Estate Planning For People With Modest Means – Episode 184

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. I have with me today Rick Randall. Rick has done several podcasts for us that have just, oh, he has provided so much information in such a short period of time. He’s an expert in the estate planning industry. And today we’re going to be talking about planning for people with modest means. Now I know that we even debated about whether we should use that term modest means, so I’m going to tell you what modest means means to me.

[00:54] And it means that the money that you have is money that you worked hard for. And it doesn’t matter whether it’s $100,000 or $500,000 or whatever, but you can remember back when you made that money. And that money is important to you. And it’s important that you protect it from people while you’re living. And it’s important that it ends up where you wanted it to go when you’re not living anymore. And Rick certainly has worked with a lot of huge dollar clients, but he has also developed some fantastic systems to help those of us who are still just trying to work, set some dollars aside, and do the best we can. Welcome, Rick. So, Rick, how did you come up with the modest means program? We had developed our three-step strategy that we’ve talked about in some of our

[01:51] earlier podcasts. We’re planning to work. We want to have a relationship with a law firm and with your other advisors and have them in communication with each other. And that that would be the ideal way to do it, that you acquire a great set of documents, you integrate the finances with them, and then you keep on top of it so that changes in the family and changes in the law are taken into account. And as you do that, that you involve the family so that they can learn what their job is. And our assumption, Todd, is that most everyone, but particularly those with modest means, are going to want to name family members in their documents, and yet they don’t really have any place to go to be prepared when they’re called on in a

[02:35] health crisis or after a death. And so this three-step strategy was developed with the kind of the classic client that has a significant amount of wealth. And I ask people for the definition of rich. They always say more than I have. So, you know, when we use the term modest means, that doesn’t mean it’s not important. And yet we do trust based. And the reason is because of the ease with which we can amend the plan, keep it current while you’re alive, if you become sick, and even after your death, for those that inherit from you. And that’s why it needs to be trust based. That flies into the face of the some common myths that you and I wanted to address today, which is trust really are for everyone that cares about the

[03:39] assets that they work so hard to accumulate and the people that they’d like to leave it to. And so what we did was take our three-step strategy and just adapt it so that it’s a little bit less expensive up front and a little bit less expensive to keep current by relying on the professionals a bit more. Rick, I happened to be in the office supply store this week, and I even noticed that you can buy a trust kit in the office supply store. Do you have an opinion on these type things? And you can buy it online. So people are getting to us through the podcast. You all know that you can buy it online at LegalZoom. And so the difficulty is those are not customized for you. So what I would not do is pay an attorney extra to get documents over and

[04:32] above those if they’re likely just to be the same thing, which is just word processing, Todd. So I would rather a client would use a LegalZoom. And I know this is legal heresy, but you’d be better off if all you’re going to do is buy a document, then I don’t know why you would buy it from an attorney. You’re going to spend more money and not receive any additional value. So to me, I think that if you’re going to get a real plan, then you want to work with an attorney that has a process. That would be my opinion on that, Todd. And it’s just there’s no reason to invest in what is the attorney. The question is, what is the attorney bringing you for value? And it’s really the prosimizing that it matches and then keeping it current and

[05:30] educating your family so that the overall cost when you’re disabled or after your death is reduced. And the cost is not just financial, but also peace of mind that you don’t want to leave a heartache and a problem. You want to leave something that is thoughtful and that people are appreciative that you’ve left behind rather than a mess. I couldn’t agree with you more, especially when I think of the relationships that unfortunately the misunderstandings between people who receive things and unfortunately they are not around to answer those questions of the you had done. I know we’re on a podcast, so you can’t actually see the numbers, but one of the things that Rick has been able to impress upon me is the cost

[06:22] of doing it wrong. I mean, it can be huge, can it? And it’s much larger than people realize. And yet one of the things you and I talked about Todd is we started down the road with full disclosure and we found in our workshops that no one knew after death and worse yet I presented the truth about a state planning workshop, Todd, to about 18,000 people. And one of the questions in it, I’ll always ask for a show of hands. How many of you have talked with your estate planning attorney about how your estate will be charged after you’re gone? Show of hands. And over the years, the answer is only about 7%. I started tracking and it’s about 7%. And then you’ll love this about half of those, once they got

[07:14] the answer switched attorney. So I don’t, I don’t know what it is, but people don’t investigating with that. And that is majority is after death. And it’s, uh, it’s, uh, encouraged by the family members who then don’t have any way to undo or redo. You don’t get a do over, uh, you know, where they find themselves. So you want to get on top of that and get that cost reduced if you can. So, uh, state statutes, but the two quick ones, and, uh, I went on a little rant, uh, 20 years to try and full disclosure, um, and we’re happy to, to share with you an attorney compensation report. Uh, what’s interesting is everybody says that’s wrong, but they don’t provide any evidence of what is right. That is different.

[08:17] So lawyers are very non-transparent and the evidence that, uh, that I have that it’s much more expensive than what people want include God’s waiting room. So a lot of old people, uh, strong senior citizens lobby, they have an actual chart that you can look at to see what those figures are. And they’re much larger and they start on a graduate scale. Todd, that when you have a smaller estate, it’s a higher percentage to, to begin with. And so it’s, uh, it’s, it’s much more significant and you get no value for that. Can we spread, can we spread that over your whole lifetime? Make it much more affordable and get something for what you pay. And, uh, in our regular lifespan process, we were able to do that.

[09:12] The problem we ran into is that, uh, the front end price tag and the, and the commitment to doing the heavy counseling to, uh, engaging a lot would not make the major commitment and throwing their money way on, on a legal zoom or the, and so that’s where. You know, when I w when I look at this plan, it makes me think of, you know, first of all, I can say that personally, and a lot of the clients that I work with, you seem to keep putting this off because you think you have to get to a certain number to start an estate plan. And then once you have an estate, then again, you’re wanting to just do something one time. You make this sound like it’s something that can grow with me, retire with me.

[10:13] And, you know, it’s the relationship of this that you’re presenting that I think is the most attractive part. I agree. I think it’s the most valuable part. And so over the years, what we finally were able to do is take the learning of what needed to be done in terms of that relationship to make a plan work and some of the technical tools, uh, you know, that we’ve touched on in podcasts, the trust protector and so forth. And so if a person is very young, we have a program that, um, uh, you and I are going to talk about separately called the next gen estate planning. And that it’s still three steps, but what is needed at that age and that level of assets is very different than someone who might be very old.

[10:59] Uh, and then the modest means it’s kind of across the board. So I don’t have a lot to invest in the plan and maybe I’m not even that interested in doing it. So our modest means program, what we develop for people get in with a referral from a financial advisor. Uh, and I know a lot of your listeners on the prosperity economics would be in that situation. Um, and, uh, they have a million dollars in below and they make a commitment that they’ll consolidate assets with the financial advisor to make it simpler for the family afterwards. And what we do is instead of updating the plans every couple years, giving a much heavier counseling, the, the clients rely on, on my side, a little bit more on, uh, our experience designing plans for others.

[11:55] So we won’t compromise Todd on doing plans that work, but if you want, you know, fewer options and lean on the attorney’s experience a little bit more, we will still give you options, still meet that definition that we have of working with the counseling oriented attorney, um, and counseling oriented planning partners to include the financial advisor as well. Um, and that will allow us to drive down the cost. And we think that we can do that at the same level that most people give you attorney based, uh, for just the documents, and then we’ll go on that relationship program. It’s a little bit lesser expense than what we charge, uh, for our full program, if you will. And what happens is that, um, we use the tools that we have and rely on the

[12:45] financial advisor to keep the, in touch with us about your finances a little bit more than we would have, um, otherwise, and then we, uh, update your plan a little bit less frequently. So what would be involved is that you’ll see, so if you read online or you get things from almost any advisor, it’ll say things like you ought to review your plan every five years. Well, the lawyers are so transactional and the clients have other things they’d rather do a long list of everything else I’d rather do than this. It doesn’t get reviewed every five years is can you change review to update, listen to your advisors and do get yourself in and, uh, we’ll use that trust protector. There’s extra rip party who can amend the plan with your intent.

[13:47] So we’ll document your intent and essentially Todd, it makes it a little bit less expensive during life. It’s a little more expensive than it would have been otherwise, but we’ve disclosed what that is. And what we’ve done is take the Florida chart that you can see that’s objective and apply to proactivity discount. The family would know that’s why we’re doing this cost. And, uh, we’re thinking that that might open it up so that more people could see fit to do quality planning. The idea behind a three-step program is almost like a guarantee. I’ll put that in quotes because that’ll scare, but you’re really going to stay on and it’s very unlikely to have things slipped. We’ve had, uh, almost 300 deaths and we’ve had three probates and all of

[14:52] them have a story behind it as to why there was a probate and our clients are very passionate about this. They will tell you it’s not your fault that there was a probate that’s rate around 91 that you can kind of guarantee in quotes. The modest means allows you to get more like a warranty. So a guarantee, it’s a maintenance program. So you maintain something that’s valuable to you and, uh, a warranty program, you replace something that broke. So the modest means going every five years is a little bit riskier, but we have some tools that we can take the load off of you. And so you might think of that more as a warranty program. And, uh, so, uh, you never can guarantee results as an attorney, uh, but the process using your common sense, you’ll know that you have a

[15:55] lot better chance to have a plan that works. Now, so many of our clients come in saying that my estate is not $5 million. And I was told I didn’t need an estate plan. Where did that number come from? And what does that refer to? Referring to the federal estate tax. And it is true on that score, the vast majority of people, uh, more than 99% of the people have a state’s less than $5 million. So the current, uh, debt tax is at $5 million index for inflation. And, uh, uh, we’ve talked a little bit about what impact the Trump administration might have on it. So even if they did repeal the debt tax, it’s only going to affect Todd less than 1%. So debt tax planning is, uh, one of the reasons that people would say

[16:51] trusts are for rich really do need and therefore trust on the other end, though, for the person of modest means, the reason that they would need is only two possibilities. You get disabled and die or you just die. And we talked about the debt tax costs are a lot higher than people realize the, uh, where the, uh, industry is basically charging a fee at a time where the family doesn’t have any choice. You’ve waited until mom fell and she’s in rehab and she’s coming out and she can’t go home or there’s an Alzheimer’s diagnosed able to handle that. And so the typical reactive industry solution is, which means no one inherits anything and put you on Medicaid and I don’t want to go on Medicaid. That’s even worse.

[18:12] Todd, we, we, uh, spend everything that we have and then go on Medicaid. Either way, the kids don’t get an inheritance. The, uh, the modest means client, uh, if they get on top of this, they can have a better understanding of what the resources are, uh, learning solution that we provide, um, so they can learn in their community. What, uh, what you can do on the, uh, and then also in terms of cost, the elder law model now has moved to two times the average cost of care in your community. So you’re talking 10 to $20,000 and your choices under the reactive system are you give me $15,000. I’ll save you 400. Um, and so people will do that, but it’s $15,000. You could have done so much more and had a, and not put them into a

[19:11] complete mess if you did become the care that you get is more what you designed for yourself. So people have a budget, even with small estates, if they interface with the legal system through disability or death, and those are really the only two possibilities. So our vote is get in with somebody that you feel comfortable with, that you could talk with, build a relationship and just invest a few hours a year to keep yourself and your family up to speed. Super. Well, Rick, I think, you know, especially with the advances in the medical community, people seem to be living longer and longer, but it almost ensures that they’re going to have to go through some type of a temporary or permanent disability.

[19:55] So everything that you said makes so much sense. I urge our listeners to use the links available to you to get more information from Rick. You’re welcome to ask any questions directly from the Prosperity podcast at hello at partners, number four prosperity.com. We are here to get that information for you. And we’re here to continue to provide you with great information, like what Rick Randall has provided us today. Rick can’t tell you how much I appreciate it. And we will see you all again on the next podcast. Thank you for listening to the Prosperity podcast to take control of your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and leave a review.