Subscribe
Share
Share
Embed
This podcast is meant to inform and entertain listeners on the topics of finance, estate planning, taxes, and the beautiful area of Redding, CA and it's people
So we have a power of attorney, which is durable, which is as long as you're alive, there's authority. Someone can make those phone calls for you and address the issues that come up. We also do a power of attorney for health care. Very important. If you've ever been to the doctor, they're gonna ask you, do you have a directive? Hi.
Chris:My name is Chris Hall, and this is the Reading Financial Advisor Podcast.
Chris:And I have a special
Chris:guest today. I have Doug Wright from Douglas Wright Law, and we are going to talk about estate planning and trusts and probate and all sorts of good stuff today. So, 1st and foremost, thank you, Doug, for being here. Appreciate you being here.
Doug:Well, thanks, Chris. Thanks for letting me jump on here with you. These are, important topics that people need to hear about, so I really appreciate the time.
Chris:Yeah. Absolutely. I know that in my practice that, you know, it's really they can make things so much harder or so much easier if someone takes the time to do the estate planning, they can have a nice easy transition. If someone doesn't take the time, man, it is really difficult.
Chris:So that's one of the reasons I wanted to get this information out there. Before we dive in too much, tell me a little bit about yourself, like, personally. Like
Doug:Sure.
Chris:Where'd you grow up?
Doug:So I'm from here. I'm from Redding. I was born and raised here. I actually graduated from Burney High School, a small town up in the mountains. And then from there, I went to UCLA for undergrad, I'm at McGeorge for law school, and I'm actually currently enrolled in a a master's program at Texas A&M online, for an LLM in in wealth management, which is kind of a combination of tax, estate planning, securities knowledge, things that kinda really cross the full spectrum of what we deal with on the estate planning and the probate side. So that a little bit of background about myself. Married, 3 kids, you know, all the fun stuff.
Chris:Awesome. That's a cool degree to get.
Doug:It is. It's a it's a pretty unique degree. It's one of the few in the country that's offered, And if and it's a Texas A&M, which is a legit top 25 law school, and that they offer that. So it's
Chris:And what made you I mean, you already have a successful practice here in town. What made you decide to just go out and get more?
Doug:You know, it's we're we're always learning, and things evolve. And there's always questions that you know, we don't know everything. As much as we like to think we know a lot, we don't know everything. And it's having that additional knowledge for clients is very helpful, especially on the tax side and the estate planning side because, you know, probate is what it is. I mean, you're in the court system.
Doug:It's supervised. But if we're not in probate, and hopefully people aren't because that's it's really not the place you wanna be. If you're in planning, there's a lot of advantages that you can get with additional knowledge and putting things in the right place so that we can get around the costs, which is really in the time, which is really the 2 components of of what planning helps avoid.
Chris:Yeah. Yeah. No. That's great. I same way here.
Chris:I'm constantly going after some sort of certification or something. It's the same way. I don't really care about the letters behind my name as much as I, you know, like to to know that, you know, when I'm people are paying me for the things I do, I wanna make sure that I'm an expert. So...
Doug:Yeah. And that's important because people rely on us for these types of questions and issues that come up.
Chris:Yeah. True. True. Yeah. So tell me a little bit about your practice.
Chris:Like, what do you spend, like, most of your time?
Doug:Most of our time is with estate planning and probate, and it's probably out of a 100% of the day, that's probably 90%, 45 to 45, and then 10% is stuff that comes up for some business clients, you know, we deal with, which also, comes into the planning side as well. Because if you have a corporate interest or you have own a business or, you know, you're involved in other things, in life, which we all are, Those are all part of a plan. And I you know, whether it's in court, probate, or, if it's planning, and then those things all become part of it. So it's that's really kind of what the practice looks like from our side.
Chris:Okay. So tell tell me a little bit about the probate process. I remember when I was, fairly new, financial adviser, you and I had sat down to have lunch. And, you know, this was, like, almost well, it's 8 years ago now. So Yeah.
Doug:It's been a while. Yeah.
Chris:But you had kind of enlightened me to what probate looks like. And I just wanted you to maybe let the people who are listening or watching know, like, what is the what is the process of probate?
Doug:Sure. Well, I describe the process as hell. It's a hassle. It's expensive. It's lengthy.
Doug:It's litigation. It's nowhere you want your family to be, and you're gonna be in that process if you own anything. It may be a little bit. It may be a lot. But if something is in your name personally and you die, which and let's face it.
Doug:We're all gonna pass someday. There's no way around that. If you own anything in your name personally, it's gonna be subject to some probate rule. Most people own a home. Most people have a bank account.
Doug:Most people have a vehicle. And that's the case if you pass. There's gonna be a court procedure, most likely to deal with those types of assets. And when I describe an asset, it really means anything you own. Could be, you know, something very simple or something very complicated.
Doug:It's still an asset, and the court's gonna have jurisdiction. Typically, real estate is what's going to get you into court because you cannot transfer or sell or do anything with that property without a court order. It's just the way it is. Title companies won't do it. The county won't let you transfer to anything.
Doug:It's all you know, it's subject to the court's jurisdiction at that point. And that's that's where you're at if if you pass away with property.
Chris:Right. Yeah. So, the process itself so let's just say and this is an example that I use quite often, which I'm talking to people when I'm telling them that they need a trust or something like that. But, let's say you you have a $500,000 house here in Redding. Not too hard to believe that you can have that here.
Doug:Yeah. For our standard.
Chris:Yeah. And let's say you're, like, 380 on it. But so you want that to go to somebody, and so probate's gonna decide where it goes. How much is that gonna cost somebody roughly in probate costs?
Doug:Well, the cost, there's a lot of different levels of levels of cost that come into play in a probate proceeding. One is just the initial filing fees. You're gonna have to pay the court $435 currently, for every document you file. So you you've gotta get that up front. You gotta pay for legal publication.
Doug:It's that little paragraph in the newspaper that no one ever reads except creditors. They read that, which is important. We'll talk about that too. Very expensive process, and you gotta pay for all the certified documents once you're appointed. And, of course, you gotta pay the probate referee, which she's gonna have an invoice to do the appraisals.
Doug:It's required by state law. There's no way around that. You gotta continue to pay for all the additional filing fees, which will be additional petitions for whatever comes up in the probate. The most expensive part, though, is the attorney's fees and the administrator fees. It's not an hourly rate.
Doug:It's not a negotiation. It's set by law, by the probate code, and it's a percentage of the gross value of the estate. So you mentioned a $500,000 home, which is fairly standard, and then you, you know, you owe, you know, 350k on it. So there's only 150 in equity. Well, for 1, that property is definitely going through probate.
Doug:No way around it. Doesn't matter how much equity there is or not. You you own the property. It's gonna deal with of course, gotta deal with it. 150,000 equity, the they actually do the percentage on the 500,000 value.
Doug:It's 4% of the first 100,000, 3% of the next 100,000, and then 2% of every 100,000 up to a1000000. Anything above a 1000000, then that's another 1% up to 10,000,000. It's it's sort of a sliding scale. It's mandatory. There's no it's it's there's no discretion, but the judge has to order it.
Doug:And it's not just for the attorneys. The attorneys get our fee, and then the administrator gets the same fee. So if on a $500,000, we're looking at $13,000 in attorney's fees, the administrator gets the same fee. So we're 26,000 in fees. We're probably gonna pay 2 grand to the court for filing fees.
Doug:So we're 28,000. Gonna pay the probate referee probably 6 to $800. So we're getting in inching up to 30,000. Gotta pay the record search site to publish or any newspaper. So we're $30,000 pretty quickly just to administer 1 home.
Doug:Now if if you look at someone's portfolio, they probably have some savings. They probably have a vehicle. They have personal property, all the stuff. So that becomes in addition to the $500,000 home. Now we have $700,000 of stuff.
Doug:So that percentage now goes up to not 13,000. We're, you know, 15, 16, $17,000 in attorney fees. Same thing, administrator, same cost. It just keeps piling up and it it's not unusual for an entire state to to come out to 40 to $50,000 in mandatory fees and costs.
Chris:Yeah. Yeah. That's I mean, that's and that's really, you know, what I've noticed too is that, you know, the the the cost is 1 factor and then the time is the other. You and I, shared a client who I mean, it's been well, there was some back and forth between the sisters and stuff, but wasn't it roughly are we sitting on, like, 3 years now?
Doug:Yeah. At least 3 years. And it's that's I wouldn't say unusual, but it does happen, more frequently than we like because, you know, we're trying we try to get these things through. The earliest the quickest we can ever do it is about a year, but that's the quickest. But 3 years, not unusual.
Doug:I've had 1 that went that lasted 8 years, and it was 1 of those deals where we had 1 1 piece of property that was worth a lot of money, and we had 5 5 siblings that none of them got along. They had restraining orders against each other. Some of them had child support judgment, so we couldn't transfer mom's property to the 5 kids. We had to sell it. There's no way around it.
Doug:And there was there were no buyers because the appraisal came in at such a high level. It wasn't worth that much, but we were stuck with it. So we went through 6 realtors. Finally, we had a buyer, which was significantly less than the appraisal. In the meantime, 2 of the 5 kids had died.
Doug:So their kids took their inheritance. And it's just 1 of these nightmares and, of course, you know, our fee ended up being, you know, 13 to $15,000. It wasn't cheap. Administrator got her fee and she'd earned it. I mean, she got beaten.
Doug:Heck, you know, deal with her family. It was just 1 of those absolute nightmare stories. Like, this would have so much easier if we had some planning in place. But we were we were stuck with it. So Well, that
Chris:and and that definitely leads me to my next question, which was, you know, what are some ways that people can avoid avoid probate?
Doug:Well, there's I describe those vehicles. We're looking for methods of transfer of property when there's a death. So as you know with your clients, when you they have a brokerage retirement account qualified money, there's a beneficiary option. Right? And if you would you would obviously advise them to make sure the beneficiaries are up to date, that money transfers to where it's supposed to go.
Doug:There's no probate event because that's the vehicle for transfer. That's the probate rule. You you submit a death certificate, a claim form. There's a rollover or the money gets transferred, transfer on death beneficiary. What if they have established very easy process?
Doug:That's a I described it as a 2 door sports car on a 1 way street. There it goes. Easy, very easy process. Right? The rest of the property, though, a home or multiple investment properties, maybe a business interest, regular checking and savings.
Doug:We don't have a beneficiary option generally for those types of assets. They may be owned jointly where there may be some rights of survivorship, but if there's joint ownership, eventually but the joint owners, they're all gonna die. There's no way around it. We need a vehicle for that type of stuff, and that's what a living trust provides is a vehicle. I just described it a little more as like a 4 door vehicle instead of a 2 door sports car that makes it really easy.
Doug:It's just a little more advanced, so that you can still manage your property during your lifetime. But in the event that you can't manage your property, let's say you're sick or injured, you've come into the condition where we're not able to take care of things, someone can step into that driver's seat and take care of you because that's important. You don't want the court involved because as we know with Britney Spears, conservatorships are not optimal. Like, nobody wants a conservatorship. And if you don't have anybody lined up to take care of you, that's what we face.
Doug:A trust helps avoid that because someone can become part of that plan for you to manage your property, pay your bills, manage your bank accounts, manage your investments so that the judge doesn't have to be be part of that process.
Chris:Yeah. Yeah. I know that, I feel like, you know, when we do open all of our accounts here, you know, we're always very adamant about beneficiaries. And and I remember when I was at Edward Jones, you know, when I first started, I had taken over some accounts from some other advisers, and there were so many of these people that didn't have beneficiaries listed. So just because you have a brokerage account or, you know, an IRA or something like that, doesn't mean that your beneficiaries are on there.
Chris:So if you take anything from today's podcast, I would definitely say make sure you call your adviser and make sure the beneficiaries are on there. It really is their job. It's their job. But
Doug:It's it's critical. You're right. Make sure. Yeah. Yeah.
Doug:Because, I mean, we we don't see it as often, thankfully, because I think a lot of advisers are paying attention. But we do have those where it comes up where, you know, we we only thing we have is real estate to deal with probate. That's it. Or everything else is managed because they've named beneficiaries or transfers on death or some way of transferring that that account. Great.
Doug:But we do have those that come up where, you know, I don't we we never know what happened. It's like, well, why, you know, why didn't someone just name you know, especially when if there's only 1 child. You know? Mom and dad had 1 child. That's it.
Doug:And then they gotta send that $300,000, you know, retirement account through probate. And that's expense. It just adds on to the total. And, you know, it's it's completely avoidable, you know, in a very easy process. I do appreciate, we've never had problems with you ever because you guys are maintaining your clients well and things are taken care of.
Chris:Yeah. I think the 1st year I was an adviser, I wanna say that I mean, I wanna say it was probably, like, a 100 clients that we sent to Git Mhmm. Trust accounts. And, I mean, it was like I know some of them still didn't do it, but, like, it was, like, part of our annual review. You know?
Chris:In fact, when I do an intake now, when I do an interview with a new prospective client, I will often, take the time to be like, do you have a trust? And if they don't, I'm like, okay. We're gonna have to have a trust. You know? Because if they like and my my cutoff typically is, like, if they're if they have a couple of accounts with us, we can add beneficiaries.
Chris:But, my cutoff is very similar to what you had said earlier, which is, like, do you own your home? If you own your home and there's any sort of equity in it whatsoever, then I feel like that's really kind of the the the checkered flag that you've gotta get like a trust. Is it would you agree with that?
Doug:A 100%. And so there are other benefits. So we used to do an analysis of or are they really a candidate for trust? Let's say they lived in a mobile home. There's other rules that apply to mobile homes, and they would probably never be subject to probate.
Doug:But now, there's issues that come up where do they are they gonna need long term care? Are they gonna be eligible for medical? Or a trust now becomes important because in 2017, California changed the rules on Medi Cal recovery. So there's 1 thing on the 1 side, are you eligible for Medi Cal? That's always a challenge.
Doug:Do you have too much money in property so you may never even get the benefit? But if you can, if you can become eligible, you get the care, the state's gonna come to collect. What's the bill when you pass? Well, in 2017, they changed it to where they can only collect from your probate estate. Well, if all your property is in trust, what's your probate estate?
Doug:You don't have 1. It's in trust. So there's nothing for the state to collect. You've received your benefits. Family gets to recover what and it may not be a lot.
Doug:It may just be, you know, $10,000 in the checking account, but that's better money going to the family than to the state of California. That's for
Chris:sure. That's phenomenal. I wasn't aware of that. And, I mean, I know back it was a long time ago, but my grandmother had passed, and she left some property me and my mom. And when we went to sell it a few years later, they came back and tagged us for, like, $30,000 of medical Medicare medical.
Chris:Yeah. Yeah. Because because she had for the last, you know, 16 months, I think she was in a care home.
Doug:Yeah. And and that's a senior lien. That takes other than attorney fees and administrator fees, that's number 3. They are going to get paid no matter what. And if there's nothing left for the family, tough.
Doug:That's the way the state looks at it. We're working we are going to get our money. That's how they view it.
Chris:So so now if if that were the same situation were to happen, if that if that property was transferred down through a trust, then then that wouldn't be subject to those that callback from the state?
Doug:No. There's there's, there's no probate estate for them to recover from because everything's in trust. Wow.
Chris:There's there's another reason right there.
Doug:Yeah. So that that so that change in law, for 1 week, we were perplexed on why state of California would do that because we know that the state likes to get as much cash out of our pockets as they can. Right. But the the thought was, well, probably the is an eligibility component. So the folks that are gonna be eligible probably don't have a whole lot anyways.
Doug:But on the other side, there's also some savings that were not in conservatorships. We're not in probate. Judges aren't cheap. The court houses aren't cheap. Marshals and bailiffs aren't cheap.
Doug:The state pays for all of that. So in the judicial system, if we can keep people out of the system at a more efficient private manner unsupervised by the court system, the state's ahead on that side too. And how much are they really gonna recover on the Medi Cal recovery? Probably not that much compared to what they're saving, just to encourage people to do planning. You know, and I always tell people the rules could change someday, but California hasn't really done anything adverse for state planning in 25 years.
Doug:It's been they've been very helpful for our side of planning to make things just more efficient for folks. It's it's been quite quite nice.
Chris:In my mind, I'm like, shh, don't tell them.
Doug:No. It's good. Yeah. I mean, for for, is the crazy things that come out of Sacramento, from, you know, every day, we actually we've been it's been pretty helpful on the estate planning side, to not have to deal with the the otherwise crazy results that come out.
Chris:Yeah. Something that, else I deal with quite a bit in my practice, you know, with investments and investors and estate planning and stuff like that is someone who who hasn't passed but has become sort of, like, incapacitated. You know, maybe they're not very mobile. Maybe they can't talk on the phone or hear anymore, you know, things like that. And it's like, you know, it's sort of hard to get grandma, you know, loaded up, bring her down to the office so she can, you know, basically talk to us but not hear us and, you know, so can you talk about, like, what people can do, to cover that as well?
Doug:Sure. So in addition to a trust, which is, you know, a document that allows your property and your assets to be managed, we also do a durable power of attorney as part of a plan. And those are things that trustees don't deal with. It's your personal obligations typically where it's the power bill. It's insurance, Social Security, taxes, things that you gotta make the phone call on, and maybe you can't make the phone call or maybe you can't deal with that type of asset or that account.
Doug:So we have a power of attorney, which is durable, which means as long as you're alive, there's authority. Someone can make those phone calls for you and address the issues that come up. We also do a power of attorney for health care. Very important. If you've ever been to the doctor, they're gonna ask you, do you have a directive?
Doug:That's what this is. It's called an advanced health care directive. It allows you to appoint someone to be your agent for health care decisions. Now if you if you can make the decision yourself, you're you're great. You're in good shape.
Doug:If you can't, then someone can then have those conversations, discuss medical records, procedures, things that come up. It's also important that they would know what your end of life wishes are. We deal with this all the time where we have folks that come in, that didn't have anything in writing, and we have folks that come in that did. And I could tell you the folks that didn't have anything in writing, their grief is now up tenfold because they weren't even sure they made the right decision because they had to make end of life decisions for a loved 1, typically a parent. And they didn't know of course, they made the right decision.
Doug:They but they don't know. They didn't know because it wasn't in writing. Now compare that to the folks that come in, and they do have something in writing. They know that, look. If certain conditions exist, they don't wanna be stuck on a machine.
Doug:They're essentially saying, look. This is my wish. I don't want to be stuck on a machine. So the decision is just to honor their wishes, and it is a remarkably different experience for the folks that do have something in writing versus the ones that don't. Awful decision either side.
Doug:There's no doubt about it. It's the worst thing that you're gonna have to deal with probably is a child or someone with a loved 1 that you gotta make that decision for. But it is much more it's easier to do when you know what it's in writing, for sure. Now it also includes pain medication, whether someone wants pain meds, which most people do, whether they wanna donate organs, very important decision. If someone's eligible to donate, we need to know what the the person what the what do they wanna do.
Doug:Also importantly, and which is really critical on this 1, is, this document allows you to appoint an agent to deal with burial for cremation, taking possession of remains for that issue. California doesn't recognize the human body as property. They early case in the nineties where, they were dealing with body tissue and trying to deal with the black market of body parts, and they just said, look. We're just going to allow someone to have authority to deal with the human body when there's a when there's a death. Because when you when someone dies, the the the mortuary of the funeral home is gonna ask who has power of attorney.
Doug:That's what this document is. California doesn't regulate how you get buried, but they're gonna say who could who's in charge to take care of that process. Very important because people fight about that. They fight a lot of stuff, but that's 1 thing that they really do fight about for sure.
Chris:Right. Well, you know, and kinda circling back to the health care directives, you know, the 1 thing that I've just sort of seen personally is, like, you know, let's say, you know, dad's passing away. Right? And mom's maybe already gone. And then you've got 2 siblings.
Chris:Right? And one's like, dad wanted it this way, and the other one's like, no. Dad wanted it this way.
Doug:Yep.
Chris:And so now they're arguing over, you know, whether to keep dad alive, whether to keep him, like, you know, on a tube or, you know, something like that. And it's like, now you've got 1 person that's like, listen. I know that, you know, dad wanted this. And the other person's like, you're killing dad. You know?
Chris:It's like it's such a huge stressful situation
Doug:Yeah.
Chris:Because, like, there's no communication there. And that's what I love most about the health care directives is, like, you know, it's in writing. This is exactly what dad wanted. So you're just you're just, you know, honoring the wishes. You're not trying to, like, go from a standpoint of, like, I don't know what he'd want.
Chris:Let's just try this. So that's the 1 thing I've seen, I think, more important than the health care director than anything else was just that, you know, siblings, you know, can still talk to each other when it's over.
Doug:Yeah. And and, it's enforceable, which means that if there was a legitimate dispute on how this can be handled, well, we we have a document in writing where we can get a court order if needed. I've actually never had to do that because it's in writing. You know, it's it is what it is. But people do fight about that.
Doug:Usually, you know, it's typically they're fighting when there's not something in writing, and they fight until the invoice arrives for the cremation or whatever they've done. And then they both like, I don't want that. It's that's all you. But it's having a deed directive is just such an advantage. Even if you don't own anything, you should have it directed because at some point, that issue you're you're gonna you're gonna die someday.
Doug:There's no way around it. Yeah. So at least give your family the comfort to know what you wanna do.
Chris:What so if someone someone wanted to get a trust, with it comes with the health care directives and the power of attorneys, you know, what's the you know, and we already talked about, you know, 30 to $50,000 for probate. So, what's the general cost for, you know, a package that includes a trust and some health care directives and stuff like that?
Doug:So we do a flat fee for if it's a if it's a couple, then it's 25100 flat fee, and then any recording fees, if it's your primary residence, typically $23 with the county. And then if any additional properties, state of California, generously charges another $75 for I think it's an urban housing and development fee. So it's less typically less than $100 per deed. We collect that because we take care of the recording fees, for you. We take and get everything recorded for you.
Doug:But that's that's it for a couple. If it's just a single, we charge 2,000 plus recording fees. And no matter how much how many times you come in, no matter how many times you talk on the phone, how many emails, it's the same price. We wanna try to avoid, you know, the the court system, which, you know, I I love my planning clients. They're the they're the they're the best.
Doug:You know, oftentimes, people come into a law firm and even if they're 100% right and done everything the right way, if they're getting sued or they need to sue someone, it's gonna cost a lot of money. They're gonna walk out with a bloody nose even if they win. It's not a good experience generally, but in our circumstance, you're leaving with a binder with all your documents. And and you're you have a tangible product, and there's value there because you can check that box that everyone needs to do. Check that box.
Doug:I've got everything in order. And that's why this is a favorite part of my practice because we do on my side of the table, I get to see that relief, the absolute relief that comes, on their face, and you just see it. It exit their body that, alright. This is done. Thank god this is done.
Doug:Like because they've been thinking about it for a long time, and it's it's done.
Chris:Yep. The 2 the 2 times in my life where I've felt, like, I would say, like, ultimate relief, was the when I got my trust, that was the first 1 because I was like, now my kids and my, I was married at the time, my wife are taken care of. I know that that my situation doesn't necessarily need me to take care of them. So that's that was the number 1 thing. The number the the the other time that I became apparent was, and I would suggest this for anybody as well, is the first time I sat down and did my own financial strategy when, you know, I've got this asset and that asset, and this is how much it cost me to run these things, and these are my bills.
Chris:Then I pointed it all into the system and went, oh my gosh. Like, I actually can retire. I can retire someday. Yeah. So those are moments that I think that people don't understand.
Chris:They see the stress of, like, meeting with someone like yourself or to have you know, have those tar those tough discussions. Right? Or they see the stress of meeting with someone like me because, like, you know, you know, like, hey. We don't know what to do here. We're kinda like flying blind.
Chris:And, I think that we both provide that same sort of, like again, I just feel like for me in my life, those 2 moments have been the the most, like, moments because I'm like, okay. I've got a solid retirement plan. If something happens to me, I've got a solid plan for taking care of my heirs. And I feel like those kinda go hand in hand, and that's why I'm such a huge proponent of, the trust system, you know, doing the trusts.
Doug:Yeah. Well well and I as you I'm sure you've experienced. I think the mistake a lot of people make is they think that they have to have everything in order, and I need to be well invested in in in everything straight and clean in order to meet with an adviser or an attorney. That's not the case. That's our job to help get them lined up.
Doug:And I think people are very hesitant to come in to see us because they think, oh, I don't want them to judge me. I go, there's no judgment. Your office is designed to help them get their 17 different accounts lined up and and hopefully consolidated. And, you know, as you can imagine, I've I've I can only imagine what you're what you see, you know, because I know what I see on my side, and people are all over the place, which is I mean, they've done well. You add all that up.
Doug:There's an incredible amount of money there and and assets and things that they've done, but they think they're a mess and, like, oh, I don't wanna do that. And, you know, I'm embarrassed. Like, no. Come. Let us help you because it's we're gonna get you organized or at least streamlined.
Doug:You know, you can still make a mess if you want, but at least you got the the guardrails put up where whatever you do in between, like, it's fine, but you're lined up to make sure everything goes in the right direction.
Chris:Right. Yeah. Consolidation is a huge part of what we do here. You know, I I mean, I don't think I've ever had 17 accounts, but, you know, you definitely get to see people who, you know, I was in this job, and so I have this account, and I have Fidelity, and I have Vanguard, and I have Valek, and and I always call all of those places. Don't tell them I said this, but, those are lazy money.
Chris:Right? There's no 1 looking at it. There's no 1 calling them. You know, people say, well, you know, sometimes every once in a while, people will go like, why, you know, why do I need a financial adviser? And I say, okay.
Chris:Well, when 2020 hit and the COVID hit and the market went down 35%, how many phone calls did you get from Vanguard? And it's like 0. Right? So you have no moves. Right?
Chris:You made and and I just you know, there's you should have somebody on your side, you know, working for you. And that's why I call that lazy money because that money is just wandering around. You know, it's still growing. Right? And you know that, like I said, they've accumulated a lot of wealth.
Chris:But, you know, how much better could it be if they had somebody actually leading the charge? So
Doug:Well well yeah. And what I you know, oftentimes I hear like, oh, I don't want to pay someone to manage that because I'm not paying anything right now. And you look at it, it's like, well, obviously, I can't give financial advice because I have license to do that. But in the way, well, how well is that money working for you right now? Like, you need to talk to someone.
Doug:Yeah. They're gonna charge you, of course, because they're earning that money because they're gonna earn you a bunch more. You know? You may take you you may pay them a little bit, but they're gonna make you a heck of a lot more than what you're doing right now. And that's important because, you know, what you've experienced looking at well, I've got everything lined up and, wow, we're I'm in a place I can retire.
Doug:These folks think that, but they're, you know, they're not actually confident that they can retire someday because they don't think they have that much money, and you consolidate all the gifts. Like, they have a chunk of change, and it can be much more with someone that's capable to put them on the right spot.
Chris:And and just guiding people through the ups and downs of the market. You know? Our our brains are wired, to avoid pain, more than they are anything else. So it's like when when the I always tell people, like, you want a real world example of this. You buy stock a today, and it goes up 10% today.
Chris:You're like, cool. I mean, you're like, that's a good deal. I'm happy about that. You buy stock a tomorrow and it goes down 10%. Like, you're like, oh my gosh.
Chris:Like, 10% 1 day. Like, it's painful.
Doug:I've been losing money. Yeah. No. You're not. That's all if you're selling.
Chris:So so for me, a lot of times, it's just taking the emotion out of it, You know? And saying, listen. Are you okay? Everything's fine. Let me show you why what what moves we can make to take advantage of the situations than just letting that situation take advantage of us.
Doug:Yeah. And that's that's the advantage that you have on your side that you can have those conversations to help people get even, you know, in a better position than they might think they are or not. For us, we're typically a 1 time event where you're set up and, you know, it's if you're at Chris' office and you open a new account, obviously, he's gonna know how to move that account into your trust if it's not qualified money. But for the most part, like, you get you get to enjoy those days where you're walking the folks down the path of success. And, you know, we're we're a 1 time, like, plans in place, we're good.
Doug:If you make changes or need to make changes, you can do that.
Chris:Yeah. You mentioned, nonqualified versus qualified money. That actually reminds me, that you know? So when you have what's called nonqualified money, which is like a trust account or a joint account or something like that Yeah. Some people call them brokerage accounts, you know, you're gonna wanna have some type of, designation for how that money goes down, and that would be a great place for a trust.
Chris:If it's not already a trust account, you know, you wanna designate a trust account. If you have what's called qualified money, which would be considered an IRA, something that a 401 k to that effect. If you have that kind of money, I do have people who will say, oh, just put it in my trust. And I tell them, no. Please don't put it in your trust.
Chris:And and and and the reason that is and I know you know this, but in case people are listening, they don't understand this. This is a huge mistake. Trust
Doug:Critical mistake. Yeah. 100%. Yeah.
Chris:Go ahead go ahead. I know you know this as well as I do. Go ahead and tell tell the folks why this is such a huge mistake.
Doug:Well, it's complete distribution. So you've got, pretax money sitting in an account, whether it's an IRA or a 401 k. Not assuming it's not a Roth. I mean, which Roth would have other tax potential consequences. But if you if you take a 401 k and you move it into your trust, you're gonna get a massive tax bill at the end of the day.
Doug:You roll that money in, which it and and, Chris, you know, like, you're you're never gonna advise anybody to do this. And I tell people because that's a we get that question in every single meeting. But my retirement accounts need to be in my trust. And I said to them, no. It does not.
Doug:And that shouldn't be in your trust, and it never should be in your trust. Now if you're taking distributions because you have RMDs or you're retired and you're taking money up, that money should land in an account in your trust, but don't move your 401 k or your your IRA into your trust because it's a 100% taxable. Like, no matter what, you're gonna get killed on that. But you leave it where it's at. You're in good shape.
Doug:But, you know, like, man, it's I hear that every single meeting. Like, we need to move it in. And you've been like, no. No. If if your financial advisory advisor tells you to do that, fire them immediately.
Doug:And I have I have referrals for you. Like, call me because that that is not you will come April 15th, you will feel the pain of what you just did 8 months before. Right.
Chris:Just just to add some context to that, I think the cutoff is, like, $14,700. It's a number right around that low, where the distribution that you take out, if it's over $14,700, your new tax rate is 37%.
Doug:Yeah. You're gonna get killed.
Chris:I could be off on the numbers a little bit, but it's roughly the idea is that, like, the first 10,000's, you know, probably what you would pay if it was coming out of your your normal taxes. And then from there on out, it is it's egregious, honestly. 3037 percent is is the number that keeps coming back into my head, but it is it's a huge number.
Doug:Yeah. It And
Chris:you have and like you're saying, you have to liquidate. You have to you you know, part of inheriting an Aira is that you have to liquidate. Now you can liquidate over time. And as an individual, you can sort of make the timing. Right?
Chris:It's like, hey. I'm not working that that that much this year. Okay. Well, let's let's liquidate more of it this year than next year then. And then next year, it's like, oh my gosh.
Chris:I got these bonuses and everything's going really well. Okay. Well, let's do not liquidate a bunch then. Let's just liquidate a little bit, if any. You know, you're gonna have some required distributions and things like that.
Doug:But you have more control
Chris:over how you do it.
Doug:Yep. And that's exactly what I tell people. Work with your adviser because they're gonna give you the strategy on how we deal with this because there is good years. There is bad years where we take more out this year because there's less tax consequence. We're trying to mitigate taxes.
Doug:I mean, some people some people like to pay taxes. I I've never met 1, but, most people, you know, wanna try to lessen their tax burden as much as possible. We pay a lot as it is. You know, and I can tell you this much. If the Trump tax plans, sunset in 2025, which you're going to and and if depending on who gets elected, if the Biden administration is elected, our tax plan is not gonna be favorable.
Doug:They they've already said they want to increase taxes across the board. So these capital gains, whatever it is that you're experiencing, income tax, they're gonna go up. So it's important to make sure that if you have to pay those taxes, that we try to manage it as effectively and efficiently as possibly that that you can do. So
Chris:Right. Absolutely.
Doug:Yeah.
Chris:Well, so last but not least, on the agenda here for today is can you kinda give me, like, a rough synopsis of synopsis of, like, the top 3 mistakes that you see people make in estate planning?
Doug:Well, number 1 is no planning at all. That's Sure. That's the number 1 mistake. It's people think, oh, you know, I'll live forever or, you know, what's in it for me? Well, like I mentioned several times, we're all gonna die.
Doug:There's no way around it. We all own something. We need to have something in place. That's definitely the number 1 mistake. Number 2 mistake probably is having a plan, that is not done correctly, and then you don't fund it.
Doug:So there's 2 really 2 parts of plan. 1 is structural. What's it say? And 2, is it funded? What I mean by funded is you have a trust.
Doug:Great. You went online. You did legal Zoom or whatever. And then, well, you didn't put your home in your trust. And maybe the trust doesn't say what you wanted it to say.
Doug:You put your bank accounts in, and that's of all the plans that we have and that we deal with that end up in probate, is because they didn't fund it. They didn't do the right things to move the property into their trust. They think they did or they actually did draft a deed. I had 1 of these recently where a deed was signed. They they didn't do it correctly, meaning how they printed it.
Doug:It wasn't that the deed wasn't technically correct. It was. But they did on Adobe. They printed front and back, which is fine. But on 1 of the pages was also the, a county assessor's change of ownership report, which cannot be recorded.
Doug:It's a private document, so we can't record the deed. Well, that kicks us in a whole different issue because now that we can't fund the trust, so we have to file petitions with the court to confirm that it is a trust asset. I mean, there's all these complications that come up where if you just had done it it correctly, you know, no big deal. 3rd mistake I mean, is it that's kind of a garden variety, issue with 3rd mistake is, you know, you don't have your you don't have all the documents in place to deal with it. You may have just a trust.
Doug:Something we didn't discuss is what's called pour over will. That's a document that does cover things that aren't part of the trust. I have a credible story about, this husband comes in. His wife's family is trying to sell an apartment complex. Well, there's a 25% interest that, is unaccounted for.
Doug:Well, I'm like, well, how do we get there? So 10 years before, husband and wife prepare a plan. Everything's in place. They're in good shape, all their properties in their trust. She's sick.
Doug:She has cancer. She passes away. Right before she died, her brother had passed before her. His probate closed. She inherited a 25% percent interest in an apartment complex.
Doug:They didn't put it in their trust. Why would they? They didn't even know that it existed. Fast forward to when he comes in, obviously, that 25% unaccounted for interest. You know whose signature they need in title?
Doug:Hers.
Chris:Yeah. She's deceased. Yeah.
Doug:She's she's she's been dead for 10 years. What do we do now? Well, we've had what's called we've had what's yep. There's no way around it. It's gotta go through probate.
Doug:The buyer's freaking out because this is when the interest rates are going up by the hour. I mean, every day, the interest rates are going up. So buyer's freaking out. We don't have anybody sign our name. They had what's called a pour over will.
Doug:That's gonna cover everything else possible. That's a document we were able to get him appointed within a few weeks as the executor. He then had authority to sign closing documents, and I'm telling you, it was a chunk of change. My first question was, where were the rents going? Because who was getting rents for a decade?
Doug:Clearly, it should have been going to him. Whole different issue. But we were able to get a point of money, had to go through the court system, but it was directed to his trust. Fortunately, he had a great relationship with the kids. But if there was not a will and the kids and he did not get along, her interest, which is separate property by law, would have been subject to a division, part to him, part to the kids, and maybe 1 of those kids didn't wanna sell the property, then what?
Doug:Why? So it makes things much more efficient. But we see that where they'll have a trust and they don't have a will or they don't have a power of attorney, or maybe they do, but they don't have a health care directive. And and that's really the the bigger mistake we see is you've you've got a plan. It's just that you're missing parts.
Doug:And it's, like, such an easy thing to because we look at it as a comprehensive overall. What what do we need to do to cover anything possible that comes up in life? I mentioned Britney Spears conservatorship. We all know nightmare. We don't wanna be there.
Doug:This helps avoid that because you've got somebody that's has authority to deal with anything possible that comes up. Doesn't matter what it is. Asset related, account related, typically trust. If you've passed away, it has to go to the court system. We've got that addressed.
Doug:If you're alive, just not able to take care of things, we have that addressed with the durable power of attorney. And if you deal with medical issues, we have someone that can manage that for you as well. So that's typical where we see it's like they just hodgepodge it and, you know, think in their you know, not that they did it incorrectly. There's missing parts, and it's like, oh, you're so close. So close.
Chris:You know, 1 of the things that reminded me of when you were speaking about that was, I had a situation where we refinanced, a property. And so in order to refinance a property, you have to take it out of the trust Yeah. And then you refinance it in the person's names who's getting the loans, and then you put it back in the trust. Well, twice twice in a row, a local title company didn't put it back in the trust. So the property is sitting in the individual names even though we had it in a trust.
Chris:So so there's something like you you know, like, once again, if you've you've refinanced your house, you know, in the last 5 or 6 years because everybody did. Right? Everybody in 2020 and 2021 refinanced their house, Make sure that it's still in your trust. So that's another huge thing. You've done all this work.
Chris:You've went and done your estate plan. You you may not have your house in your trust. Is that crazy to think? But I can tell you it's happened to me twice.
Doug:So it's your your 2 experiences are actually very common. And it's I I would describe that as probably the most common mistake we see. It's not the client's mistake. They're you know, they gave instructions. They told the the escrow company, this is what we need to do.
Doug:Not their fault. I mean
Chris:But how does how does someone go to rectify that? Do they go to you, or do they go to the title company? It's the easiest
Doug:way to
Chris:by that.
Doug:So what happens there a couple different things happen in that circumstance. 1, home was in trust. We have a pour over will. We have a trust. We we know what happened.
Doug:They just screwed it up. So we we file what's called a Heckstead petition. That's a petition to the court that says, look, your honor. This is what happened. We've got the trust identified as the owner.
Doug:We have a deed that shows that it was the owner. We have what's called a general assignment of interest, which means that their intent is clear. Judges care about intent. They don't guess. They will not guess.
Doug:They wanna know what was the decedent's intent. Well, the intent was for it to be in trust. Escrow screwed this up. We don't need to be in probate. The judge will will sign the order confirming that that's actually a trust asset.
Doug:We see this come up also on a secondary issue, where there's a refi and only 1 spouse is earning at that point. So and whether they have a trust or not, we have a property that was in trust or maybe is in their names, but now it's only in 1 spouse's name. They've that 1 spouse has passed away. The lender won't talk to the surviving spouse. They can't do anything because the property is not in their name.
Doug:So we do what's called a spousal property petition. Kind of the same theory that, look. This is community property. They just it got screwed up. It's not the client's fault.
Doug:Escrow company screwed it up, and then we can confirm it. It's actually community property. Have it assigned back to the trust, transferred back in. Good to go. Those are really 2 things that come up come up more often than we'd ever expect.
Doug:And then those aren't the client's fault, but it is a conversation that we have Every time we do a signing at the end, this is your checklist. If you do something 5 years from now, you do something 5 days from now, you've gotta make sure you check your titles, check your property tax statements, check your account statements, make sure that your trust
Chris:Yeah. Go ahead.
Doug:So make sure your trust is mentioned because if it's just your name, it's not in your trust. If there's ATTEE or trustee or trust or something, it's probably in your trust.
Chris:Right. So if someone is alive still, they've done the work, they've gotten their trust, they've done a refinance and the big refinance, you know, wave that came in 3 years ago. They've done that, and they check it today, and they go, oh, no. It's not in the trust anymore. Yeah.
Chris:Who do they contact for that? Is that again somewhere they go
Doug:to you? Do they go to the title company? Where do they Title title companies generally won't, do transfer deeds anymore. They used to. But they've you know, they're they're insurance companies.
Doug:They're title companies were getting sued because of what you described as property was in trust. They took because of what you described is property wasn't trust. They took it out for this transaction. They didn't put it back in. Now that property has to go to probate.
Doug:So they're getting sued because, clearly, they've they they screwed that up. So I think they've just altogether said, we're not doing any of those transfers anymore. Call our office. We're able to help you get that transfer. It's a very, very easy process.
Doug:And, typically, it's I mean, there's not much time that has to go into those because alright. What's your trust name? Let me look at your deed currently. Typically, it's a it's a paralegal work, to get that done, get it recorded for them, and, you know, they're off and running.
Chris:Great. Okay. I'm now racking my brain. I think I might still have 1 that's not interest, so I might be calling you, as soon as we're done with this call.
Doug:Yeah. So, yeah, look at your property tax statements. That will definitely indicate how that property is held because if it's if it doesn't mention your trust on the property tax statement, then it's not in trust for sure.
Chris:Yeah. Huge. It's huge.
Doug:And it's pretty easy for me. We have access to a couple different title company portals. So we just run the address, see how it pops up, and we we can see basically an index of of what's been done for the property history, and we know, you know, where we at on this property. And I always encourage, especially clients, just call us. I mean, it's a 22nd phone call, and and 99% of the time, you're in good shape, but just we don't charge that information.
Doug:Like, send us an image of what you got, and then from there, oh, yeah. You're in good shape. No issue. If if there is a problem, okay, go back to your bank. Go back to your adviser.
Doug:There's a this account's not, you know, not titled properly. Not a big deal. You probably seen it where someone just didn't mention an account to you, and and, of course, it's not in their trust because they didn't mention it. That's often the problem too. They just forget about it.
Doug:Yeah. But if it's real estate, yeah, Transfer Deep, super easy process.
Chris:I think people sometimes worry too, and maybe you could put this to rest or or at least elaborate on it. You know, if you've got AAA loan on something and it's in your name and you decide to put it in the trust, I think people are worried that the loan might get called or they're worried that this the county might, like, reassess the taxes. Can you speak to that part of it?
Doug:Oh, of course. Yeah. So a couple things happening there. 1 is, is there what's called an acceleration clause? Every loan has it.
Doug:If you deed half of your property to your neighbor, I can guarantee you if your lender finds out about that, they're gonna trigger the acceleration clause. They want their money. You've compromised their security. If you transfer the property to a living trust that's designed for you, by you, for your benefit, California law prohibits any lender from triggering an acceleration clause. So there's no issue there as long as it's going into a trust that you've created.
Doug:But like I said, if you transfer you know, you put your child on your on your deed, because people do that, you might where it will trigger your acceleration clause because the lender is gonna say, I have no idea who that person is. This is the guarantee that I'm gonna get paid back, and now they own half and they're not on the contract. Problem. So that's that's really the issue with acceleration clauses. The other issue is the reassessment.
Doug:If you're going if you're transferring property into a trust, it's exempt from reassessment as well, so you won't get reassessed. The only time we have reassessment issues is now prop 13 preserved property tax values. Prop 19 changed that. It changed a number of things within that preservation. But if you're not if you're inheriting property, parent child transfer, you're inheriting property, and you're not going to live there, not your primary residence, it gets reassessed.
Doug:If you are going to live there, it's your primary residence, it's still exempt from reassessment. So a lot of different ways we we try to get around from reassessment. But if it's going into a trust and you're planning your life, not gonna get reassessed unless you add your child on it. And then that child's interest will be reassessed for sure.
Chris:Wow. That's fascinating. Yep. Well, I could do this for another hour, but I know you got things to do, and I'm sure
Doug:this is
Chris:only This is fun.
Doug:Yeah. This is fun stuff. III really, really enjoy it. When I say this is a favorite part of my practice, that is it's actually that's kind of an understatement. III love this stuff.
Doug:It's just it's fascinating because there's always new issues that come up. My staff loves it. It's, just it's fun stuff.
Chris:Yeah. How would someone get ahold of you if they need to get in touch with you?
Doug:Yeah. So they can call me at our office. Area code 530-243-6000. We handle, cases all over California, do state plans all over the state of California. I'm also licensed in Tennessee as well.
Doug:I don't have a whole lot of clients back there. I do have some interest back there, but, I do. If anybody's watching this in Tennessee, you can always reach me in the same phone numbers, but that's really the easy way to do it or my email, doug@douglaswrightlaw.com. Perfect. Yeah.
Chris:And if you need to get a hold of me, you can look up Redding Financial Advisors on, Google, and you could, call us here at the office, 530-248 6900. Our website is also reddingfinancialadvisors.com, and we'd be happy to talk to you about this and any other discussions you might have with regards to investments, retirement strategies, estate plan, etcetera. So, my name is Chris Hall, and I just want to say thanks again, Doug, for being on the program. It was excellent, and I really feel like I got a lot out of it personally. And, hopefully, people listening got even more out of it.
Chris:So Good. Thank you so much for your time.
Doug:Yeah. Thanks, Chris. Thanks for having me on. This is, like I said, good stuff, and you do great work. So I'm always happy to, to send people your way as well.
Chris:I appreciate that. Thank you, Doug. Alright. Well, you have a good day.
Doug:You too. Take care.
Chris:We'll do it again.