When you pass away, you’re likely going to leave behind some money or some bills. That’s why it’s important to plan ahead so you can ensure your loved ones are prepared for whatever you leave behind.
Today, Jeremy Keil is back with the fifth and final step in his 5-Step Retirement Revelation process, which is all about helping you explore what you’ll leave behind to your loved ones. In this information-packed conversation, Jeremy highlights important considerations for your legacy planning.
In this episode, you’ll learn:
The difference between an estate plan and a will
Common misconceptions around estate planning
Why every person needs a power of attorney
The importance of planning for the survivor gap
Tune in now to discover ways to prepare for what you’ll leave behind for your loved ones!
Retirement Revealed Episode 8: What Are You Leaving Behind After Your Retirement?
Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!
Aric Johnson: Hello and welcome to Retirement Revealed with Jeremy Keil. Today we're going to be talking about “leave”. If you're wondering why just one word, it's because it's part of a five part series. This is the fifth part, and I'm actually gonna let Jeremy go over the first four to kind of recap before we dive into it. Good afternoon, Jeremy. How are you?
Jeremy Keil: Doing very well. How are you doing, Aric?
Aric Johnson: I am doing fantastic. Absolutely fantastic.
Jeremy Keil: Great to hear.
Aric Johnson: Yeah, I'm excited. So this is part five?
Jeremy Keil: You're exactly right. You're probably excited about wrapping up here. We are finishing up the five part series because there's five parts to our retirement income process. Retiring can be fun, but it'll become more fun if you have a good process to make sure you can stay retired. The five steps in that process we believe are number one, figuring out what is it that you need to spend in retirement? Number two, what will you be making in retirement? Number three, what do you need to set aside in short-term money? Number four is what do you want to have set aside for your long-term growth type of money? The fifth step is what are you going to leave behind?
Aric Johnson: Does everybody want to leave something behind in your opinion?
Jeremy Keil: You're going to one way or another. You're either going to leave behind some money or you're gonna leave behind some bills. We want to make sure you leave behind a little bit more money than the bills side of things.
Aric Johnson: Very good. I'm hoping to leave behind a couple of mysteries for my family to really wonder about, just some simple things that will drive them crazy for a couple of years.
Jeremy Keil: Yeah. Why not?
Aric Johnson: All right, so where do we start today with leave?
Jeremy Keil: Yeah. Well, let's talk about what happens when you leave behind some money. Usually the older you get, the more likely you are to start thinking about what you are going to be leaving behind, and the big word for that is estate. When you leave behind some money, property, or whatever it is, that's your estate. I'm sure we'll get an estate lawyer on the podcast for some exact definitions and ideas, but we just thought we'd go through the basics and kind of talk about what we see people looking at and maybe some misunderstandings that they have about estate planning.
Aric Johnson: All right, so is an estate plan the same thing as a will?
Jeremy Keil: Well, a will is a tool for the estate plan. We'll get a lawyer to tell us about wills and trusts and all that kind of stuff, but a lot of times people think estate planning has to do only with that will or what happens when you're leaving behind some money. In reality, estate planning is talking about what happens to you and your money both before and after you die. It's not just about what happens after you die. It's really about if you can't make decisions. Now, if you're not around, you can't make any decisions, but it's not just that. We unfortunately just had a couple who got in a horrible car accident this past year. One of them died. One was in the hospital. The person who died had to do with the estate plan called the executor or a trustee. The person in the hospital needed a POA, or a power of attorney (those are two different things; two different documents). So it's not just about what happens when you die. It's really what happens when you can't make decisions on your own. Estate planning will make sure your family has a clear understanding of how that should be set up for you.
Aric Johnson: Yeah. I mean, this really kind of touches on that. I think a common misconception is that estate planning is only for the wealthy. I just don’t think that’s correct.
Jeremy Keil: Yeah, you're right. A lot of people tend to think it's only for the wealthy or that it's only for once you get married and have kids. If you're married and you have kids, there might be some things written in the laws that help you out, but if you're 18 and you're not married, who's going to be there to help out with these different things? A year earlier when you were 17, perhaps the government would look at your parents to help make some decisions. When you hit that adult age, they're expecting that if something happens where you can't make decisions, you either have to go through the government process or you need to have these estate planning documents in place. So it's not just for the wealthy. It's not just for the old. It's also for the young or really for anyone that happens to have any money or anyone they care about. I'm hoping that everybody listening today either has some money or somebody to care about. Hopefully both.
Aric Johnson: Yeah, so going back to the POA, can you explain that a little more in depth?
Jeremy Keil: Yes. The idea of this thing called a POA, power of attorney, just says, if I can't make decisions, here's somebody that I trust to make decisions. Of course there's documents that the lawyers draw up. It says you can decide this or decide that. Another misconception that people have today is a lot of people think that POA helps you out when somebody passes on. We'll get people that call and say, my relative died. They had this insurance and I’m the POA, tell me what I need to know. Unfortunately, we can't talk to them as the POA. The POA ends at death. It's saying, I can't make this decision right now, but I've empowered you to do it. Once you die, the POA is basically not valid anymore. We're talking about who is the executor or trustee at that point in time, so that's why a lot of times when the lawyers are talking about a will or a trust, they're saying, here's the executor or here's the trustee. They're also asking, who do you want as a POA, a power of attorney, for different things like healthcare and finances? Another one they always talk about is this thing called the living will, which basically has to do with the fact that if someone is still alive and in the hospital, there's different decisions that need to be made. The living will kind of gives instructions on what that should look like. It's important to make these decisions not lightly but with some thought put into them. We like to joke a lot that usually it's the oldest son who handles the money and the youngest daughter who takes care of the parents. We say that and it really hits home. For a lot of people that’s often kind of the mindset, especially in this generation if you're retiring now and your parents are like 80 years old. So whether you think that's right or not, that's kind of typical and what we're seeing right now. We just encourage people to not do what is typical but to do what is best for you and your family. Maybe it is your youngest daughter that has a better financial mind. Well, she should be the financial power of attorney. Who cares if she's not the oldest? Who cares if she's not your son? There's maybe some times that you kind of go with the convention or at least what's been conventional, and it doesn't quite match up with who's got the best skills to help you out in that area or maybe even who you feel most comfortable with talking about these certain issues.
Aric Johnson: Absolutely. I mean, that's a difficult decision, but it's nice to have somebody to kind of bounce those ideas off of. I know that's what you and your team do, and I'm not just putting that out there as a plug for you, but it really is very difficult emotionally to make a lot of these decisions. So I would encourage everybody listening to this to seek a professional's help and just have that conversation. Don't put it off because it's a hard subject to talk about or you don't want to play “favorites”. Truly you want it to be whatever is best for your family once you are gone.
Jeremy Keil: That's exactly it, and it's not really just only about the money. A lot of times it's the things and the stuff, right? Maybe it’s grandpa's gold watch, that cabinet that's been in the family for years, or whatever the situation is. I have to tell you one thing about my grandma. She’s great, and she did a really great thing for her kids years ago. On all things that are still in her apartment like artwork, a clock, and grandpa’s flag that was used at his funeral, she’s written on the back of it on a post it note, oh, this is who’s going to get it. And she’s told everyone so that there’s not going to be any surprises. That’s going to be huge. Hopefully it’s years from now, but whenever she passes on, the family already knows her decisions ahead of time without the stress, right? There’s no stress. Usually there’s not too much stress around the Christmas table and Thanksgiving when she says, hey, remember that clock that you really liked? You're going to get that one, but because of that, this piece of artwork is going to go to your brothers. Everyone understands it ahead of time. There's not the stress of, oh my goodness, one of my parents just died recently when you’re going through and making these decisions. She has already done that for them. I think that's a great gift that she's already given to her kids by doing that.
Aric Johnson: It's so funny that you brought that up. A daughter-in-law in my wife's family went over to my wife's grandmother's house with her own post it notes, walked around, and said, oh, this would be great for so-and-so. Oh, so-and-so would like this. Of course it was only people in her family, so before someone tries to do that and take advantage of that situation, I think it would be great to do what your grandmother did because then that's her decision and you don’t have somebody else coming in and telling you what to do with your stuff. Oh my goodness. That was quite the dramatic event when that happened.
Jeremy Keil: Unfortunately, it's not rare. You hear about this kind of stuff all the time. We just want to talk next a little bit about some myths, if that is the right word, or problems, just things we run into where people have an idea of the way they think things are going to work and it just doesn't quite match up. A lot of times we're talking to our clients and they say, well, I'm leaving everything to my son and he'll split it up. Well, he's not legally bound to split it up. If you've got three kids and you just leave it to the one and say, well, here you go. You divide it three ways. He's not legally required to, but even if he is a great person who will be bound by that, he might run into some things with the gifting laws or even taxes, right? A lot of times we see people with savings bonds, and if you just leave that all to the one person and they've got to cash it out, that stuff is showing up on their tax return. Then they have to figure out how to account for the taxes. It’s not just about leaving it to the trustee, the POA, your oldest son, or whoever you want to leave it to and letting them split it up. You gotta put some more thought into it. Related to that, a lot of people say, well, it's in the will. We got it all written out in the will. Well, the will doesn't really matter too much if the money doesn't get there. A lot of people have brokerage accounts, IRAs, 401ks, and life insurances. All of these things have beneficiaries, and if it gets split up by the beneficiaries, that has nothing to do with the will. Sometimes that makes life a little bit easier because you just fill out a form and let the company know, but sometimes it makes it more difficult because you think, well, we’ll cover that in the will. Well, if any of your money gets to the will, then it's not quite going to match up with what your will happens to say. It's your beneficiaries that will matter the most because that money will be sent out because of the way that you told the company to. The will is kind of for your leftovers, whatever didn't get sent out by those other methods. Lawyers will create something called a pour over will which is just meant for whatever is left, but everything else is maybe set up through the beneficiaries or trustees. They still create a will just in case, and that's just really showing that the lawyers are viewing the will as being meant for the leftovers in a way. It’s your beneficiaries that are going to be the ones dividing up a lot of your investments.
Aric Johnson: Yeah, absolutely. It's so difficult because you just never know. Emotions are running high already because someone passed away. In your example earlier you have three kids and you leave $3 million to the oldest son to divvy up. Each kid is thinking, okay, we each get $1 million, and that's not even close. That's not even close to what's going to happen, and then the siblings aren't going to trust each other. Well, why aren't we getting the full million? Well, because there's taxes. There's all sorts of questions. It can just be handled so much better, so I think this is a great topic.
Jeremy Keil: Yeah. It's time to find somebody you can trust who’s impartial, who’s out of the family, and who can give you some good, solid advice that doesn't have the emotion put into it, somebody who knows the way that the beneficiaries, trusts, wills, and taxes work. Speaking of taxes, a lot of times people are worried about maybe leaving money to the kids or to whomever because of the estate taxes. I'm not sure if you knew this or not, Aric, but they changed the law a couple of years back in 2017. We'll see how quickly they change the laws again, but basically you don't pay estate taxes until your estate is bigger than about $11.5 million, which is quite a large dollar amount.
Aric Johnson: Yeah, I’m not quite there yet, and that’s only for a single person, right? For a married couple it’s about $23 million, right? I mean, that’s huge. No, I’m not even close to that, so I’m not too worried about it.
Jeremy Keil: That’s exactly it. I think they maybe did that on purpose so that most folks don't have to worry about their estate. A lot of times people say, well, I'm worried about estate taxes or inheritance taxes. Well, we're in Wisconsin, and I don't know exactly when they got rid of this but the idea of an inheritance tax hasn't been around for years. There’s another misconception. I’ll ask you a question, Aric. Do you know how much money you can give to your kids every year? What's the most you can give away?
Aric Johnson: If I remember correctly, I think it is $10,000 a year, right?
Jeremy Keil: I'm so happy you said that. I promise everyone that was not a setup, but that's just about what everyone says because years back the rule was that you could only give about $10,000 per year. Now it's up to $15,000, and that’s actually not even a limit. You can give whatever you want. Currently in 2019 the real rule is that once you go over that $15,000 mark by a dollar, all you do is fill out a tax form. The whole point of the tax form is the government's checking to see if you give away more than $11.5 million. Once you do, they start taxing you, but that $15,000 isn't even a limit. They'd love it if you gave away more than $11.5 million because now you start paying the taxes on it. So you can tell your kids it's still $10,000, but that rule actually changed it to $15,000, and that's not even a maximum. You're not going to jail if you give away $15,001. All you have to do is fill out a tax form. It's not a big deal, but let your kids think it is $10,000 so you don’t give away too much money.
Aric Johnson: Yeah, exactly. I just want to clarify something. We were talking about the $15,000 that you can give away each year to individuals, but then you brought up the $11.5 million again. I thought that was just the estate amount that you could give away without it being affected by taxes. How does that play into the $15,000 per year?
Jeremy Keil: Yup. You got it. So estate and gift taxes are really just the same system. Leaving money through your estate is just a gift you make after you die. A gift is one that you do before you die, so you've got this lifetime situation of $11.5 million. That's roughly what the numbers are right now. We're saying roughly because it's been changing. It actually changes year to year right now. Who knows what they’ll do with the tax code in the future, but the idea is that each year they kind of give you a little bit of leeway. You give your kid $15,000. They say, don't even tell us about it. If you go over that amount, they say, now you have to tell us about it. You fill out the form, and they just start to keep track of this because they figure if in your lifetime you've given away more than in this case $11.5 million, then they're going to start taxing you on it. So like we said earlier, what are the odds that as a couple you're going to have more than $23 million bucks that you give away, either before you die or after you die? So a lot of people feel like there's this limit of $10,000 that they can give to their kids. In reality, the new rules are $15,000 a year, and big deal if you fill out one extra tax form, right? If you really want to give your kid $20,000, go ahead. Just tell your tax person to fill out the form like you’re supposed to and don't worry about it.
Aric Johnson: Yeah, outstanding. That makes it really clear. Thank you.
Jeremy Keil: Sure! So we talked about what happens when you leave behind some money. Let's talk about what happens when you leave behind some bills. A lot of those bills have to do with your responsibilities. We use the word bills, but we're not truly talking about a situation where you get a credit card bill the month after you die. We are really talking about these responsibilities that come in. When you were younger before you hit retirement, you cared about your spouse and your kids, what happens if you die too soon? Well, in retirement, even if the kids aren't at home, I hope they're not at home when you're in retirement, you still have this responsibility to your spouse. Just because your money isn't coming in from a salary doesn't mean that your money will come in forever, right? If you die too soon, there's parts of your money and parts of that stuff that you'll be making that we helped you make decisions on back in the second step that will change when the first person dies. We call that the survivor gap. The idea is that there's almost definitely going to be less money coming in from other sources when there's one person compared to two. Now, if both of you are on social security, it doesn't matter who dies first. The lower one goes away, and a lot of people hear that and they say, well, I'm the lower person. I'll get brought up to my spouse at that higher amount. Yep. You're right. That's so awesome that the government does that where they bring you up to the higher amount, but you still lose that lower amount. It's gone. A lot of times we see something like $1,000 a month that's out the door. Maybe even more when the first person passes away when it comes to social security. With your pensions, a lot of times the default pension is what they call a 50% survivorship, so if you don't take some actions to sign up for a different situation and you're getting $1,000-2,000 a month from your pension, that might just drop in half. Now, hopefully you've got some different survivorship options. Hopefully you've made some choices, but that's what we're talking about here: what are the choices that you get to make with your pension that will make sure that survivor gap is as small as possible? So you make some of these choices ahead of time. With social security you don't really get much of a choice on that. The thought is to figure out, what is that survivor gap? What is the surviving spouse going to be missing? Let's make sure that there's a plan because you've got some responsibility to help out your spouse even if you're not around. That's what we're talking about is that the bills are going to start coming in more when there's less money after that first person dies.
Aric Johnson: Yeah, absolutely.
Jeremy Keil: Another big risk and responsibility that comes in is what happens when you live too long? The longer you live, the more the stock market, inflation, and interest rates will affect you. What we see a lot of times is that the longer you live, the worse your health gets. The worse your health gets, the higher healthcare costs are going to be, and a lot of times those are health costs that aren't coming in from your regular health insurance through Medicare or through your supplements. Those are things that a lot of people call long-term care, and I'm sure we'll get into a long-term care specific topic at some point in time, but again the idea is that you need to have a plan, right? If you die too soon, there's going to be a survivor gap that might be there for a long time for your spouse. What is your plan? Let's have a plan for that risk of dying too soon. If you live a long time, chances are pretty good that your health will change. Let's figure out what that might look like in terms of costs and in terms of who might be caring for you. This kind of all falls into this estate planning idea of what are you leaving behind? What kind of legacy are you leaving behind for people? You’ve got to have a plan for that too. We're not saying that the plan is to buy insurance from both of those areas, but it could be part of it. Maybe the plan is that you've set aside some extra money for these risks that are there, but the idea is to figure out what is at stake and to create a plan to help mitigate and be prepared for those situations.
Aric Johnson: Gotcha. Absolutely. Nobody wants to leave their spouse or family in a terrible situation for the next five to ten years. I think everybody has to have a plan for that.
Jeremy Keil: Yeah. I hope that the folks listening in that haven’t gone through this type of process find the time to talk through what it is that they want to leave behind. We’re just going to summarize a couple things real quick. We really encourage you to reach out to your advisor. Find somebody that you can trust that can walk you through some of this. Related to what we’re talking about, there is this idea of an estate. It’s what you want for both before and after you die, right? It’s not just the will. It’s not just where do I send my money to? It’s what you want before and after you die. When it comes to these big risks, we feel that the two biggest risks in retirement are what if you die too soon? If that happens, find out what your survivor gap's going to be, and figure out how that's going to affect your spouse. When that happens have a plan for that survivor gap. Then the other big risk is what if you live too long? Chances are pretty good that when you live too long your health gets worse and your costs go up. Make sure you have a plan for that too.
Aric Johnson: Yeah, absolutely. Jeremy, great podcast. Can you give us a sneak peek on what we're going to be covering next? This is part five, so we’re wrapping this up.
Jeremy Keil: We’re wrapping it up. One big piece of step one when you're spending some money is going to be looking at your taxes, right? Taxes are going to be a cost in retirement. Sometimes it's one of your biggest costs in retirement, so we want to give you some ideas around tax planning. What should you be looking at and what should you be prepared for? How do things change in retirement when it comes to taxes?
Aric Johnson: All right. I'll be looking forward to that. We'll get deep in the weeds on that one. I'm sure there's lots to talk about
Jeremy Keil: Yeah, absolutely. We love talking about it too.
Aric Johnson: All right. Jeremy, thank you so much for your time again.
Jeremy Keil: Thank you, Aric.
Aric Johnson: All right. For the entire audience I want to thank you for listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.
Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.