Originally Aired: April 6, 2011
Topic: ‘Women & Money,’ with Estate Planner, Patricia Annino
The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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|Click to hear MP3 of this show|
- Introduction of Patricia Annino, Author and Estate Planner
- Every Woman Should Have a Will and Health Care Proxy
- Program Your Cellphone ‘In Case of Emergency’
- Make Estate Planning Decisions Before the Need Arises
- Most Women Will Inherit Money Twice in Their Lives
- Women Need to Take Active Role in Estate Planning
- Pick a Competent Trustee Who’s Willing to Do the Hard Work
- ‘Hammer Clause’ Lets Executor Hire a Corporate Fiduciary
- Estate Planner Should Be Someone you Can Fully Confide In
- Children’s Guardians Must Work Well with Estate Executor
Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.
Nicole DiMartino: Hello, and welcome to The Lange Money Hour. I’m Nicole DeMartino and we are talking smart money tonight with two nationally recognized estate planning attorneys. Of course, I am here with Jim Lange, bestselling author of Retire Secure! and The Roth Revolution, and we also have our guest tonight, Patricia Annino. Are you there, Patricia?
Patricia Annino: I am.
Nicole DeMartino: Oh, well thank you for joining us. We’re so thrilled to have Patricia here with us tonight. She is a partner in the prestigious Boston law firm Prince Lobel. She’s a dynamic public speaker and a prolific author, and tonight, we’re going to be specifically talking about her book Women & Money, a Practical Guide to Estate Planning. Before I turn it over to Jim, I just want to remind everyone that tonight’s show is live. Feel free to call in. The studio number is 412-333-9385, and for our female listeners out there, Patricia has been so generous already, if you call in with a question, I’m actually going to send you a complimentary copy of her book Women & Money, a Practical Guide to Estate Planning, and we also have another book. This is a book, I’ve read both of them, but the second book, Cracking the $$ Code: What Successful Men Know and You Don’t (Yet) … unbelievable. It was excellent. So, we also have that. So, if you call in with a question, I will send that out to you tomorrow. So good evening, Jim.
Jim Lange: Hi, thanks for joining us. We appreciate it, Patricia. The thing about Cracking the Code, which we’re not going to talk about tonight because that, I think, is more for working women, not necessarily for estate planning, that might be more relevant to the show, but you had some great tips in there and I thought that they were really excellent. So, my hat’s off to you.
Patricia Annino: Thank you.
Jim Lange: But if we go on to Women & Money, one of the first things, and you start right out, and I thought, “Wow! What a great idea.” I never really think of it like that. You say that estate planning isn’t just for dying, but it’s for living, too, and that all women should have a will regardless of how old they are or what their financial status is, et cetera. Could you tell us a little bit about your philosophy about why it is important for the living and it’s not just preparation for dying, and why women specifically … why every woman should have a will?
Patricia Annino: There are two parts to answer that question. One is, that chances are that most of us are going to lose some level of mental capacity during our lifetime before we die, and that period of extended incapacity could go on for years or decades, and women spend all of their time making sure that everybody else is all right. It’s their instinct. They make sure their husband’s all right, their partner’s all right, their children’s all right, their parents are all right, their siblings are all right, but they forget what that flight attendant says every time you get on the plane, “If the barometric pressure in the cabin changes and you’re traveling with a small child, put that mask over your own face first.” You can only protect that child if you make sure you’ve protected yourself. And women don’t remember that message because it’s not instinctive to them, and they forget about, well, you know what? Maybe they’re not going to just drop dead. Maybe they’re going to live a long time and be unable to handle their own medical or financial decisions. And so that’s a plan for the living. Estate planning today is thinking about how you are going to be sure that you are protecting yourself for the duration of your lifetime, and if the people who you are living with were dependent on or depend on you lose the same ability to handle their affairs, how does that impact you?
Jim Lange: All right, well, let’s even get more specific with that, and I like that. So, what are the specific steps that you’re going to recommend, specifically with the idea … of course, everybody knows about the transfer of property at death. Actually, not everybody knows the right way and we’ll get into that a little bit — but specifically on this issue of protecting yourself while you are alive. What specific steps and what specific documents do you recommend be drafted for a woman who is planning for an uncertain future with, as you said, the possibility of diminished mental capacity or diminished physical capacity?
Patricia Annino: Well, let me make an observation, and I have a feeling that anybody who is listening to this program is the most responsible person in their family because they’re paying attention to things that they need to pay attention to. So as they’re listening to what we’re talking about, I think they should listen on two tracks: One is their own affairs, and second, they are going to get the call when something happens to anyone else because they are the most responsible person, and women instinctively understand that and think about it, but don’t go one step further and then think, “And therefore, what should I do about it except take the call and do what I need to do?” So, it behooves the person who’s the woman who’s listening to not only make sure that her affairs are in order, but also the affairs of anybody she’s going to get the call for.
And it really hit home to me last year around this time. I was flying to San Francisco to give a presentation, and the man in front of me on the airplane in first class had a heart attack, and I had never been on a plane before with a medical emergency. I don’t know if you have, and the pilot said, “Are there any physicians on the plane?” And two came forward, and the pilot left it to the physicians to determine whether or not the plane can go to its destination in San Francisco, or whether it must make an emergency landing for medical reasons, and the physicians determined that the plane could not go to San Francisco and we made an emergency landing in Dallas, and I looked at that man going off on a stretcher, and he had gotten on that plane just like all of us that morning, and I thought, “You know something? His wife, his office, everybody thought he was going to end up in San Francisco; he’s ending up in an emergency room in Dallas.” So, does he have documents with him that would send the EMTs there to know who to call? Now, it was during the day, they might be able to find his office, but what if it was at night? So the most important document, and it’s a simple one, is the health care proxy, or that equivalent, in which you give somebody the authority to make your medical care decisions for you, and a backup, and I think that proxy should have every phone number that you have for the person’s cellphone number, and you should carry it with you when you’re traveling and carry it with you when you’re out of the country because it’s the beginning clue to give somebody the answer as to who has the legal authority to make that decision. And if you’ve got kids in college who are 18 or older or above the age of maturity, and they have an OUI or in some kind of a car accident, again, because of the privacy rules, that document, a very simple but powerful document, is a really important one, and I think everybody in the family, once they reach the age of 18, should have a valid health care proxy.
Jim Lange: Now see, I learned something already because we’ve been preparing … I’m going to say we’ve probably prepared in the neighborhood of 1,600 health proxies, and I always tell people, “Keep one on file, give one to your physician, give one to your attorney if it’s not us,” and I’ve never told people, “Oh, by the way, you should carry it with you, particularly if you leave town.” So, I learned something already.
Patricia Annino: The other thing that I learned in that incident, and you probably know this, is that all paramedics in this country now are trained if they come upon an accident to open up the cellphone and type in ICE — In Case of Emergency — and it will start in order to call the people who you want to be called in case something happens. It doesn’t give that person the legal authority to act, but it starts the chain of communication going. So think about all of those teenage kids, the 18-year-olds, the 19-year-olds, the 20-year-olds, that have those cellphones, and probably have not programmed their phones’ ICE, and it’s easy to go online and figure out for your phone how you do that. But it’s a simple thing that could really make a difference in letting the people know immediately that something is going to happen to you. So, I think those are important documents.
Also, no matter how old you are, a living will. I mean, Terri Schiavo, that Florida case, I can’t remember, it was 10 years ago now, she was very young when she had a stroke or whatever it was that put her into a coma, and Florida law defaulted and said, “If you have not affirmatively picked who’s going to make your health care decisions for you, then it is your spouse.” And the parents fought the husband for a long time because Terri Schiavo never made the decision. The law defaulted to the decision. So, in so many of these cases, if you must own the responsibility for making these decisions, and I know that you know that the scariest estate planning case that I have ever come across is that in a second marriage. So if you’re in a second marriage and you’ve got somebody who you’ve been married to for three years and you’ve got adult children who are in their 30s and 40s and everybody loves you and you love everybody, under the law, you can only pick one person to make those medical care decisions for you if you’re unable to make them yourself. That’s a very difficult decision to make, but you know what? The buck stops with you. It has to be you who makes that decision, and you need to do it now, not when people are sitting around you in an emergency room trying to figure out, “Oh, he meant me” … “Oh, she meant me to make that decision.”
So the biggest challenge that I face, and Jim, I’m sure it’s the biggest challenge that you face, is getting people to be motivated to do this kind of planning when there is no need to plan because that’s really when all these decisions should be made, and people don’t want to deal with that. They don’t want to deal with disability. They don’t want to deal with incapacity, and so they keep putting it off until tomorrow. But tomorrow, boom, can happen just like that, and it really behooves you to get on this planning process when there is no need to do it and stay with it, and if all you do after you listen to this show is do one takeaway, like finally getting everybody in your family to do the health care proxy, do that but then move on to the next step because in addition to the medical, what if you lose the ability to handle your financial affairs in your life? Have you thought about who should be in charge of that, what kinds of checks and balances you want in the system? And most people don’t understand this, but if a husband and wife own their home jointly with the right of survivorship, then the husband dies and the wife gets it, but that’s a jointly-owned home, and in the event of disability or incapacity, a stroke, that house is frozen even though it’s joint. So, most people in this country, the couples, the two assets they have of significance, which is a retirement planning asset and a jointly owned home, are totally inaccessible in the event of disability or incapacity unless they’ve put legal documents in place. And any single person out there, or single woman, who has everything in her own name, her assets would be completely frozen in the event of disability or incapacity. So, thinking through who should oversee that, whether it should be a team of people, and how you want to document that, I think is important.
Jim Lange: Well, for whatever it’s worth, in our law office, what we do, we usually don’t market or say, “Hey, come in to get a health care proxy,” but what we do is everybody, unless they specifically say, “We don’t want one,” and then we even try to argue with them, everybody who comes in for a will or a revocable trust or, what I would call, let’s call it the moneyed estate planning documents, we will prepare that living will and we will also prepare that power of attorney. So, I’m kind of shocked when I see people come in with wills and beneficiary designations of retirement plans, and I say, “Well, do you also have health care proxies and powers of attorney?” And they often say no, and it seems to me, and maybe this is more of a question for attorneys, that it should just be standard practice for attorneys that when anybody’s in for a will to do them because it’s certainly not very much work in terms of time to prepare it, if you’re preparing wills and trusts anyway, and you have the notaries there, you have witnesses there, so it’s not a big deal to notarize and witness those documents. So that’s the way we have done it.
Patricia Annino: I completely agree with you, but I think you and I are talking to those people who are listening to this who haven’t gone into your office yet!
Jim Lange: Well, that’s one of the reasons why we’re talking, but …
Patricia Annino: Yeah, they’re motivated to get to Jim’s office and get their more complicated documents, but don’t forget the simple ones, and sometimes, it’s those simple ones that are going to get them in the door and then lead them to the other documents that they need to do that are a lot more complicated. But at the minimum, they should be dealing with these.
Jim Lange: Well, that brings up one other issue, and frankly, I have changed my tune a little bit. You know, I’ve been practicing law for close to 25 years now, and in my early years, I did a lot more traditional wills as opposed to revocable trusts, partly on the theory that I was trying to deliver the biggest bang for the lowest buck to my clients, and I think the other thing is I have a lot of clients that have the majority of their money in their IRAs, 401(k)s, 403(b)s, SEPs, KIOs, etc. that avoided probate anyway. But one of the advantages of a revocable trust where we avoid probate is not only the advantages in terms of administration and costs at death, but also I think that they are more valuable in the event of incapacity. So let’s say, for discussion’s sake, that you have a husband and wife, and either one — although I guess we’re talking about women today — although let’s actually say for the benefit of the woman, the husband develops an incapacity, and I think it is a lot easier if the husband’s money is in a revocable trust with his wife named as a successor trustee than just having a power of attorney. So, I think that there are some living benefits of avoiding probate. I don’t know if you would agree with that thinking or not.
Patricia Annino: I completely agree with you, and I think there are some assets like the IRA and the retirement planning asset that can’t go into the trust while you’re alive, so you need the power of attorney, but that the trust is essential. And something that you and I were talking about earlier, which I think may segue into, is people come into my office, they come into your office, they understand it for the couple hours they’re there, and then they promptly forget about it. They don’t want to deal with it again. It’s too complicated. It’s a stack of papers that refers to the code. That’s human nature. But it’s important to understand if your husband dropped dead tomorrow, who’s in charge of the money in his trust, what your access to the money in that trust is, what the standard of distribution for getting you that money is, and what are your choices and how you can join in to the administration of that trust, and it never ceases to astound me how many men and women go in and sign documents and forget about it and think it has to do with taxes, and as the federal exemption has now gone up to $5 million, we know that a lot of this has nothing to do with taxes anymore. Of course, state and estate taxes are important, and who knows if the federal is going to be in place, but it also has to do with the control and disposition of those assets. And anybody who did a plan five years ago may have inadvertently put a plan in place that would’ve been fine then, but a complete disaster for them now.
Jim Lange: Well, we certainly want to get back to that. I want to make one more point and then we’re going to have to take a break, and one of the ways that I combat the issue of people forgetting what is in their documents is along with the documents, we actually have a letter in English — as opposed to legalese — and we try to write as straightforward wills as we can, but truthfully, some of it is legalese and a little bit hard to understand. So we actually write a letter, and sometimes, it’s more than one page … in fact, it’s usually more than one page, but we try to write a letter saying basically, here’s the essence of your will, here’s how your money is going to be distributed, at your death, here’s how the money is going to be distributed, at the second death, here are the choices that are involved. And that way, even if a client, let’s say, a month after coming to one of our offices could explain at a cocktail party what their estate plan is. That same person might not be able to two years or five years down the line, so they would have that, but I think we’re going to have to have a break, and please stay with us. We have lots more.
Nicole DeMartino: We do have lots more. We are going to take a quick break. We are live, 412-333-9385. We’re here with Jim Lange and Patricia Annino. We’re specifically talking about women and estate planning. You’re listening to The Lange Money Hour. We’ll be right back.
Nicole DeMartino: Welcome back to The Lange Money Hour. We are here with Jim Lange and Patricia Annino having a great conversation. I’m going to turn it back over to Jim, but before I do, Patricia, I wanted to tell you myself, one of the parts I loved about your book, and it goes along with what you were saying about taking care of yourself, protecting yourself for the duration of your life, that all the women out there know that in Patricia’s book, she covers all different kinds of women, and what she’s saying is regardless of what your stage in life is, you do need an estate plan. She covers single women, divorced women, married women, widowed women, all the different kinds of places, and I just thought that specific advice, you know, I’m speaking from my heart, Patricia, you really helped me. It was very, very good.
Patricia Annino: Thank you.
Nicole DeMartino: So, I just wanted to make mention of that. It really speaks to people’s individual situations.
Jim Lange: And I think it’s a little bit of a wakeup call. I think we probably all know objectively that usually women survive men, and sometimes we don’t think about for how long and the consequences, and you had started to mention earlier that the traditional estate plans that might have been drafted five years ago or more should be reviewed, and some of the work that I do is much different than the traditional estate plans, and I thought maybe if we spent a few minutes talking about the traditional estate plans and talking about some of the alternatives — because you also mentioned disclaimers — I think that that would be helpful, and maybe if you could start by telling people a little bit about what might happen in the event that they have one of these old traditional estate plans that might’ve been drafted five or 10 years ago and what might happen if there is no review, no change, and there is a death in the family.
Patricia Annino: Sure, and I want to follow up on just a comment that you made at the beginning and highlight something that occurred to me when I was writing this book. You know, most women in this country are going to inherit money twice: once from their parents and once from their husband, and therefore, women must assume the responsibility of beginning to understand the consequences of that inheritance. So they have to get to the table and not just assume that everything is going to get taken care of for them, because that’s not true, and in no way, shape or form am I bashing men in this discussion because men don’t understand or pay enough attention to it either. It’s just that when you look at the way that women are probably going to inherit money twice and have the responsibility of dealing with it at some point in time, it’s better to understand it when they can make an impact in the plan than afterward when the choices have been set and concrete. So, anybody who has had their documents done more than five years ago must have them reviewed, and that’s because I don’t remember when the tax exemption was $600,000. It might’ve been more than five years ago …
Jim Lange: Yeah, actually, that was in ’96.
Patricia Annino: But it’s now $5 million.
Jim Lange: Right, it crept up.
Patricia Annino: It jumped, and it may or may not last. So anybody who got a document done that said when my husband dies, or when I die, or when the first spouse dies, the federal exemption, which would’ve been $600,000, or now $5 million, goes into what’s called a family trust or a bypass trust, and it’s for the whole pot of myself and my kids and a lot of situations, and the balance goes to me. Well, when it was $600,000 in 1996, most of it went to me and minimally went to the whole family. Now, depending upon how your documents were drafted and what your assets are, you could inadvertently disinherited, and a significant amount of the wealth that your husband leaves you could be left for the benefit of you and your children. You probably wouldn’t be completely disinherited, but you wouldn’t be the clear primary beneficiary, and where that becomes a problem is if one of those children becomes divorced or has a creditor issue or something else, or needs money and believes they have a right, then there are consequences to that. So one of the things, Nicole, you talked about the fact that I wrote the book, you know, single, married, widowed, it’s because when you’re in different phases of life, you’re going to pay attention to different aspects of it, and it’s a planning process, and so if you went to see Jim 10 years ago, you’d better go back. If you went to see Jim five years ago, you’d better go back because not only as the tax law changed, and not only may the documents need adjusted, but your life’s changed somehow because almost everybody’s life changes dramatically every 10 years. I just haven’t seen that not to be true. So, it’s the confluence of those events that say this is a time to get back in and get that done, and the old traditional estate plan document might not make as much sense. And Jim, I think you are probably going to lead me into a disclaimer, which is that there is as much that can be done now called postmortem planning, which is planning after death, as the planning that comes up to it, and there’s a nine-month window of time after the fact that somebody dies that choices can be made to get you where you need to go. As long as the documents are up to date and as long as the assets are titled and positioned in a way that, when implemented, the plan will make sense.
Jim Lange: Well, that’s actually one of my big pushes this year is to alert all the people out there … you know, I haven’t done it necessarily like saying, “Oh, I’m a woman’s advocate,” but I think maybe indirectly, the type of work I have been doing, which is alerting people who have these dated documents that, as you said, forces up to $5 million, which might be the entire estate, depending on how assets are titled, not to the surviving spouse, or, in this case, the wife if we’re assuming the husband’s going to die first, but it directs it to a trust where the spouse only gets the income, and I don’t think that women … you know, to me, if you are married, you and your husband or you and your wife now have 100 percent control of all the marital assets. You can do anything you want with that money: You could sell it, you could spend it, you could burn it, you can go on a trip, you can give it to your kids, you can do whatever you want. But if that money happens to be in the name of your husband, or even split a variety of ways, and there is a death, women could find themselves in the position of having to ask their kids or to ask the local bank for their own money, and I think that’s a terrible position, and now that we don’t need that trust for estate tax purposes … in fact, I would say that that document is worse than what I would call an “I love you” will, where you just simply leave everything to your spouse, and then at the second death, it goes to the kids and disclaimer options to grandkids.
Patricia Annino: I completely agree with you.
Jim Lange: So that actually is one of the emphases on what I’m doing this year, and that’s what I talk about at the workshops, and I talk about the way the traditional estate plans work, and then I talk about the, let’s say, alternative that would involve a series of disclaimers, starting with the spouse, not throwing away the B trust or the family trust because, in some situations in the future, it might be useful, but only if the spouse makes the decision later, not now, and then children and then multiple trusts for grandchildren. So that is my emphasis and I talk about that, and then I also get into the nitty-gritty of IRAs and retirement plans and Roth IRAs.
Patricia Annino: I think that’s great, and I think that that is the issue that most couples should be addressing in the next five years.
Jim Lange: Well, let me ask you this: most of my clients tend to be 60 or older, and I have a lot of what I call “Leave It to Beaver” marriages, original husband, original wife and the same kids, and for some reason, I seem to attract quantitative types, a lot of engineers, a lot of mid-level managers, a lot of college professors, and while there are plenty of exceptions to this rule, I find that, in more times than not, and particularly with the engineers, that it is the man who is driving the show in terms of the will, the decision to get a will, the decision of whether they’re going to use me or not, the decision of what goes in it, and sometimes, the wife says, “Well, do I have to come?” And I always say yes. In fact, I scream yes, and sometimes, to be fair to the husband, sometimes the wife is willing to give that up, and I fight that as hard as I can. Can you say something to some of the women who are listening who might just be in the habit of deferring to their spouse for money? And some of them actually frankly know that their spouse isn’t on top of things. So I have a lot of engineers who like to do their own investments, and that might be fine if they’re on top of their game, might not be, but sometimes they’re not on top of their game, they’re still doing it, and frankly, the wife, I suspect, fears that “Hey, maybe he shouldn’t be doing this.”
Patricia Annino: You know, it really hit home to me, what you’re saying. About three weeks ago, I was in a client meeting with a very significant client of mine, a self-made man, 55 years old, who’d built a huge empire, and it’s a complicated business, and we were talking about revising his estate plan significantly and who should be in charge, and he has a wife and five daughters. And around me, in the room, was the man and four male advisors and myself, and we talked about whether the family should be in charge or whether an advisor should be in charge, and he asked me what the differences were, and I started to go through it and he looked me in the eye and he said to me, “You know? Well, my wife should be in charge.” I said, “Really? Then why isn’t she here?” And he looked at me and he said, “Now, that’s a good point.” And then I thought, now is it really easy to blame him? But that’s completely not fair. His wife knew this meeting was going on today and she wasn’t there either! So, the thing I like to say is, the keys to the kingdom are on the table. No one is stopping you intentionally from picking them up. You’d better pick them up! You’d better pick them up and get in that room because you’re probably going to inherit twice and, ultimately, it’s going to be your problem. So get in the room now to figure out what it is and to assist because when your husband dies, or becomes disabled, and you’re alive, you have to deal with the consequences forever of the decisions that were made in that room, and you made a really good point, Jim. People might think it’s the man. It’s really both. The woman who sat at home knowing that the meeting was going on is just as guilty as the guy who didn’t think of inviting her. It’s both.
Jim Lange: Yeah, and I know, in my practice, unless somebody is disabled, or maybe they have dementia themselves, or there’s some extreme extenuating circumstances, I actually insist on both people being there.
Patricia Annino: Absolutely.
Jim Lange: And when somebody says, “Well, I’m just here to scope out if you’re the right guy,” I say to them, “Well, I’m sorry. I’m not really available for that service.” Because I really do think it’s a joint decision, and if something does happen, I want to have a relationship with the person when everything was good, not just in the traumatic event when somebody develops a disability or Alzheimer’s or dies.
Patricia Annino: Well, you just said that you have a lot of “Leave It to Beaver” couples, and I do, too, but I also have a lot of second marriages, and that becomes more complicated because of the conflict, because especially if there was a prenuptial agreement in place, people may not want the other spouse in the room, and that becomes a lot trickier to deal with, and those are situations that have to get navigated through but still need to get navigated through.
Jim Lange: Yeah, and I do have obviously quite a few of those types of couples also although the majority are probably more the “Leave It to Beaver” type, and frankly, if I was the second husband or second wife, I would want to be in the room, and I think the conflict there is to provide for both children from the first marriage and the second spouse. I will tell you, for whatever it’s worth, I am not a huge fan of family trusts in those situations because a lot of times, children don’t get any money until they’re in their late 50s or 60s, and then the surviving spouse doesn’t have unlimited right to the principal. So, I’m not sure if some of the traditional planning is the best.
Patricia Annino: You and I completely agree, because I believe that they’re natural enemies and the strategy should be conquered and divide.
Jim Lange: Yeah, to quote myself, and that’s one of the nice things about writing a book, as you know, and particularly if there are IRAs involved, I started a section by saying “I hate QTIPs as beneficiaries of IRAs.” I’m afraid we have to take a break.
Nicole DeMartino: We do. I was just going to interrupt you. We do have to take a break. When we come back, we’re actually going to spend just a couple minutes, since we’re inching our way to April 15th, Jim’s going to give a couple of last minute tax tips, things you can do between now and April 15th, even if you’ve already filed your taxes. So, stay tuned for that. You’re listening to The Lange Money Hour. We’ll spend a couple of minutes on that when we get back.
Nicole DeMartino: Welcome back to The Lange Money Hour. We are here with Jim Lange and Patricia Annino. We’re talking about women and money and specifically estate planning. Now that we’re back, I know Jim wanted to say a couple of tips, spend a couple of minutes because we want to get back with Patricia, but we’re inching our way towards April 15th and I know he has some last-minute tax tips, things you can do even if you’ve already filed your taxes. So, what do you have for us, Jim?
Jim Lange: Well, that’s right. This is just a quick reminder of some things. Usually, tax planning is done before year-end, but here are just a couple of things that can be done, even if you have filed your return. As many of you know, and I really beat this home last year, but I’m going to remind you again in case you have not done this, I’m going to encourage everybody who is working to make contributions to probably Roth IRAs. There are certain circumstances where it might make sense to do traditional IRAs, or if you’re married and your income is more than $177,000, maybe even consider non-deductible IRAs. But you can put in $5,000 for yourself, or, if you’re 50 or older, $6,000 for yourself and also $6,000 if your spouse is 50 or older. So that’s $12,000 that can go into an account that can grow income tax-free, and while you’re at it, if you like, you could actually do your 2011 contribution at the same time. So, you can get a lot of money into retirement plans very quickly.
Even if you have filed your tax return, don’t worry about it. Tell your preparer next year, there is a form that has to be filed if you do a non-deductible IRA. On the other hand, even if that form is filed later, that’s OK. The deadline on that is April 18th, 2011, and the reason why we get those extra couple days is because the 15th falls on a holiday, so we get until the following Monday. So anyway, we can go back to estate planning now, but I did want to get that in because it’s surprising to me, and our office still does 500 tax returns, and I can’t tell you how many tax returns that I have reviewed, and I write a note that says, “Please make a Roth IRA contribution of $6,000 each before April 18th.” And these are my clients who have gotten newsletter after newsletter talking about Roth IRAs and Roth IRA conversions and what they should be doing, and I send out multiple tax cards and all types of … you know, I send out a lot of information to my clients, but a lot of them, for some reason, are not doing it, and sometimes, they don’t understand even if they don’t have the liquid money available to do it, say, in a checking account that they would be better off taking money out of a savings account that is growing at a taxable rate and transferring it to a tax-free account. So, if you could put in $6,000 for yourself, $6,000 for your spouse, and if you cover 2011 and 2010, you could get a quick $24,000 to start growing income tax-free.
Thank you for your patience, Patricia. I know that you’ve been sitting there waiting to get into the next issue, but go ahead. You were about to finish up a point, then I have another one for you also.
Patricia Annino: You have to remind me. What was the point?
Jim Lange: OK. All right, why don’t we go to the next point that I wanted to talk about. I’m sorry, I thought that you were not quite done. You talk about the choice of … and I’m going to expand the conversation to executors, trustees and personal representatives, and those are some pretty important decisions and I hear some pretty bad reasoning, like oh, he’s the oldest son, he should be the executor, or well, she happens to be a CPA, she would be a great trustee, and I was wondering what kind of criteria that you often use in recommending people in a, and the legal word for it is a fiduciary duty, but let’s say somebody who is looking for the benefit of others, and that might be in the example of an executor or a trustee or a personal administrator.
Patricia Annino: Well, right off the bat, I know you and I know that it’s a thankless job to ask anybody to be your executor or trustee. So it always amuses me when I’m in these conversations and people are fighting about it thinking it’s some honor to bestow on someone, whereas really, they try to pick the most responsible member of their family and that most responsible member already has a very full life. So dumping your life on top of theirs is not exactly a favor, and I think one of the most important criteria is it’s got to be somebody who has the ability to do the job, and it’s a time-intensive job and a complicated job and they have to be able to team up with somebody like you who can back them up with the administration of it, because there are tax returns, there are tax selections. It’s very complicated.
Jim Lange: Well, I sometimes jokingly tell people, “Name the child that you like the least,” for that exact reason! Because what tends to happen, at least with a lot of our clients, since the money is going to be shared among siblings, a lot of times what happens is the executor will waive a fee, so there ends up being a lot of, frankly, thankless work. So that’s one of the reasons why I sometimes kid people and say, “Name the child that you like the least,” because it’s not an honor; it’s a burden and responsibility.
Patricia Annino: I agree. I also believe that whoever does the job should be paid for it, because they already have plenty of other things that they can do with their lives, and I think that if they’re a family member or not a family member, that needs to be taken into account. You shouldn’t be asked to do it just because you happen to be the most responsible person in the family.
Jim Lange: Yeah, and I also have a personal bias, and I have to be a little bit careful because we’re on the air, but I’m still opinionated and I can say what I want, and if somebody wants to give me grief, they can, I tend to choose family members over, the legal word for it is a “corporate fiduciary;” in Pittsburgh, that might be Mellon Bank or PNC or one of the other trust companies, mainly because I like to keep the control in the family, and typically, the executor will hire an attorney, usually the person who actually drafted the will, and in my opinion, the attorney, and I’m sorry for the attorneys who are listening, and you make a lot of money by charging a percentage of the estate. We charge hourly for estate administration because we think that that’s ethical and it’s right, and if we can do a job in 10 hours or 20 hours, there’s no reason why we should charge 5 percent or 3 percent or some percentage of the estate. And the other thing is if we’re not doing our job and the executor doesn’t like us, they can fire us and go somewhere else. So I tend to prefer to keep the power in the family if we have the luxury of having at least one responsible person who would be able to get the job done, presumably hiring a law firm like ours or a CPA firm in the event of taxes, we actually do both, but I don’t know if you have a preference on a corporate versus a family member as executor, trustee, et cetera?
Patricia Annino: You know, I think I’m as opinionated as you are.
Jim Lange: All right. Are you going to go the other way?
Patricia Annino: I believe that the power should always be seated in the family, as long as there’s a competent person in the family. I have recommended, because of the busy-life syndrome, if you don’t have somebody like you who is geared up to do it, and you go to a major financial institution and hire them as an agent to do the work, they can do that, too. But the power is still seated with the family.
Jim Lange: Yeah, I like that. The one time that I’m a little bit more open to having a corporate fiduciary is in a situation where you have a couple of adult children and one of them is a spendthrift or a drug addict or an alcoholic …
Patricia Annino: Or special needs.
Jim Lange: Well, special needs, I would say that that’s even a slightly different situation because a special need is maybe a difficult situation, but it might not be as acrimonious, and you might not have the conflict that you would have. So one of the things that I worry about is, let’s say that there are two children, Joe Responsible and Jay Irresponsible, or if I guess this is a woman’s show, Jane and Jill, but I sometimes worry about naming the responsible one as the trustee for the irresponsible one because I worry about their relationship after Mom and Dad are gone. So in those situations, I’m a little bit more open to having a corporate fiduciary, but, to be honest, I would still say even in that situation, I want to say eight or nine times out of 10, the client ends up choosing the family member as opposed to the corporate fiduciary. I don’t know what your experience is in that area.
Patricia Annino: Well, I have one of those situations right now, and they’re insisting on it being a family member, and I think it’s going to be a big disaster. So what I told them is that I want to put the hammer clause in, and the hammer clause basically gives that well-meaning person who is going to start off in that fiduciary capacity the right to get out of the way and put a corporate fiduciary in so that there’s leverage there. So they can go back and say, “Listen, if you create any more trouble, if you’re disruptive and I can’t deal with it anymore, I’m going to have no alternative, and XYZ Trust Company is going to come in instead of me and handle this.”
Jim Lange: I like that solution. Let me throw out one other one that I have used in practice. I have used a solution, and this is particularly appropriate for older, so let’s say that the spendthrift child or the alcoholic child is in their 50s, or even older. I sometimes give the trustee the power to buy an immediate annuity. So let’s say, for discussion’s sake, there’s a half a million dollars for each child, and the irresponsible one, you know that there’s going to be a fight on the trust and when the money comes out and how the money comes out and how the money’s invested and everything else. Sometimes, and it might depend on interest rates at the year of death, which is why I like to do it as an option and I don’t force it, I give the power of the trustee to buy an immediate annuity, usually I prefer inflation-adjusted, and that way, the spendthrift child gets a certain amount of money every month for the rest of their life, and there’s no fighting and there’s no trustee fees and, in effect, the trust is terminated. So, the child is provided for, but it’s without the trust. Now, of course, what you’re giving up is the ability to have that money invested in stocks and maybe perform better in terms of investment performance.
Patricia Annino: I like that.
Nicole DeMartino: One thing I would love to ask you, Patricia, going back to your book, you talk about women needing to get started, and there are three simple steps: you want to set goals, and number two, get organized, and I think that is crucial. But the last part, it hits home: put together a team of advisors. You and I both know, obviously, women take on everything. We think we can do it all. Can you tell me a little bit about who you think should be in this team of advisors?
Patricia Annino: You need a competent estate planning lawyer that you have a relationship with for the long-term, and that, I think, is really important. There are plenty of technically competent estate planning attorneys, and that’s good. You need a technically competent estate planning lawyer. But you also need to have someone that you are not afraid to ask questions about and you can have open and honest conversations because a lot of what we’re talking about is very personal. Your daughter has a drug issue and nobody is to know it. Your son-in-law’s a gambler and no one is to know it. And you have to have a rapport where you’re comfortable telling the most intimate dirty little secrets in the family and putting them on the table and developing the relationship. That’s a hard person to find, but when you find that person, that person can become the quarterback to help you put the team of advisors in. You need an accountant. It sounds like, Jim, you’re not only an estate planning lawyer, but you’re also a CPA, and that’s great, but a lot of people aren’t going to have that luxury. They need to also have a competent accountant that they can put on their team, and maybe somebody who has financial savvy and can direct them in their investments, whether it’s the person or institution that’s currently managing their money or beyond that. Now, when there are special needs, a special needs child, you might need a social worker. If it’s a family business — I’m dealing with one now — they have an organizational psychologist. So, depending on what’s going on in your family, you might want to ask different questions, and the other thing, let’s say that you’re not the person who has the business. Your husband is the one who’s running the business. I think you should ask him if you drop dead tomorrow, what should I do? Because the person who’s running the business is thinking about that all the time. Would I sell? Would I not sell? Who would I sell to? How would I trust it? How would I handle it? And that changes, and who you trust … I mean, that’s the other thing which is why I believe this is all a process, who you trust today and who are the most important people in your life now are not going to be the most important people 20 years from now. And I think the number one reason that young people don’t complete their estate plan is they can’t agree on who the guardian is, and I say, “Just pick the best people now because you can change it and just keep working it through.”
Nicole DeMartino: We’re going to actually have to take one more break, but just real quickly, through the years, I’ve worked with a lot of women myself and I’ve run into a lot of married women that have their own team different from the team their husband has. Do you think that that’s OK or should it be the same team?
Patricia Annino: If it works for them, it works. I mean, you want to have the line of communication open so that you know what your spouse is doing, believe me, because, ultimately, the thing that people don’t understand is what your husband is doing with his affairs and his finances and his documents is going to impact you more than what you’re doing with your own in estate planning.
Nicole DeMartino: Good point. We’re going to take a quick break, the last break of the show, and then we’ll come back. Jim, I think, has one more question for you. You’re listening to The Lange Money Hour, Where Smart Money Talks.
Nicole DeMartino: Well, welcome back to the last segment of our show. We’re here with Jim Lange and Patricia Annino. All evening, we’ve been talking about women and money and estate planning, and Jim?
Jim Lange: Well, I did want to pick up on a point that Patricia made, which was an excellent point, meaning the point of having guardianship provisions in the event that you have young children. So I would say, even if there’s zero money, no life insurance, no anything, which, by the way, obviously isn’t a good thing, but it’s still critical to have wills that would specify who in the event of either an incapacity or two deaths will take care of the children, and the interesting thing that I think … and I’ve seen people come in with wills that have that, is it’s not terribly well-thought-out most of the time. So an example, let’s say that one of the spouses has a brother or a sister, and they might say, “Well, my brother Joe and his wife Suzie,” and then I say, “Well, OK, but what if Joe and Suzie are divorced at the time? Do you want it to be Suzie by herself, or do you want it to be somebody else?” And they go, “Oh gee, I hadn’t thought of that.” So, I would say that a lot of times, lawyers are not as responsible as they should be because that’s a very important decision. We have a 16-year old daughter, and we have basically — if I’m going to oversimplify — couple number one as the primary guardian in the event something happens to my wife and I. But if couple number one is not a couple, we actually have couple number two because we actually, a little bit old fashioned in this way, we kind of like the idea of a two-parent family, but somebody else is 100 percent free to say no, I really want my sister, whether she’s married or not or whatever. But I think that a lot of times, the attorneys don’t press that issue as much as they should, and that’s one of the issues that I really like to cover. I don’t know if you’ve had experience in this also.
Patricia Annino: I agree, and the other one that they don’t pay attention to is what’s their responsibility with money and who’s going to be the trustee if they’re the children’s guardian because they have to work together as a team, and especially for a lot of younger couples with life insurance. They’re going to be worth more dead than alive. And so if they’re dumping their children on someone who is not at their level of wealth, then who’s administering the trust funds and who’s making decisions about what funds could extend for what purposes become important, and there has to be a coordination between the person who’s in charge of the children and the person who’s in charge of the money, and a lot of people don’t really understand that, and it doesn’t mean anything untoward is going to happen. That well-meaning brother that takes the children in may feel uncomfortable receiving money to support his own family. And so, having some checks and balances on that system is also very critical.
Jim Lange: And I agree with that completely. I think we basically have one more point that I wanted to bring up because you brought it up in your book and it’s an important part. I happen to be a believer in prenuptial agreements. I know that sounds very unromantic to a lot of people. I have one myself, and I’m particularly interested when I have clients that have significant amounts of money that their children have prenuptials that, if nothing else, protect inherited and gifted money. I don’t know if you have experience in that and some of the tensions? And you have about two minutes to answer …
Nicole DeMartino: About one minute!
Jim Lange: About one minute.
Nicole DeMartino: Unfortunately, one minute.
Patricia Annino: It is almost a standard technique that I use because some equitable division states like Massachusetts, gifted inherited assets are divisible in your child’s divorce. And so the only way to exclude them and their evaluations … so if you’ve got the closely held business, not only do you want to exclude the gifted inherited business, you want to stop the family predator, the ex-in-law, from prying in and getting that valued. So, the prenuptial agreement shields against both of those and I think it’s critical.
Jim Lange: All right, great.
Nicole DeMartino: Patricia, thank you so much. We had Patricia Annino on the show this evening. As always, this show will be rebroadcast the following Sunday. I also want to mention, she is the author of Women & Money, A Practical Guide to Estate Planning. Also, I just thoroughly enjoyed Cracking the $$ Code: What Successful Men Know and You Don’t (Yet). Patricia, if people want to learn more about you and all of the books, these aren’t the only books Patricia has written, where can they go?
Patricia Annino: Amazon.
Nicole DeMartino: www.amazon.com. Again, this will be rebroadcast on Sunday because we’re on every Sunday at 9 am, and the audio file will be on www.paytaxeslater.com shortly after the show. It was an excellent show. Thank you so much. You’ve been listening to The Lange Money Hour, Where Smart Money Talks. Goodnight.