Kevin Zywna, Wealthway Financial Advisors: Before we jump into our topic tonight, I’ve got a couple of shout outs that I want to give to a couple of our employees at Wealthway. Today was a great day on Team Wealthway. We’ve got a lot of good news from two of our employees. One of them, a financial advisor and certified financial planner, Khalil Smith, who’s been with us for almost three years now, was accepted to a Master’s of financial planning program at Kansas State University. He will be enrolling in a Master’s of financial planning program sometime later this year. Just want to acknowledgement that he got accepted. He is a graduate of Virginia Tech and the financial planning program at Virginia Tech for his undergrad, both Virginia Tech, Kansas State University, two of the more renowned undergraduate and graduate programs in the United States, along with maybe Texas Tech and Utah State (for those of you who are into that sort of thing). Khalil is very passionate about the financial planning discipline. He’s going to make it his life’s work. He is already a Certified Financial Planner and going on to get his master’s in financial planning. I’m incredibly proud of him for going after that goal and taking the next step and getting accepted to the program. And then secondly, our associate financial advisor, Cody Hawkins, who has been with us about a year and a half, passed his CERTIFIED FINANCIAL PLANNER exam today. We just got word of that. So associate financial advisor Cody Hawkins will be dropping the associate moniker here pretty soon, once all the ink is dry and the formalities are finished, on officially passing the CERTIFIED FINANCIAL PLANNING exam and receiving the marks. There’s an experienced component that goes along with receiving the CFP marks as well. We’ve got to check a couple more boxes, but he’s well on his way. It’s a big day for team Wealthway. Okay, you know, CFP, we talk intently about the financial planning process, financial planning discipline. It’s the most important service that we think everyone needs, but very few people realize they need. But we’re all in on financial planning as our primary value added as a financial services firm.
What Does It Mean To Be A Certified Financial Planner?
WNIS: Kevin, what does that mean? If you’ll just take a second, the CFP what do those letters mean?
Kevin Zywna, Wealthway Financial Advisors: Yes, so Certified Financial Planner designation, CFP for short. The pass rate for the exam is relatively low, only about 60% of people who sit for the exam pass it. And only about 20% of the people in the United States who call themselves a financial advisor hold the Certified Financial Planner designation. So only about 20% of financial advisors are certified financial planners. It’s the gold standard in the industry. It’s a mark of excellence. We now have, we’ll have three on staff at Wealthway, and also on the lookout for one more. In maybe the next couple of months I’ll have another announcement to make there. But very proud of the guys for taking the next evolution in the financial planning discipline. It shows our commitment and their commitment to the profession and to our clients and the type of quality we try to deliver for them. So just want to throw a shout out to both of our employees there at Wealthway.
Why Is Estate Planning Important?
Now tonight, we are going to talk about estate planning tips, tools and techniques, around the estate planning process. And first off, let’s dive into why estate planning matters anyway. Because I can tell you from professional experience that it’s usually the last thing that clients get around to doing, but proper estate planning can financially protect your loved ones, minimize taxes, provide peace of mind, and ultimately allow you to do good in the world through your financial arrangements. If that’s important to you, estate planning is an important component of a comprehensive financial plan.
Advising On Estate Planning Versus Executing Estate Planning
So all of the clients who work with us, we do advise on estate planning matters at a high level, but we do not do estate planning. We do not draft estate planning documents. That is done by an attorney who is legally authorized to develop those documents. But estate planning is an important part of a comprehensive financial plan. And every agenda we have with our clients usually has a gentle reminder that they need to get a professionally done finance estate plan, or we are fine tuning the estate plan that they have already had drafted. So we always have it on our radar. It’s something we discuss with our clients all the time. And because it is an important component, and you know, like I said, it’s usually one of the last things that our clients get around to doing. And we have referral relationships with attorneys here in the local marketplace. So for clients who have their own attorney, then, great, go ahead, use him or her. But if you don’t, then we have referral relationships that we can direct our clients to attorneys who we know do good work for reasonable prices.
Who Is Estate Planning For?
But essentially estate planning is not something you do for yourself. It’s something that you do for your loved ones and your heirs, and because there isn’t a lot of internal motivation to get estate planning done. Because you know what’s in it for me? What is going to be some time and expense and some heavy thinking, easy to delay for another day. But you know, I can attest to the fact that we often sit with the heirs of clients who pass away, or our clients themselves are heirs to their elderly parents who have passed on and for those people have done their estate planning, it is a huge relief to the remaining family members when there is a good, comprehensive estate plan in place. And we were talking before the show, you have an example in your own family, right?
Benefits Of Estate Planning Example
WNIS: I was explaining just a number of years ago, because I remember hearing you talk about it over the years, and finally seeing that actually manifest in my life. My grandfather passed a number of years ago. I think it was 2018-2019, right around that time, and we were all there for it. After he passed, the family was trying to figure out things. And luckily, one of the greatest gifts, really, my grandfather could have given us was he went to a planner and did an estate plan and had a binder. And when we opened up this binder, it said much nicer, more pleasant words, but it said, basically, if you’re reading this, we’re sorry about your loss, but your loved one cared enough to put a road map so that nothing is left unturned. And you know what? Everything was. Everything and what the family needs to do. And here’s the step by step process. So, you know just reading it out to the family, everybody kind of understood what was going on. Because people didn’t know. They’re all talking about probate and all this other stuff. It was like, no, no, it’s all right here. So it was really a burden was lifted off of everybody, so we nobody had to worry about that anymore. Everything else could now get focused.
Kevin Zywna, Wealthway Financial Advisors: You didn’t have to guess. You didn’t have to wonder. You didn’t have to hunt. You didn’t have to find it. It was all packaged together in a nice, logical order, with a binder and easy to follow instructions. And a whole burden got released off of your shoulders and your family’s shoulders at an already trying time in your lives. And so great first-hand account, example of the value of a good estate plan. So what is estate planning? Well, it refers to the process of basically arranging the ownership, management and distribution of your assets, somewhat during your lifetime, but mainly after your death, through properly drafted legal documents to ensure that your wishes are carried out. So at a high level, that’s essentially what estate planning is. And while Damian presents a very positive outlook on estate planning.
Do I Have Enough Assets For Estate Planning?
Typically, there are objections from people who resist going through the estate planning process. And you know, one of the more common ones is, “I don’t need an estate plan because I don’t have many assets.” Now, we don’t hear that from our clients too much. That doesn’t apply to them, but that is a common one in society – I don’t need an estate plan because I don’t have many assets. And that’s not true. Estate planning isn’t just about wealth. It’s about ensuring your wishes are followed, both financial wishes and how your assets transfer. But even if you have a small estate or no estate, from a financial perspective, part of an estate planning process, which I’ll get into later, is your health care wishes and what you would like done if you find yourself incapacitated, or, in the traditional sense, in a coma. How would you like decisions to be made for you that is a component of an estate plan during your lifetime.
Am I Too Young For Estate Planning?
Here’s another one. I’m too young for an estate plan, right? Because you’ve got a long life ahead of you, and you don’t have to worry about today. Well, obviously we are all susceptible to getting hit by the proverbial bus. I like to say, you know, despite our best plans and intentions, real world events can get in the way, and every day, practically when I read the paper online. So it’s not really the paper, I guess it’s the electronic version. But there’s some form of accident, right? An auto accident that happening almost anywhere in Hampton Roads where someone is losing their life. And so that’s a real possibility for all of us. So it’s never really too early to start planning your estate once you’re legally an adult. So in Virginia, 21 I believe. And then, of course, if you have any life changes, even while you’re relatively old and you get married, you have children, you get divorced, all of those and more life events trigger the need for estate planning. And then the last one, and probably the one we hear most often, is. Well, you know, the kids will work it out when I’m gone. I don’t really want to mess with that. There’s plenty of money for them. They’ll figure it out. Just because you have a lot of money and however you define that, doesn’t mean it’s all going to be okay in the transfer of that money when you die. In fact, the more money typically leads to more problems if there aren’t good instructions on how that money gets passed.
Estate Planning Helps Preserve Family Relationships
WNIS: I was just thinking when you said that that those people must be way overconfident with the friendliness of their family members, their siblings. You know the sibling love between them just to get along, because sometimes you see the nastiest side of people when money’s involved and death is involved, and inheritance, and people feeling entitled.
Kevin Zywna, Wealthway Financial Advisors: Without a doubt, if there’s already strained relationships within the family, passing money through inheritance without a good plan, is only going to fray those relationships even further. It’s going to magnify whatever problems already exist, and even in families where, say, all the siblings do have good relationships. If the money is big enough, and somebody in the family, one of those siblings feels slighted that they aren’t getting their fair share, that can create a rift where one did not exist prior. So the kids will work it out when I’m gone. That is not a good excuse.
Common Objection To Estate Planning: Fear of Death
I think generally, people who kind of use that as an excuse, they have a general fear of death. They have been avoiding the topic of death, and some people actually think that planning for death will somehow cause it. I’ve heard that one before, so I understand where people come from. Obviously, it’s not a pleasant topic. No one likes to talk about it. I don’t like to talk about my own demise, but it’s a reality. No one gets out of here alive, so let’s go through our life responsibly, or let’s go through it the death process responsibly. We go through our life financially responsibly as well.
What Are The Components Of Estate Planning?
Tonight, we’re talking about estate planning. Some of the key components of a good estate plan, a thorough estate plan, are, well, the obvious wills and trusts. We always throw that out there at the intro of every show. That’s always on the table to discuss – wills and trusts. That’s a big part of the estate plan. Most people are aware of those components. There’s also, though power of attorney and healthcare directives, so financial power of attorney, medical power of attorney and advanced medical directives. There’s also beneficiary designations, which beneficiary designations, sort of sit alongside estate planning documents. They’re usually put onto bank accounts, brokerage accounts, your company retirement plan, whether that’s a 401K, 403B, TSP, what have you, those have beneficiary designations. And then there’s tax considerations to keep in mind when it comes to the financial ramifications of the estate planning process. Some states have an estate tax and or an inheritance tax, Virginia has neither. So it’s not too big of a deal here. So I’m not going to spend too much time on that. And then the guardianship of minor children is a component of an estate plan as well. So if you’re a family that has minor children, then what would happen to them if the parents met an early demise? Who would the children live with? Who would raise them and how would their care be paid for? Making those arrangements in advance is a part of a comprehensive estate plan and is critical to ensuring the successful transition and successful raising of them in that very sad and tumultuous event.
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Tonight, we’re talking about estate planning. Went through the definition of estate planning, the importance of estate planning, some of the common objective objections that people raise to getting an estate plan done.
What Are Wills And Trusts?
Now let’s talk about some of the key components that wills and trusts are the biggies. That’s pretty much everybody knows those conceptual documents. A will is a legal document specifying how your assets should be distributed after your death. It’s kind of like an instruction or procedure manual, and in every will is an executor. The executor is kind of like the rule follower through the probate process. And the probate process is the legal process through which assets are transferred from the decedent to the heirs, loved ones, friends, family, charities that the decedent wishes to have happen. Now, most people think that all they need with an estate plan is just a will, and that a will takes care of everything, and no, that is not true at all. In fact, in many well done estate plans. A will is probably the smallest component of the estate plan.
What Are Beneficiary Designations?
I mentioned beneficiary designations earlier in the show. Beneficiary designations are targeted instructions that you place on typically individual accounts. So your bank account, your brokerage account, your IRA, your Roth IRA, your 401K, your 403B, your TSP, your life insurance proceeds, your life insurance policy. These are targeted, specific instructions that go on these types of accounts that supersede anything in the will. So if you have most of your liquid assets in these types of accounts, which most people do, and you put beneficiary designations on them, which is the fastest, easiest, cheapest way to transfer assets at death, then there isn’t much left over for the will. Maybe it’s the house and personal property, some cars, some jewelry, personal effects, furniture, heirlooms, that type of thing. But most of the value of the estate can be transferred via beneficiary designation if you set it up properly on accounts – and it’s free. It doesn’t cost anything to put a beneficiary designation on the account. Or, if you work with a financial advisor, goes with a formal, legal, original Death certificate and an ID. And while there’s some paperwork to fill out, the assets in the account from the owner who died, usually can be transferred to that beneficiary in a matter of weeks, free of charge. So beneficiary designations do a lot of the heavy lifting of estate planning if you set them up properly and you keep them up to date. So for example, the typical arrangement is: husband puts wife on his accounts. Wife puts husband as beneficiary, on her accounts, as primary beneficiary, and then contingent to those are usually the kids. And if you have one kid, it’s they get 100% if two kids, 50% and three kids, 33% and so on and so forth. That’s kind of the typical arrangement that that we see set up as beneficiary designations, and what happens when the account owner passes then those beneficiaries, all they have to do is show up to the bank or the custodian or the brokerage account. So while the will is important, it’s not as important to the estate plan as most people think.
Do I Need A Trust?
What about trust? Lots of people think that they need a trust at some point, or they at least come to us asking if they need a trust. I think there’s some mythology around what a trust is and what a trust can do. A lot of mystery around it, like rich people, really rich people have trusts and they hide their assets and they don’t pay taxes on them, and the kids live off the trust, and they never have to work their entire lives. Well, most of that is not true. Trusts aren’t some magical instrument that allow you to avoid taxation. No and yes. You can make your kids beneficiaries of a trust and dole money out through the trust to them over their lifetime. But that has its own drawbacks as well.
What Is A Living Trust?
But specifically a trust usually comes in a couple of forms, a living trust or a testamentary trust. So a living trust is something you set up during your lifetime, and you can set up your own trust and make yourself the trustee of your own trust, which means you have total control of the assets in the trust, and when you pass, then the trust becomes active.
What Are The Differences Between A Revocable Trust And An Irrevocable Trust?
A revocable trust, again, is something you would set up, typically in your lifetime. Complete control over it, you can revoke the trust and its instructions at any time. Time you want or an irrevocable trust, those tend to be much more specific – they have very specific uses. Once set up, the language in them is frozen or very difficult to break, and the rules are sort of set in an irrevocable trust. And a lot of times a revocable trust during life will be converted to an irrevocable trust after death. Well, first, while you’re alive, it’s a revocable trust, so you can change your mind about anything in the trust. You can cancel the trust if you want. Total control of your financial situation. But the assets are protected in the trust for creditor protection, and has some other benefits in terms of administration.
What Is A Testamentary Trust?
But a trust, while you’re alive, or a testamentary trust is usually something that’s embedded into a will so that when you die, the will then has instructions to create a trust at that point in time. It’s also, in addition to be called testamentary trust, it’s called a springing trust sometimes, and that then puts more restrictions on the trust. The new springing trust puts more restriction around the assets after you pass then there’s revocable versus irrevocable trust.
What Are The Pros And Cons Of Trusts?
Pros and cons to each way of doing things, just raising the concept here, then one of the benefits of having a trust is that the assets in the trust avoid the probate process. The probate process is very expensive, it’s time consuming, and it’s public. So a trust avoids probate, which makes it cheaper, faster and private. So those are some good benefits, but trusts come with their own drawbacks as well. There’s a lot more complexity around arranging your financial affairs in a trust, and you have to kind of be up to the task. So estate planning attorneys love to draft trusts. It showcases their ability, their creativity, and they get to charge more for it. And that’s okay, as long as you’re getting more for it. There’s nothing inherently wrong with that.
But we do find that some estate planning attorneys tend to be a little bit more trust happy than others. Just be aware, though, that to you, the owner of the trust, or the trustee of the trust, that’s going to come with more work on your part if you want the trust to be effective. And essentially, what that means is, how you put assets in a trust is you retitle them in the name of the trust. The trust becomes the owner of your house. The trust becomes the owner of your vehicles. The trust becomes the owner of your valuable personal property. The trust becomes the owner of your bank account and your brokerage accounts, not your IRAs or 401 Ks, that’s a different legal matter. The trust becomes the owner of all those assets, and especially like your bank account, and so you’re actually writing checks out of your trust account instead of your personal account. And that’s the way it should be if you want the language in the trust to be effective, so that if or when you pass away, the whole purpose of having the trust is an advanced written set of instructions that can be easily followed by your successor trustees, but you’ve got to fund the trust.
Avoid Making Mistakes In Your Trust
And that’s probably one of the biggest mistakes that we see people make, is they come to us, they already have a trust drafted by an attorney somewhere, and we ask them, okay, why did you do it? Why did you set up a trust? And how have you funded the trust? And usually the first thing is that I don’t know why we did it. The attorney recommended it. Okay, all right, let’s work through this. And then what do you have in the trust? What assets do you have? Well, we put the house in there, but then that’s it. We don’t have anything else. Why didn’t you put anything else in? It was too hard. I got lazy and I forgot about it. You have to follow through on the mechanics of a trust and get your most valuable assets retitled, owned by the trust in order for the trust to have any value. If the assets are owned in your own name personally, then the trust has no effect on those assets and is of little value in the estate planning process.
Through Estate Planning You Decide How Your Assets Will Be Distributed
Talking about estate planning tonight: tips, tools, and techniques. We’re going to go through some more of the tools that are used in the estate planning process to ensure that you have a full, robust and orderly plan and orderly transfer of assets with the main objective of using your money to its fullest potential. We do a lot of good in the financial advisory world, but one thing we have not figured out is how you are able to take your money with you after you go. So this is the next best thing – you deciding how your money gets distributed when you go. And there are ways that you can even control some of that money after you go. If I have a few minutes left over, I’ll talk about those.
What Is A Power Of Attorney?
So we talked about wills and trust, main components of an estate plan. There’s also power of attorney and health care directives. And these are some areas that most people don’t think about, so a durable financial power of attorney. You point someone to handle financial matters if you become incapacitated. So this is an area where estate planning actually is involved while you are alive. So if you become incapacitated, you are in an auto accident. You have some medical event that renders you unable to be alert, make cognitive decisions on your own behalf, then a financial power of attorney can step in and pay your bills, write checks out of the checking account, make decisions for you on your behalf regarding financial matters. So having a power of attorney is a good tool to have as part of a living estate planning process.
What Is A Medical Power Of Attorney?
Also a medical power of attorney or somebody who can make medical decisions on your behalf if you can’t make them for yourself. Now, most people think that their spouse can do this for them. We’re hearing that it’s becoming harder and harder for a spouse to make decisions for their incapacitated spouse without them being officially designated as a medical power of attorney. So just be mindful of that. Just because you’re somebody’s spouse doesn’t mean you can automatically make all the medical decisions for them. It’s probably going to be a hospital and physician, dependent on whether they will accept those instructions. So always good to have a medical power of attorney in place as part of a living estate plan as well. And then there are healthcare directives. So this is sometimes called a Living Will. It specifies medical treatment preferences in advance if you are not able to speak and verbalize or articulate what you want done to you while you’re in a in a hospital, and this is something that takes a huge burden off of your spouse and other family members, because in the event you become incapacitated, or on Life Support, in some fashion, the family is left to try to figure out what you would want. And that’s a very heavy burden for them to bear on your behalf. So, writing down your wishes and instructions in advance should be a part of an estate planning package that any competent estate planning attorney can do for you. Having those written out in advance is what frees your family from the additional burden of having to make decisions on what you would want.
Are Advanced Medical Directives Important?
And I can report from some of my doctor friends that no matter what you may write in your advanced medical directives, if the decision is left to the family in some shape or form, they almost always err on the side of prolonging life, no matter how low of quality life that may be. And I’ve heard multiple stories of 93 year old grandma on the operating table who’s already frail and infirmed, and family members insisting that doctors perform CPR on her to try to prolong her life, and they can hear the ribs cracking and breaking while they’re trying to do it. If grandma wants to go, grandma’s decision should be honored. So the health care directive is an important document.
Tax Considerations In Estate Planning
Okay, beneficiary designations, I kind of already talked about those extensively. Tax considerations, estate tax versus inheritance tax. In Virginia, there is no estate so when you die, all your assets get added up and tallied, and if they’re large enough, then some states impose an estate tax. And there is a federal estate tax, but right now, it’s very high, your assets have to be very high before the estate tax kicks in over $13 million so it doesn’t apply to too many people. Virginia does not have an estate tax. Then there’s an inheritance tax. So, when the inheritors receive the money, what they receive, the amount that they receive, can be subject to tax. It is not in Virginia. So thank you very much, Virginia, for no inheritance or state taxes. But that’s not true in every state. I recommend that you don’t die in New Jersey, because that’s very expensive to your estate and also to your inheritors.