling around in their in their head. I think that's just the name of the game, unfortunately, is just constantly reassessing. And I think again, like meeting with your financial advisor to like do the modeling of like, okay, you've got a 529. What is this gonna look like? Like do the projections, especially like if you have, you know, I I've I have, you know, a good friend that has one child and know that's her w concern is like what if she gets a full ride and now I've like way overfunded this 529 and and now and the you know conversion ⁓ rough conversion so you know little in the grand scheme of things. So you know just I think always kind of every like set a reminder on your calendar and say like look let me look at my estate plan, let me look at my financial plan with respect to like the stuff for the kids every couple of years and just constantly reassess. ⁓ and and 'cause the goals are gonna shift and as your kids age and you you know, get to know them more and they become their own people, that everything, you know, tends to shift. So ⁓ just always kind of keeping that top of mind.
speaker-1: Love it. All right. I think that's a perfect way to end. ⁓ Lisa, thanks for coming on. Everybody, ⁓ thank you for listening. Please don't forget to ⁓ rate and subscribe and share with another advisor. And I will see you back here in a couple weeks.
