Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful modern solutions to helping hands your company’s growth. I’m your host Dave Cane.
sooner or later, Father Time catches up with all of us and as unpleasant as that may be, planning for death is in fact a necessary part of life. To that end we simply couldn’t think of a better time to share some critical estate planning tips with you than this week which also happens to be National Estate Planning Awareness Week. Joining us on today’s episode is Dave McCarthy, a principal in Rea’s Medina, Ohio office. Dave has a knack for estate planning and trust and today we’re going to really drill into the topic and talk about how to choose an executor, which assets to include in your estate plan, what you should do with that asset list, and what other documents you should have in place before you pass away.
And now, since time is of the essence, let’s get started. Welcome to unsuitable Dave.
Dave McCarthy: Good to be here Dave.
Dave Cain: Thanks again for making the trip from Medina to Dublin, Ohio.
Dave McCarthy: Sure thing, it’s an easy drive down 71.
Dave Cain: We’re going to get right into this estate topic but before we get started in some of the topics, let’s talk about the President Trump’s proposed tax changes in this area. That’s maybe a good place to start.
Dave McCarthy: Basically, what the president’s looking to do is he’s trying to say let’s get rid of in essence the estate tax altogether. You can go back and forth either way whether you think that’s going to happen or not. Fact of the matter is as it comes down to maybe not necessarily completely removing the estate tax but maybe they’re going to raise the amount up so it only affects the very wealthy and takes, you know, if we’re taking more than, less than maybe one percent of the people who might be affected by that, in theory, that’s going to be pretty much what they’re probably going to shoot for and where I’m guessing it will end up.
Dave Cain: I would imagine for this Week with National State Planning Awareness Week, the idea is just to bring awareness that no matter what is happening on the political front, whether it’s Republican, Democrat, or Independent, there’s going to be some changes. That doesn’t preclude you from doing estate planning.
Dave McCarthy: That’s correct.
Dave Cain: I read a stat and I believe you may have shared this with us at some point, one of your seminars with us that 50% to 70% of Americans don’t have an updated estate plan. Does that sound about right?
Dave McCarthy: It’s probably that or a little bit worse at this point without question.
Dave Cain: Any idea of why that is out there, why that number is so high?
Dave McCarthy: I think the number is high because basically people don’t want to have to worry about doing that. The number one question or answer that I get when I say well, why haven’t you done an estate plan, their answer is, “Well, listen, I’m going to be dead so I don’t have to worry about it.” So it’s kind of funny that they just, you know, that’s something you can absolutely procrastinate on and it’ll never have an effect on you.
Dave Cain: And also as you mentioned, I think our listeners know there’s going to be some tax overhaul and probably in the estate area that now they may fall under the categories but still, I think your belief is you have to do an estate plan even if you’re under the estate levels.
Dave McCarthy: Correct, because the issue is that remember part of the estate plan is it’s not necessarily paying estate tax but what you have to worry about is you’re trying to transfer your assets that you own to somebody else and so therefore you have to have an orderly transition and that’s the estate planning we should be talking about today.
Dave Cain: The comments that and I’ve both heard over our careers why someone procrastinates could be I’m too young. All property is titled with my spouse so I don’t need a will. Estate planning is only for the super rich, that’s probably why you don’t have an updated plan, my guess would be.
Dave McCarthy: That is correct.
Dave Cain: Estate planning is too expensive and too complicated, and we did our wills right after we got married and had kids along with the political impact. Does that kind of catch all of the procrastinators out there?
Dave McCarthy: That’s catch all. In fact, my parents they did their wills right after they had kids and my mom came to me about five years ago and said, hey I need to update my will otherwise you have to go live with your aunt.
Dave Cain: That wasn’t an option?
Dave McCarthy: The aunt did not want to have that happen, no. My wife was in favor of it but not the aunt.
Dave Cain: There you go. And I know Anne and I believe she would be in favor of that. I want to cover a kind of three areas that we talked about in the intro. One is understanding your estate plan, second is talk about the list of assets that you would need to get together to do a plan and know what to do with that list after you make a list of your plan.
Let’s start with understanding your estate plan. Give me one point, two bullet points of where we want to go with trying to understand the estate plan.
Dave McCarthy: I think the key thing that you got to remember there is when I ask somebody do you have a will and they say yes I do and then I ask them the question, I said well, what does it say. The response almost always says is, “Well, you know what, I don’t know. I think it all goes to my kids.” And I’ll say to them, I said, what do you think. And so, I said, let’s take it out and actually read it and so then I will read the will and then say, “Well, you tell me what it says,” and I’m amazed how they don’t necessarily, “Well, I didn’t think that’s what was supposed to happen.”
And so, reading and understanding the will is probably the key thing. And now everybody is going to say, Well, an attorney wrote it so I can’t understand it. That doesn’t mean you can’t take it to your C.P.A. and say, “Hey bounce this, let me bounce some stuff off you. What do you think this means. What does it say?” and then you can have that conversation. You may have to clear it up with the attorney but this way at least you have an idea on what the thing says.
Dave Cain: Good. One of the other areas or topics I’ve heard you lecture on is when trying to understand your estate plan is somewhere very early in the process, go over that plan with your spouse.
Dave McCarthy: Yeah, that’s that’s probably a key thing because typically what happens is when you go to the attorney, one person is having a conversation with the attorney. The other spouse is probably drug along but they’re not paying attention. And so, then what you’ve got to do is a couple years later sometimes five, 10 years later, maybe you need to bounce it off the spouse to say, “Hey, here’s what’s going to happen if I pass away or here’s what’s going to happen if you pass away.”
It’s key to at least make sure the spouse knows what’s going to happen because the spouse if you pass away is going to have to deal with it.
Dave Cain: Now, I tell my spouse everything, I suppose you do too, right?
Dave McCarthy: Absolutely.
Dave Cain: Good, and they both listen so we’ll be in good shape when they hear that.
Dave McCarthy: My wife makes the comment says, “Hey, you’re the C.P.A. You deal with it. I don’t even have to worry about it.”
Dave Cain: We also to talk about going over the will and documents and your asset list with your spouse but what about your children if there is children in a family, is that also a good idea, a recommendation?
Dave McCarthy: Sometimes it is but I don’t necessarily make that as a recommendation and the reason being is because in essence in the scenario where you’re giving stuff to the kids, you may not necessarily want to go over that with the kids. It’s a good discussion point with your spouse to say should we because there shouldn’t be surprises but at the same time, you’ve got to tread careful in that area.
Dave Cain: With every estate, I would think with every estate there has to be an executor, somebody that’s going to execute the wishes of mom and dad let’s say. How do you choose the right executor? Do you go google and executor?
Dave McCarthy: Well typically, what people do is they think I’ll make my spouse the executor. Nine times out of ten that’s what happens but then what happens-
Dave Cain: Good idea, bad idea.
Dave McCarthy: Not necessarily. It can be a bad idea because when you look at, what you’re looking for in executors is you’re trying to find somebody who is financially responsible, that’s the number one aspect of it. They have to be trustworthy also and probably the last thing that I, and this is one is important to me is they need to be stable. You can’t make somebody who doesn’t want to do this or doesn’t have the capability of doing this the executor. It makes no sense to make your spouse if they happen to be 95 years old the executor of your will. That’s not fair to them and it’s not fair to that the attorney and everybody who’s going to have to try to make everything work.
Dave Cain: That’s a tough conversation on your behalf as a trusted advisor to sit down with your client and say, that’s not the right executor, we need to make a change. That’s a tough conversation.
Dave McCarthy: It is but when you go through that aspect of it, they’re usually like, yeah, you’re right and so they kind of view that and then they start asking for suggestions on how it can be. And usually we say, well listen, you probably know somebody who meets those three qualifications so let’s just start going through it and the reality is some don’t. And in that scenario, then it comes down to, sometimes it can be the C.P.A. to be the executor, sometimes you can also make an attorney the executor. There are a lot of different options that can happen there.
Dave Cain: We also talked about making a list of assets and let’s talk about samples of assets that go on this list. Let’s just say we’re sitting there with a client. We have a piece of paper or a spreadsheet, Excel spreadsheet and we just start typing and making a personal financial statement and a list of all the assets. Obviously, the obvious things go on there, the real estate, but then there are some things that probably aren’t as obvious that should go on this lists. Can you can you share with our listeners some ideas?
Dave McCarthy: Yeah. I think even when you’re talking about real estate, that’s a good example of is to say everybody thinks well they have their house but there might be more than one piece of real estate. You may have real estate in a couple different counties in another state. And so in that aspect, the reason we’re having this conversation is the person who is making the list knows where these assets are. The executor’s not going to necessarily know. It’s going to be the executors job to find out but by making this list, we can make their job easier.
Dave Cain: You’re talking about the physical assets that you can touch and feel and see so that that part could be easy. The real estate, the cars, the vehicles, collectibles, would those go on the list?
Dave McCarthy: Collectibles definitely go on the list. The reason being is because you may have a bunch of different things. Guns are another one, in essence is believe it or not, there’s a lot of people who have a lot of different guns. In that scenario, that’s something we’ve got to be careful of because if they have guns, people in essence also know they have guns. Friends know they have guns and so it gets around. When you’re putting a notice in the paper, that’s an example of something you have to be careful about because when somebody sees somebody passes away they’ve got a lot of guns, that can cause problems.
The executor knowing this, seeing them on a list would at that point try to get those guns out of where they’re at or make sure they’re absolutely secure.
Dave Cain: So sentimental assets, Hummel collection, baseball card collection, record collection, anything along that line should go on this list.
Dave McCarthy: Correct, and especially not only when you’re putting the sentimental assets on the list is you have to indicate why they’re sentimental. You could have something that is very important to you but not necessarily anybody in your family knows why. So if you received a chair from your great grandmother, something to that effect, this is where you would put that on the list and then detail out exactly why this is sentimental, that way it transfers to the person who’s going to receive it and then they also it becomes a sentimental asset for them.
Dave Cain: Does life insurance go on the list?
Dave McCarthy: Yeah. Life insurance is a very important thing to have on the list because what happens is you could have, and what we want to do is have the most updated policy. You could have life insurance that could be 20, 30 years old and we don’t necessarily know where that policy’s at this point. It could have been the companies have merged together and so what we want to do is not have the policy that was written, 30 years ago, we want to make sure we have the updated information also.
Dave Cain: May I ask you a personal question?
Dave McCarthy: Go ahead.
Dave Cain: How many passwords do you have personally?
Dave McCarthy: I probably have about 10 different passwords for different things.
Dave Cain: Okay, now when we’re talking about and estate and assets and bank accounts and all of that stuff, if I’m putting my estate plan together, I should be listing my passwords I suspect.
Dave McCarthy: Well, I don’t like to actually put the passwords on the list that you’re doing but I like to have the list say, hey, by the way I have passwords for everything. I keep those updated and here’s where that list is. Everybody’s got a list of passwords. It could be in an excel file with another password so there’s an example of a password you probably want to give out.
Dave Cain: Yeah, inventory.
Dave McCarthy: Inventory. So in essence is that you should have that list and then somebody should know where that list is at.
Dave Cain: Well that just makes life a little bit easier for the executor to find out where everything is and then administer the estate.
Dave McCarthy: Absolutely.
Dave Cain: What about debts? Do they go on that list? You said make a list of assets but should I also think about the debts that I have?
Dave McCarthy: Right. And the reason being you need to have the debts is think about it, a person passes away, now it’s the executors job to try to figure out, wait a minute, how many different credit cards does that person have. And so, they could have three credit cards, they don’t know, maybe they have 10 so they’re going to start trying to hunt around. If you’ve made the list and said here’s all the credit cards I have and then you know what, when one gets closed, mark on the list that you did have this credit card but it was close, that way you’re making it easier for the executor.
Dave Cain: Okay, I got this list. It’s great list, an Excel spreadsheet, it’s like sorted by volume, it looks really pretty cool, great list. Now what the heck do I do with that list?
Dave McCarthy: The first two things you do with the list are number one is that you give the list to your executor. And by the way, you’re going to explain to the executor that you’re asking them to be the executor of their will. They have to accept it, they may not, but once they accept, give them a copy of the list.
The other thing that I recommend doing is giving a copy of the list your C.P.A. In essences is if you think about what happens is today C.P.A.’s keep everything out in a digital world and so there’s no safer place to put your list than with your C.P.A. If you have it stored at home, it could get wrecked by fire. The folks in Houston, we’ve seen the flooding happening. So in essence, their lists are wrecked at this point. So you want to have it in a safe place and the C.P.A. is usually a very good place to do that.
Dave Cain: Great. What about on these list, there’s going to be some retirement accounts, 401-k, some pensions. What do I do about beneficiaries on this list? Again, try to make it easier for the executor.
Dave McCarthy: Well, perfect example is I have a conversation, I have a conversation with the client and in that conversation I’d say, well who’s going to be the beneficiaries of this retirement account and they tell me who it is. I start looking at the list and it’s not that person. One of the ones is we want to confirm who the beneficiaries are and we want to make sure that there are contingent beneficiaries on that list. Very important. So typically, most people have their spouse. Well, what happens if you and your spouse are in a car accident and both pass away. That’s what the contingent beneficiaries come in play for. So you want to have those also listed out.
Dave Cain: So we got this list. How often would you recommend that that list is updated? Do I do it annually when I do my tax return or every couple years depending on what’s gone on in my life?
Dave McCarthy: I would love to see it done annually but I’m going to say if you do it every three years, you’re making me happy. The other thing is if you imagine any time you have a scenario where, have a life changing event, that’s probably the key time to update the list but if you’re done at least every three years, that’s usually sufficient.
Dave Cain: We’re talking about estate planning and really this is more of financial wellness. Not necessarily an estate planning, estate planning is a byproduct but it’s a good exercise for anybody of every age to go through and set some financial goals.
Dave McCarthy: Exactly. If you think about, you’re going to have your C.P.A. and your attorney are going to help with the estate plan. So after that’s done, these are the important steps. I call it this wellness check up. They can go through that and in essence make sure that they get everything cleaned up.
Dave Cain: Is there any way I can simplify my life as I age on the estate. I’m thinking right off the top I might have four different bank accounts and four different banks because in one bank I got an interest rate there was 1.25%?
Dave McCarthy: That’s exactly right. So in essence, you know how we get there. Somebody goes to, opens a CD in a separate bank account solely because they may have got another half a percent interest. As you start to age, what you have to think about is you want to try to simplify your life and so, you don’t need to have a bank account spread out in every single bank in the county. You’re better off trying to come up with a plan to say, let’s start to move this so you deal more or less with one bank, one brokerage account.
I promise you anybody who does this as they age, it will make their life much simpler and much easier. It’s very difficult as somebody ages to try to start tracking all the stuff they used to track when they were 40, 50, and 60. You get into your 70’s and your 80’s, trust me, my clients have said the same thing, that’s the best thing they’ve ever done is when they start moving towards simplification.
Dave Cain: What about the credit cards that I’ve opened and paid off over the years that maybe are still open? Do I leave those open just in case?
Dave McCarthy: No, no. The goal is is that if you have them get them, if you have them you’re not using them, get them closed. Remember, you can always run a credit report with one of the three agencies to see which credit cards that you may still have open and haven’t used in two or three years. It just makes sense to get those closed. Again, that’s part of the simplification process.
Dave Cain: Let’s continue on with the simplification discussion. What about if I have some assets that I want to get to a family member, is now the time to do it or should I make an exhibit in the will? You know, it’s that painting in the dining room table that I want you to have.
Dave McCarthy: What I usually like to say on something of this is that, as you’re simplifying your life, why not consider giving some of those sentimental things and those collectibles away. The number one reason to do it isn’t just for simplification but you’re going to start seeing the family members and you’re going to see that really appreciate the fact that you’re giving them something. You get to actually see what you’re giving away instead of giving away everything after you pass away.
Most people that I have talked to that have started to do this, they said it has been a very enjoyable experience.
Dave Cain: So again, that’s part of the financial wellness that you talked about.
Dave McCarthy: Absolutely.
Dave Cain: Let’s talk about the right documents. We touched on a couple documents. We probably won’t have enough time to get into trust documents and things like that but you mentioned will and I think most of our listeners would have a will. But what about the other things that you would want to see that we can easily put our hands on and where are they, what are those documents and what do they look like?
Dave McCarthy: The second one after the will would have to be a durable power of attorney. And so, what you want to do is in case something happens to you and you don’t pass away but you’re unable to make decisions for yourself, that durable power of attorney is what helps somebody, you’re indicating who you want in essence to be in charge of your life while you’re alive.
The the next thing would be a health care power of attorney or a health care directive. In essence is that states that if you get very sick, what type of additional treatment do you want to have happen. And then in essence is the trust is another possibility, not necessarily everybody should have a trust but if there is for some reason after you pass away that you’re still trying to control some type of asset or not necessarily dish it out to some of the beneficiaries, that would be the reason for the trust, but those top three absolutely are a necessity.
Dave Cain: Our guest today has been Dave McCarthy, a principal with Rea & Associates in Medina, Ohio. You can tell by the conversation Dave is very famous for estate and trust planning and financial wellness with his clients. I think the folks at the National Association of Estate Planning and Councils would be very proud of you representing them this week and the National State Planning Awareness Week. Some great tips. So appreciate that.
Dave McCarthy: Thanks Dave.
Dave Cain: Again, thanks for joining us on unsuitable.
Dave McCarthy: It was good to be here.
Dave Cain: Listeners, would you like to learn more about estate planning? We’ve included a variety of helpful topics on our website at reacpa.com\podcast. And if you like this episode, do us a favor and share it with your professional network. Rea & Associates is active on Twitter, Facebook, and LinkedIn. And you can use #Rearadio to follow the conversation.
Until next time, I’m Dave Cane, encouraging you to loosen up your tie and think outside the box.