Estate Planning – the 3 Stages

In this episode, Lisa and John discuss the 3 stages of estate planning: before you die, the time of death and beyond death.

Episode Transcript
Lisa
Well, welcome everyone to Aging Insight. I'm Lisa Shoalmire, here with John Ross in the studio on another Saturday, right here, so we can be with you guys. John, right before we came on the air, they've got the live remote going down on the Mardi Gras.


John
Yeah. Down at the Mardi Gras.


Lisa
Down at the Mardi Gras! 


John
That's right! 


John
Texarkana's not necessarily known for it's Mardi Gras traditions, but we're trying to build some out there.

Lisa
Yeah. Well, and that's great. I'm from Louisiana, so I enjoy the Mardi Gras season. I regret that the kids here don't get the Mardi Gras breaks that we used to get [chuckle] from school. But as a parent, I'm really glad.

John
Absolutely. It's a beautiful day out there, but hopefully you can take a little time to listen in to the show today. We've got some interesting stuff to talk about, and we talk about it because we believe in it. We know this stuff is important. We want you to be able to age on your own terms and figure out how to do it. Maybe give you some things to think about, as you continue through this process.


Lisa
That's right. Always trying to get people to think.


John
We are. We are. But you know what? That's because we have seen the results of it. You could almost divide our personal practice in half. We're here in the Ark-La-Tex, practicing elder law every single day of the week, and you can pretty much break our practice down into two categories of folks.


Lisa
Yeah. We have the category of, what I would call, pre-planners. People who were thinking ahead, trying to get their ducks in a row. And they may not be perfect planners, but they're making some steps, or taking some efforts. But the other part of our practice, those are what I would call crisis... Planners really wouldn't be the right word. How about reactors? 


John
Right. The difference between a planner and a reactor. These are the people that have had some sort of health crisis often, and that health crisis has become a housing crisis as they try to figure out what their living arrangements are gonna be. And then they figure out that they can't afford those, and so they're now in a financial crisis. And they're turning to us desperate for some help. Now, often times on the show, that's where we spend a lot of our focus is talking about those crisis things. Especially where the stuff goes bad.


Lisa
Right. And people just think we're all doom and gloom.


John
Yeah, but we're not. We would much rather have the other side of it.


Lisa
Oh yeah.

John
But, unfortunately, the vast majority of you out there are gonna make the single biggest mistake that most people make, and that is the mistake of doing absolutely nothing. But hey, whatever. But we're still not gonna talk about doom and gloom today, at least not directly. But we believe in this information and of course we have sponsors that make this information available to you by supporting this program, so we always like to take a second to thank them. I'm gonna start the list today with our newest sponsor and that's Carter Insurance. Thanks for them for joining in with our mission. And also, Red River Federal Credit Union, Reunion Plaza, Heritage Plaza, The Retreat at Kenwood, St. Michael's Hospital, Guarantee Bank & Trust, Cowhorn Creek Estates, Curt Green & Company, Riverview Behavioral Health, Cranfill & Associates, Dierksen Memorial Hospice, The Barnette Agency, Edgewood Manor, Advantage Senior Care, and Texarkana Funeral Home. That list keeps getting longer.


Lisa
Yeah, it does. It's because we all get a little bit older every day and all these folks are seeing some of the things that we see.


John
Yeah. They all appreciate it. Now, Lisa, a common joke from my clients, and probably a common joke from many of your clients, is they're sitting in the office and we're discussing estate planning. I always talk about estate planning that most people have a tendency to only focus on one part, and that's what happens at death.


Lisa
Right. They focus on their stuff and what happens to their stuff when they're dead.


John
Right. But a good estate planner is going to look at everything from three stages. You gonna look at it related to what happens before you die. You're gonna look at it at the time of death, but then you're also gonna look beyond death. And really, if you're only focusing on what happens at the moment of death, you're doing your self a disservice. Because, for example, I'll have folks come in, and they say, "Well, I just wanna leave my house to my three kids. Just give me a simple will that says, 'I leave my house to my three kids.'" That's fine, but if we don't look ahead and say, "Look, you don't have enough income to be able to pay for a nursing home care, if you ever need it."


Lisa
Or nothing come to purchase in-home care, which is where everybody want... Everybody wants to stay at home.

John
Right. In which case you're probably gonna end up on something like Medicaid assistance, should you be one of the 85% of people that are gonna need long-term care at that age. And you can have the house and still get that benefit. But if you've just planned with the will, then when you die, they're gonna take your house.

Lisa
Right
John
If you're not looking prior to death, if you're not looking at the time of death, and then you're not looking beyond death at the nature of your heirs, you're missing out in all of this. But any case, one of the things...

Lisa
So what's the joke? 


John
The point was is that you see one of... The joke... The clients often tell me is they say, "Well, John, yeah, I'm not worried about any of that, 'cause I'm gonna bounce my last check... "


Lisa
"When I take my last breath."


John
That's right. I'm gonna... The last check I write when I die is gonna bounce. I'm gonna spend my exact last dollar.

Lisa
Yeah, no I certainly get that all the time, and I certainly like the idea of it.


John
Yeah. Actually that kind of brings up a unique idea which is, "Do you really want to leave an inheritance?" And I'm not actually talking about that from the standpoint of, "Do you want to benefit your heirs or not benefit your heirs?" I'm just asking the question of, "Do you want to benefit your heirs at your death or not?" Because maybe you might wanna benefit them while you're still alive.


Lisa
Yeah. This is one of those areas where... John, we talk all the time about certainly making sure that you've planned for yourself so that you can age and enjoy your retirement and all in a manner that you want. If I had a crystal ball or if I had the ability to tell everyone's future and I could say, "Well, live it up, because you're gonna keel over from a heart attack and you won't have any big medical bills and you won't have a period of incapacity. So blow and go 'cause you're not going to need that money." Versus if I could tell the future and look at someone and say, "You're gonna experience a long period of incapacity so you better save for that." No one can tell you.

John
No, that's right.


Lisa
So we have to make our plans as best we can, but there certainly is a balance between making plans and putting away resources to support us in our plans, versus enjoying some life and enjoying being able to help out a family, help out friends, help out favorite charities, and share those resources that you have that you've put together over that lifetime.

John
Well, and one of the things to think about in this is... Historically, we've talked about... People will say, "I wanna leave behind something for my kids so that they can enjoy it." Right? 


Lisa
Yeah, we do get that quite a bit.


John
"So they can enjoy what I have built, I wanna leave them something." But if you think about it, go back through your lifetime, and think about the times where you had the ability to enjoy life to its fullest. Now, it probably wasn't when you were too young because you were broke.


Lisa
You were broke and not experienced.


John
And not experienced. And you don't even know necessarily what it is that you want. Somewhere in the middle part in there...


Lisa
The prime of life.


John
Yeah, maybe those late 30s, those 40s, those 50s, that timeframe you've finally got your head on straight. You gotta little bit of disposable income, but you're still healthy and active enough to do things that you enjoy and stuff like that. Then you get into retirement age and you may still have... You may still be doing some of those things, but things start to slow down a little bit. I guess the point here is people are living a lot longer than they ever have. If we were talking to, say, somebody who was born around the turn of the century, they were born around 1900 or so, that person had a life expectancy in the 60s or 70s.


Lisa
Yeah, we don't even know if it was that high.


John
But when they were talking about leaving behind an inheritance, they're talking about leaving it to somebody who's probably 40 or 45.


Lisa
Right.
John
Even the next generation after that, with ages, with life expectancies being in the, say, 70s, you're still talking about probably leaving assets behind to somebody who's in their either late 40s or early 50s. But now, when you're talking about people living to 85, 95, 105. If you're 95... And that may sound strange to some of y'all that are listening out there, but start talking to the financial advisors and they'll tell you that they base their calculations on you living to 90, 95. And the thing is if you live to 90 and you die, you're actually leaving your inheritance to somebody who's already past retirement age.


Lisa
Yeah, that could very well be the case.


John
And so did that person... Did you holding on to those assets that you didn't need, that you were wanting them to enjoy, did you in fact wait so long that they can't enjoy it like they would have been able to 10 years ago or 15 years ago? 

Lisa
Right, well and even so John... So I guess the point, we're kinda talking today is plan for yourself. But let's talk about some things to do while you're living so that you can kind of see the fruits of your support and those familial bonds, I guess you'd say.


John
Yeah, yeah.


Lisa
So a phrase that came to mind John, we were talking about this and the phrase is... I think Johnny Cochran would be proud of this phrase.


John
Johnny Cochran being of OJ Simpson...


Lisa
Yeah. "If the glove doesn't fit, you must acquit", kind of guy. So our phrase for today is, "Do your giving while you're living so you'll be knowing where it's going."


John
I like that.


Lisa
Yeah. Do your giving while you're living, so you'll be knowing where it's going.


John
Yeah, I like that. So that's gonna be what we're talking about today. There's certainly some things to think about this. And this is not necessarily a conversation for everybody. If your resources are very limited, you're going to need those for yourself. And we're going to talk some about that. But for a lot of people, this is actually gonna be some interesting stuff. But to me, this seems like a good time to take a break. What do you say? 

Lisa
Okay, sure.

John
All right, so we're going to take a break and we'll be back here in just a second. Stick around.


John
Welcome back to Aging Inside, everybody. This is your host, John Ross, here live in the studio with Lisa Shoalmire. And today we're talking about maybe... Maybe you should leave an inheritance, but maybe leave it while you're still alive.

Lisa
Yeah, a lot of times when we think about this... Because, John, people are living longer. A lot of times you get to see your grandchildren into adulthood. A lot of folks are even getting to meet their great-grandchildren, and we kinda talked a little bit about that last week, as far as planning to live to a 100. But a lot of people, as they've gotten older, they've simplified their life. Their home is paid for, and they don't have all those material wants and needs that maybe younger folks are more inclined after. And so, they have some funds sitting in the bank or some assets around that they're not really using. They're not planning to use. They have wisely evaluated their situation and seen that they should have enough sufficient resources.


John
Sure
Lisa
We can't plan for disasters of disasters all the time. But then the question is, "Hey, what is that extra money in the bank really doing?" And...


John
Maybe there's some other stuff? 


Lisa
Yeah, maybe there's some other things that you wanna accomplish.


John
Now, before we get to our bottom of the hour break, I do want to point out here that... Let's be very clear on one thing. The first beneficiary of your estate is you. It's not anybody else. The people who need to benefit the most from what you have accumulated during your lifetime is yourself. That's why you did it. And so, when we start talking about this, keep in mind that you're only want to be thinking about this sort of thing, as Lisa said, once you've figured this out. And it's not as simple as saying, "Well, you know, I'm able to live off my social security, and my pension, or by drawing a little bit out of my IRA. And at the rate I'm drawing it, that's going to last me forever. Still, I have enough money left over to go on a vacation once a year and do some of that. So yeah, I should be good." There's actually more to it than that, because you need to be thinking about things like long-term care costs toward the end of life. We've talked on the show many times what those kind of costs can look like, but that there are ways that you can protect and preserve some of those assets. So you don't want to just say, "Okay, do I have enough financial resources to keep living like I'm living now?"


Lisa
Right. You do have to plan for a change in your living circumstances.


John
Right. And so you wanna be very careful before you start giving things away that you can't get back.

Lisa
Yes, and we talk about that a lot. But on the other hand, what we're kinda talking about today is sometimes people get so paralyzed with the fear of insufficient resources that they... And 'hoard' is not the right word I guess, but they really just don't consider any giving during their lifetime, even though... On the one hand, they would like to. But they just mentally, they just can't bring themselves to do it because of fear.


John
That's right. And the other side of it is is going back to people have a tendency to think of their ability to leave an inheritance at death as some sort of benefit to the people they leave behind. That is often not the case.


Lisa
Yeah, there's been a lot of studies about what the next generation does with their inheritance. And folks, it ain't pretty. [laughter]


John
It ain't pretty. In fact, in several studies that I've looked at, across the board, regardless of how much a person leaves behind, financially speaking, a third of everybody who receives an inheritance, will be financially worse off...

Lisa
After the receipt.


John
After the receipt of the inheritance. And you're thinking, "How can somebody be financially worse off if they've just received an inheritance?" Well, you know this person. They get a dollar and somehow manage to spend a buck and a quarter.

Lisa
Right.
John
Yeah, they're out there. Now we've got a caller. We're gonna have to be pretty quick with the caller because we're coming up on our news break. Caller, are you there? 


Caller-1
Yes sir. Many years ago there was a TV show, I saw the reruns when I was a kid. It was called The Millionaire. I think they filmed it back in the '50s. And it was a guy who was anonymous but he would give out a million dollars to someone and then keep track of how it affected their life. It was based on an actual person, and you might be able to find a rerun on the cable or whatever. But in some cases, it did not have a good effect.

John
Yeah, and that's actually... That's kinda where we're going with this is because, yeah, when you start looking at people who receive... When you start looking at people that receive an inheritance like that, many of them are not financially better off. Some of them, about another third of them, after receiving the inheritance...

Lisa
They're just the same.


John
They're just exactly the same. Essentially, they have spent everything that was brought in. And then the other third, the remaining third, is financially better off. But don't start with the presumption that leaving behind an inheritance at death is going to be a benefit to your heirs which actually... Maybe that kinda goes to the point of leaving that inheritance while you're still alive.


Lisa
So you're knowing where it's going.


John
So you're knowing where it's going. That's exactly right. Gifting with a warm hand.


Lisa
Yes.
John
As opposed to a cold one. We're going to take our break. We'll be right back.


Lisa
Well, welcome back everyone to Aging Insights. I'm Lisa Shoalmire here in the studio with John Ross. John, right before we went to the break... I think my phrase is the best one of the day so far, do your giving while you're living, so you're knowing where it's going. But I also like the idea that you're giving with a warm hand.


John
Yeah, that's right.


Lisa
That sounds nice. Giving with a warm hand.


John
Yeah, giving with a warm hand. And there's certainly something to be said about this. I gave a speech a while back, and I was talking about some of the worst cases that we've seen, some of the worst family battles that I've seen people get into. And somebody in the audience had asked the question if, "Is there any way to absolutely keep somebody from fighting over some particular item," for example? And I said, "Yeah, there is and that's you give it to them before you die."


Lisa
Right, that way there's no questions.


John
That's right.

Lisa
And it's so funny because no matter how old we get, a lot of times people will act better for mom or dad, even though mom and dad might be quite aged and maybe they're at a different stage in life. People still... Not all the time, 'cause I know we've got Jerry Springer families out there. But a lot of times when that matriarch or patriarch of the family passes an asset, gives something away, nobody... They might bitch about it behind closed doors, but they don't cross mom or dad about it. So...


John
Well, yeah. And so, the idea is maybe give it away while you're alive. But, now, this should be... What I'm not talking about or what we are not talking about in all of this is just...


Lisa
Some willy-nilly.


John
Some willy-nilly stuff. We're talking about more of some structured giving in all of this. And of course, anytime we start talking about structured giving, then people immediately are like, "Well, can't I just give everybody... I can give them all $14,000 each, right"? 


Lisa
That's what my CPA said.


John
That's what my CPA said. Look, for the most part if you're out there and your grand total estate is less than five million bucks, then stop worrying about gift tax. It does not apply to you. It only applies to the richest 0.3% of the population. Now, if you are in a taxable estate range, five million for a single person, 10 million for a married couple. Yeah, in that case, you need to be doing some structured gift planning for tax purposes. But that's not what we're talking about. So forget about the tax business for a bit. Instead, let's focus on maybe taking into account say the nature of your heirs and putting together a plan where you can see them... See what they're gonna do with the money. Maybe start out, for example, with a small quarterly gift.


Lisa
Right
John
Time it with your tax return or something. April 15th, you give everybody a little bit of money. Or maybe in May, you give everybody a little money and see what they do with it over the next two or three months.

Lisa
Yep. And of course, obviously, once a gift is given, it's legally the property now of the recipient, so of course there's no requirement that the recipient report back to the donor. But in the family situations we're talking about, you'll probably have some idea of what's going on and...


John
But yeah, there's something to be said for being around to see the results of the inheritance. Because the other thing... One of the things is if that money is being used, say, for a family vacation that they were able to go on that they would not have otherwise been able to. If that money was able to...


Lisa
Purchase a new vehicle.


John
A new vehicle or maybe a down payment on a house or... Who knows what? But the fact is you get to witness their enjoyment. And I can promise you, you don't hear a lot of lawyers make promises. But I can promise you that if are leaving an inheritance at death, you will not see them enjoy this.


Lisa
Not that we know of, yes.


John
Not in any corporeal sense.


Lisa
Yes
John
So yeah, on the one hand, you get to actually see them enjoy it. You get to see what they're going to do with it, how they're gonna use it. You get to be a part of that and share in that. But there's a flip side to this coin too, you also get to see if they're a complete train wreck with what you have given.


Lisa
Which if you are conserving resources for yourself at a later time and you are fortunate enough to have some estate to pass on at death, these lessons that you observe by making gifts during lifetime, those are lessons you could actually apply to your estate planning as you plan for your various heirs, and their personalities, and how they do.

John
Yeah. I've got lots and lots of stories of sitting there talking to clients and having them relay a story about making a gift or doing something that they were thinking was beneficial to a child. And to their shock and horror, the reaction that they received from the recipient really told them a lot. And maybe it wasn't even the recipient themselves. I can't think of a specific example. But certainly the concept of, for example, they've made a gift to their three kids. And then two months later, at Thanksgiving, their son's wife makes some comment about how ridiculously small that gift was and that her mother-in-law has got so much money. There's just...

Lisa
It's almost insulting.


John
"It was almost insulting that they only wrote us a check for $10,000." But, I've heard these stories.

Lisa
Sure, sure.


John
And all of a sudden... So mom's in my office going, "Look, I like my son well enough, [chuckle] but who he's chosen to bring into this marriage is a completely different story."


Lisa
And so, what can I do to structure my estate planning to make sure that my son...


John
Right. Or should my son predecease me, I don't want that going to her, or that son-in-law, or that daughter-in-law, or whoever it is. You can learn the good and the bad by doing some of this lifetime giving.


Lisa
Well, and this almost reminds me of a story from Sunday School where the wealthy man gives his servants some funds and he watches what they do with them. And many of our listeners will be familiar with that and what did the servants do with the talents that they were given. We had a couple that invested and were praised by their boss. We had one that just buried it in the backyard, and he was criticized. So there's a precedent here for handing out some resources and kinda observing what's going on.


John
Sure. And you really can learn quite a bit from this. But just aside from that, there is actually the enjoyment of doing that and being a part of it.


Lisa
Well, in these days, you give the example of the family vacation. But a lot of times, young families because of expenses, daycare, and vehicles, and they're working, and they're working their way up in their careers. A lot of times, there's not a lot of extraneous funds to go blow on a big beach vacation or something. And just imagine if you can make that happen and you get to see that your grandchildren... The pictures from them seeing the ocean for the first time.


John
Absolutely
Lisa
And you got to be a part of that.


John
Yeah. Whether that... And that doesn't necessarily have to even come in the form of cash gifts, but there's the in-kind gifts, just paying for that family vacation for everybody. That was a big thing with my grandfather is that about every-other Christmas, every third Christmas, something like that. Instead of buying everybody presents, he'd take everybody on a trip.


Lisa
Yeah, and I bet you could go back through your mind and you could name and discuss the details of each one of those different trips.


John
Well, and not only that, but the years that maybe I just got a present. 30 years later, I can't tell you what that present was. I don't even really have a memory of... I'm sure I was happy when I received it, but I don't have a recollection of that joy. And yet, like you said, those experiences that I was able to take part in because of those lifetime transfers, those I do remember 30 years later.


Lisa
Sure.
John
And so, it's pretty neat. We're gonna take one more break, we're gonna come back... Now, we've been talking about family and all of this, but that's not the only folks you can give to out there.


Lisa
Oh no. There's a lot of folks that would be glad to be recipients of anything you're willing to give. So we'll...

John
Yeah, let's talk about that when we come back. We'll be right back.


John
Welcome back, everybody, to our last segment here on Aging Insight. We've been talking about making lifetime gifts particularly for the enjoyment of a family. The idea being that do you really want to leave an inheritance? And I think most people would say yes, they wanna leave an inheritance. I guess the qualifiers, do you want to leave that inheritance after your death or would you rather leave that inheritance where you can see the enjoyment and see the benefit that that inheritance has actually provided? And I think this is a neat concept. I like this idea. Not just because my parents listen to the show occasionally...


Lisa
Hello. Hello? 

John
But yeah. No. But I do, I like the idea of being able to... If you've looked at your own situation, you've got the resources to get you through your years and you have resources you know you're gonna be providing an inheritance. What enjoyment do you get by having your three kids listed as the "pay on death" beneficiaries on your Edward Jones account compared to taking some of that money out of that Edward Jones account, giving it to those kids and seeing what they use it for, seeing them enjoy those resources, seeing them putting them to good use in front of your own eyes. I like that. To me, that makes perfect sense. Although, I don't think people necessarily think about it in that term.


Lisa
Yeah, well, what if your son goes out and buys a motorcycle? 


John
Yeah. [chuckle] In which case you know next year, maybe not so much.


Lisa
Yeah I don't know. But it's not just family a lot of times because when we talk with people, they have a lot of inclinations when it comes to dispersement of their property, of their stuff when they don't need it anymore. The old joke of the hearse doesn't carry a U-haul. So your property and your resources are gonna be left behind, and so family is always generally first concern. But often, there are associations, or organizations, or charities, or churches that played a big part in your life that you also want to benefit with your property. And so, there are a lot of folks that plan for that in their wills and their estate planning documents, but you know there's a lot of things you can do where you can put that money to good use today with those...


John
For example, I'm the president of the Alzheimer's Alliance here in town, and a woman who was a big community person in this town did a lot of things for a lot of people and she passed away recently. And her will has just been admitted to Probate and I got a copy of it because this person has left a bequest to the Alzheimer's Alliance, which is wonderful. I mean it's beautiful that she thought of us and a number of other charities at the time of her death. That's fantastic. I love that. And yet, I wonder, she's not here to see the fruits of that. I would love to be able to tell her how that money is gonna be used.


Lisa
Or show her.


John
Or show her how that money is... Show her the face of the person who's at the Day Respite Center that may not have otherwise been able to afford to come over there but they're there now and they're having a blast because they're volunteers are dressing up like Elvis and singing songs and dancing and that person with the disease, for the first time in a month, has a smile on their face all because...


Lisa
Of the generosity.


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