Guest Profile

Alex Koury CFP®, CERTIFIED FINANCIAL PLANNER® professional and Wealth Manager in Scottsdale, has worked in the financial services industry for fifteen years as a financial advisor and Financial Planner. He holds Series 7, 9, 10 & 66 securities registrations– and is a Registered Representative with Commonwealth Financial Network®.

Guest Profile

Jason Hosler holds Series 7 and 66 FINRA securities registrations. He brings a technological edge to our firm and helps many of our clients stay current in the fast-moving age of the internet.

Transcript

Estate Planning Documents – Estate and Legacy Planning – Part 1 of 6 | Ep #61

Speakers: Jon Gay, Bruce Hosler, Jason Hosler, & Alex Koury.

[Music Playing]

Jon Gay (00:10):

Welcome to Protecting & Preserving Wealth. I’m Jon Jag Gay, joined by the whole team today. Bruce Hosler, Jason Hosler, and Alex Koury of Hosler Wealth Management. Hello guys.

Bruce Hosler (00:18):

Good morning, Jon. Welcome everyone.

Alex Koury (00:19):

Morning Jon.

Jon Gay (00:21):

So, today’s the first in our six-part series on estate and legacy planning. This is such an important topic, so important that we’re also doing video as well.

Alex, talk to me about the Great Wealth Transfer and why this topic really is going to be important enough to spend the next six episodes on it.

Alex Koury (00:37):

Absolutely, Jon. So, this is going to be something that you’re going to start hearing a lot more about, not just now, but as the next few decades go on, about the Great Wealth Transfer. Because over $84 trillion will be transferred to the next generation through the year 2045 and beyond that.

About $12 trillion of that money is going to go to charities but think about $72 trillion that is going to be passing to heirs. This will be the most significant wealth transfer of our time.

So, think about it. You are the steward of your family wealth and those assets you have worked so hard to accumulate will be passed along to your children, grandchildren, and even great-grandchildren regardless if they’re ready and capable to handle the responsibility of managing that significant wealth.

The biggest questions you should ask yourself is, “Are my children prepared to handle this wealth? Will the assets be managed to protect and preserve wealth for future generations? Will the assets be squandered or spent?” Or might the assets be used to fund your children’s retirements?

Maybe there are other concerns you have regarding your children. Possibly bad marriages, substance abuse issues, mental health issues, et cetera.

Bruce Hosler (01:50):

Alex, just one thing there I want to jump in. The one thing you didn’t cover it is, will a lot of this wealth go to taxes needlessly when it doesn’t have to.

Jon Gay (01:59):

Shocking that Bruce is going to jump in with that comment!

Bruce Hosler (02:01):

Well imagine that.

Jon Gay (02:02):

On brand. I mean.

Alex Koury (02:04):

And those are the next concerns that also come up in a broader nature. There are going to be tax concerns. How much of your estate today has exposed a tax risk in the future? We know that there’s a huge debt problem in our country that’s eventually going to have to be paid back some way.

There’s also inflation risk. Some generations will inevitably inherit more than others. So, think about how that can have an impact on living a lifestyle, the ability to buy a home in the future, fund college tuition, and maybe even future businesses.

We believe that lines of communication must be open like never before. And in the past, money was not talked about openly, but that needs to change. And this is why it’s important to have a plan.

It’s important to communicate to your children and maybe even your grandchildren about your wealth, your legacy goals. It’s equally important to talk to your kids about their own personal goals and plans, current financial status, and discuss with them their ability to handle such sudden wealth at a point in the future.

Bruce Hosler (03:02):

Very, very important points, Alex. Thank you for heading this up. This was Alex’s idea to begin this whole series, and I love the whole concept of starting off with estate planning documents today.

So, gentlemen, let’s just talk about, and start with a trust, a revocable living trust. Now, this document is not necessarily required for everyone, but I want to talk about those people that could probably benefit from this.

Now, if you own a home and you live in Arizona, your revocable living trust is going to let you take advantage of the community property rules and get the step up in basis for both spouses, even though only the first spouse died. So, the surviving spouse has a big tax advantage by having a revocable living trust.

So, if you own a home and you’re in Arizona, you’re (in a) community property state, foundationally, this may be a big benefit to you.

Jon Gay (04:12):

Bruce, could you elaborate on that a little bit? So, husband and wife are married, they own a home together in Arizona. The husband passes, because statistically the guy dies first, but the husband passes. By having the home in that revocable living trust, the advantage for the wife is what specifically, the surviving spouse?

Bruce Hosler (04:29):

So, first of all, just think about it. Number one is she goes from married filing joint to now she’s filing single. So, her tax bracket just got cut in half and she can only have about half as much income.

Number two, is her exclusion on the sale, on the gain of a primary residence went from $500,000 to $250,000. So, if she has a $500,000 or $750,000 cap to gain on the house, her husband passes away, she might be able to exclude $250,000 of that, but she could be facing as much as $500,000 or more in capital gains tax that could be totally eliminated.

It could be zero. If they would’ve just established a revocable living trust in Arizona, then she could have got a step up not only on his half when he dies, but she gets a step up on her half even though she didn’t pass away.

So, that is foundationally, if you own a house that is appreciated, you almost certainly need a living trust.

Now, the other reason that I really like a living trust is because all of us are going to have our health change at some point. And when our health changes, who’s going to come in and get access to the assets that you have to pay your bills?

Now, certainly you can have some of the other documents we’re going to talk about in a little while, like a durable financial power of attorney. But if you have a revocable living trust, other people, your successor trustees, maybe that’s your spouse, maybe that’s your children, maybe that’s a fiduciary trustee (an Arizona fiduciary possibly), they can come in and get access to your funds and your trust and pay for your expenses.

You may be in the hospital incapacitated. Who can pay the rent on the house or pay the mortgage or pay the other bills? That successor trustee can if you have a trust.

Now, if you don’t have a trust and you just have regular bank account, we have seen it where the banks may deny a financial power of attorney, and not honor it. That is not the case if it’s a successor trustee. The successor trustee owns the account and has rights to come in and get that money.

So, this is like a checkmate against anybody not being able to access their money. This makes it so you can absolutely have someone access your money inside of your trust account.

Jason, what are your thoughts on those issues that I’m just talking about right there?

Jason Hosler (07:01):

Well, those are probably our top two reasons why we recommend to a lot of clients to get a trust. I would say the third after that is being able to plan for and direct how you want your money that you’re leaving to your heirs outside of retirement accounts and qualified money to be handled.

You can take care of things like Alex was talking about. If you have concerns about one of your children having a bad marriage and you want to protect it from those no- good son or daughter-in-laws (laughter). You’ve got issues where perhaps somebody is dealing with addiction and you want to make sure that they’re taken care of, but you don’t want to enable them to be able to go and just blow all the money. You want to set up an income stream.

Perhaps you’re trying to leave a legacy for multiple generations. All of those are issues which are much more difficult to handle with just a will, and a trust can give you the ability to direct, from beyond the grave, how you want to take care of those you love with the resources you’re leaving to them.

Alex Koury (08:11):

Most people want to keep their financial assets in a private manner to be able to successfully and easily transfer money from one generation to the next. The opposite of that is called probate.

If you have assets that are not in trust, such as your home, imagine having to go through the court process, or your heirs having to go through the court process, to claim that as their rightful asset. And you can imagine the cost of attorneys, court fees, et cetera. The other things that you’re exposed to are the public.

Jon Gay (08:42):

Probate is all public record, right Alex?

Alex Koury (08:44):

It’s all public record, exactly.

Bruce Hosler (08:45):

And the delays too.

Alex Koury (08:47):

And the delays. So, you could have people that are coming out of the woodwork saying, “Oh, Mr. and Mrs. Smith, they owed me a hundred thousand dollars 10 years ago.” And that may be an unsubstantiated claim, but they still have to go through the court process to prove that wasn’t their asset.

So, there’s time delay, there’s cost. It’s a lot more cost effective to get a trust than what most people think. Avoiding a probate is one of the top priorities we stress for our clients as well.

Bruce Hosler (09:14):

And the convenience and speed of that, that your successor trustees can settle the estate and make distributions and things like that. I want to move over to the will for a second.

And one of the big deals about a will that I want to make sure we address is if you are a parent and you have minor children, the will decides guardianship if you were to die prematurely. And a lot of people don’t realize that it’s not the trust that does that. It’s a will.

So, if you have minor children, you need to have a will. And in Arizona you can make a holographic will, which is you can, you can write it on a yellow pad and sign it and maybe have it witnessed, but you should have a will if you have minor children.

Well, what if you’re the grandparent? You need to make sure your children put together their will and they have a will, so the grandparents on both sides are not fighting over those grandchildren on who’s going to take care of them, who’s going to provide for their financial affairs, everything like that.

Now, our next document that we want to talk about, and by the way, this document sheet is state legacy and beneficiary planning. We’re going to make this available. We’re going to post it so you can see it on the podcast, and you can download it and look at it.

Jon Gay (10:30):

It’ll be right there in our show notes. Yep. Exactly, Bruce.

Bruce Hosler (10:33):

Thank you, Jon. The next thing I want to talk about is a living will. Now, there’s an advanced directive and there’s a living will. And let’s talk about the difference between those. Advanced directive is what you fill out when you’re in the hospital and you’re telling them, “Hey, don’t keep me alive unnecessarily.” But the living will is prepared by your attorney and it works in cooperation with your trust and your will. So, it’s a living will.

And you remember Terri Schiavo, the parents wanted to keep her alive on a feeding tube in Florida. So, this living will gives your wishes, and I don’t care which they are. If you want to stay alive at all costs, then so be it. Give those directions. If you are in a vegetative state and there’s no chance of you getting better and you want to be let go, you need to have these documents people. They are very important.

Jon Gay (11:24):

We all remember that case when it hit the news and how awful that was.

Bruce Hosler (11:28):

So, the other document that kind of comes to mind with children is … and we just ran into this with some other clients, durable healthcare power of attorney.

Now, when your minor children become adults, and that’s at 18 in Arizona, they now are no longer your children, as a parent. They are an adult. And if they go in the hospital and they need some medical attention, guess what folks? You don’t get to go advocate for them as a parent any longer. They need to have their own healthcare power of attorney.

So, your college students that are going away to college and they have a medical situation, and you come flying in, you know what the doctors and nurses tell you? “Who are you? Well, we can’t tell you anything because of the HIPAA rules and everything like that.”

So, not only as an elderly adult do you need healthcare power of attorney, your children do as well.

Jason Hosler (12:30):

Well, you also probably want to have that financial power of attorney, not just for yourself, but for any of your family who is the age of majority. Having these basic documents just has you prepared for when life happens.

And we have enough clients, and we’ve worked with them for enough time that we’ve seen these situations when life happens. Somebody has a medical event, somebody gets early onset Alzheimer’s, somebody is incapacitated, somebody passes away. In one lifetime in a family, these are rare events.

But working with our little group of families like we have; we’ve seen time and again where it’s happened and we’ve seen it happen both ways, where people have been prepared and it goes smoothly because they’ve done the work ahead of time. They’ve put in the time to make sure they’re prepared to make the decisions about what they want to have happen and what they don’t want to have happen.

And we’ve also seen the other side, Jon, where people aren’t prepared, and it’s a mad scramble. Or you have to go through the court system, or you have to just wait to find out what is going on with somebody that you love because the doctors won’t talk to you.

Jon Gay (13:45):

Really glad you brought that up, Jason, because I think when you take the 10,000-foot view of the six-part series we’re doing of estate and legacy planning, the connotation is it’s going to be for folks who are older, folks who are retiring, folks who are advanced in years potentially dealing with mental acuity issues.

But this is important to the point that the three of you just made. For anybody age 18 and up, that age of majority. You want to have … you never know who’s going to get hit by the proverbial bus. If some health emergency happens, if some accident, car accident or otherwise happens, this is something that needs to be in place for anybody over the age of 18.

Jason Hosler (14:21):

You’re exactly right, Jon. Everybody needs to have these basics in place. It’s just good preparation. And as the Boy Scouts that we are, we want our clients to be prepared.

Bruce Hosler (14:31):

Absolutely. Alex, I want you to talk about a little bit- open the concept and then let’s discuss the one document that is kind of unique to Arizona. Other states don’t necessarily have that, but in Arizona here we have a mental healthcare power of attorney. Why do clients need this mental healthcare power of attorney, Alex?

Alex Koury (14:53):

Well, number one, we know that today more and more people are suffering from Alzheimer’s, from dementia or other types of mental illnesses or — a lot of different things have happened since COVID.

If you think about it, as you look at your spouse, you look at the people around you, you know who’s well and who’s not. That doesn’t necessarily mean a doctor is going to be on your side when it comes to determining whether or not someone has the mental capacity to make decisions for themself that are in their best interest.

I had a client about 10 years ago or so that was dealing with this, with their mother, who clearly suffered from dementia. They didn’t have any mental health care power of attorney. And every time that the doctors try to qualify their mother as being mentally not well, she could answer a question just clearly enough to have that doctor say, “Well, you know what? She can speak for herself; she can still make her own decisions. We can’t say that, for sure, she has dementia.”

Jon Gay (15:59):

It’s a really high bar.

Alex Koury (16:01):

Very high bar. And in that same process, I mean, it creates a lot of stress and heartache for the family as well because they know what their mother needs. But because of the conflicts of interest and the lack of documentation there, they couldn’t get her qualified. They had to struggle with this until she passed away. And we know as well Alzheimer’s dementia that can last years and even decades. People can be in the state for a very, very long time.

So, you want to be able to advocate for your loved ones and your spouse and those around you in those events that again, they are not mentally well enough. It’s important in Arizona especially, because this is a special document that is needed here in the state.

So, taking another step, if you’ve already got your trust, your financial healthcare power of attorney, you may need to go back to your current estate planning firm and tell them you need a healthcare. Maybe you haven’t done it in quite a while, you haven’t updated your documents in quite a while. You may need to ask them that, “Hey, I need to get this on record.”

Bruce Hosler (16:58):

And what I want folks to know is the alternative, because if you don’t have that, going to court and getting a conservatorship for someone that has it, even if the doctors say they have it. Going to court, the two attorneys, the two doctors and everything you have to go to, to get a conservatorship for somebody like that is very expensive, very time consuming, it is a nightmare. If you would just have a mental healthcare power of attorney, it fixes all those problems.

Jon Gay (17:32):

About 25 states have them and Arizona is certainly one of them.

Bruce Hosler (17:35):

So, the other topic that I want to make sure we touch on today, guys, is titling and holding title to your assets.

So, for example, we never want to take an IRA and retitle that into our trust. That is a taxable event. That’s a mistake. And so, we control that with beneficiary forms and that’s going to be in our next podcast.

But I do want to talk about your house, your real estate and different things like that. I want to talk about how you should take title to these assets in the correct form.

So, if you have a living trust, you should be titling your real estate inside of your living trust. Now, maybe you have some commercial real estate and there’s liability associated with that. Perhaps you have an LLC that owns the commercial real estate and then you own that LLC inside of your living trust. Living trust does not give you asset protection, people. Some people believe that it does, it does not.

Now, if you have other things, other assets, let’s say like a joint account and you’re a married couple and one of the spouses pass away, you don’t get the second spouse’s step up either. So, you have to have brokerage accounts and things like that that are also titled in your living trust. So, you set up a trust account for those.

Jason Hosler (18:59):

I had a situation recently where it was a mother and daughter who owned property together. So, you also have situations where you might own property with people who aren’t your spouse, and you want to make sure those titling situations are correct as well.

Arizona also has the Arizona beneficiary deed. And maybe if all of your assets are in IRAs and Roths and you don’t have a complicated estate situation, there could be a situation where an Arizona beneficiary deed makes it really easy to take care of your house. You don’t own any other real estate, you have just one heir, that can be a good way to go. So, another tool that’s good to be aware of.

Bruce Hosler (19:43):

I just want to make sure that people understand in this circumstance that sometimes there’s bad advice out there. The kids will come to mom and dad say, “Oh mom, we want to avoid probate, so let’s move the house into our joint names with you and us kids. And then when you die, it’ll avoid probate, and it’ll leave the house to us kids.”

And that’s terrible advice because if the kids get in a car accident or a lawsuit or a creditor, the creditors can come and take mom’s house from her. So, she uses an Arizona beneficiary deed. She can avoid probate, she can do that inexpensively and leave it to the kids.

So, there’s almost always a better way to title your assets as to hold them. That’s why we want to talk to you about this whole concept of how you hold title, where your assets are held, and who’s the beneficiaries and how you name the beneficiaries.

And of course, on your living trust, you can name beneficiaries. And so, we want to talk to everybody about that.

But I think this is a very good start. Alex, thank you for coming up with this topic. And folks, we want to talk to you in our next podcast about beneficiary designation forms and everything involved with those.

Jon Gay (20:52):

And I agree this is a great start to our series. And this stuff is complicated, especially someone titling the assets at the end that we just talked about here.

I know if any of our listeners have questions, they can listen to the upcoming episodes of the podcast, but they can also reach out to you and the team at Hosler Wealth Management. Two offices, how do they best find you?

Bruce Hosler (21:08):

They can catch us on the web at https://hoslerwm.com or call either office Prescott (928) 778-7666. We’re in Scottsdale (480) 994-7342.

Jon Gay (21:23):

We’ll be back in a couple weeks, part two, talking about beneficiary designations. Thanks everyone.

Bruce Hosler (21:27):

Thanks.

Jason Hosler (21:28):

Thanks Jon.

[Music Playing]

Alex Koury (21:29):

Thanks Jon.

Jon Gay (21:31):

Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

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