Estate Planning Basics: An Interview With Andy Weinhaus

Welcome to the Common Sense Financial Podcast. A podcast all about finances, mindset and personal growth.

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Helping you make smart choices with your money in your home and in your business. And now your host, Brian Scriboney.

Hello everybody and welcome to the Common Sense Financial Podcast. My name is Brian Scribonia. I've been in the financial services business since 1993 and I've had actual face to face conversations with thousands of business owners, families and individuals helping them develop solutions for real life situations. And it's my goal with this podcast to bring these real life experiences to our audience and offer a way to think about these topics and how they actually apply to your situation. When it comes to financial planning, I find that many people, including financial advisors, often overlook the need for planning their legal affairs or estate planning. I think it is just one of those topics that people tell themselves they can take care of later and many financial professionals simply do not have the resources or take the time to address this for their clients. It is unfortunate because what I have experienced is that most everyone should review their estate planning needs with qualified professionals to determine what they need to consider for their unique situation. In my practice we do address this area of our clients financial planning and provide resources for them to get the guidance they are looking for. I have seen a lot of things in my 25 years in the financial planning business and my experiences reinforce why we offer resources to our clients in this area. But let me just say up front that I'm not an attorney and I don't give legal advice, but I do surround myself with attorneys that keep me informed about the things that I need to know as well as being a resource for my clients. And in today's podcast we're going to be talking with one of those attorneys, Andy Winehouse. Andy is one of those attorneys we use as part of our resource team to work with our clients and their legal needs. His area of focus is estate and tax strategies as well as business succession for closely held companies. He's a member of the Bar and serves as an Adjunct professor for Washington University here in St. Louis and he received his J.D. from Washington University in 1990 and his LLM in taxation in 1998. He worked with Price WaterhouseCooper where he worked with closely held companies, assisting them with tax and wealth transfer and then he also worked at General American Insurance as the Vice President of Advanced Sales. He is now the managing member of his law firm, the Law Office of Andrew Winehouse here in Clayton, Missouri. We are fortunate to have Andy here today Sharing his thoughts on some important legal topics. Hey, Andy, thanks for joining us today.

Thank you, Brian. Glad to be here.

I just, I really appreciate you joining us. I know you're busy, but I'm just really excited to have you on today so our listeners can hear firsthand about the most common estate planning topics and how to think through with them. You know, as far as my practice is concerned, you've been working with me a long time and know that we're just really thorough about how we want to take care of our clients. And today I want to bring that into our listeners, and I really want to help them walk away from this podcast with a new sense of understanding about what it means to actually do estate planning. I think with most topics, there's a lot of misunderstanding about what estate planning is. People are just confused. There's a lot of misinformation out there. There's a lot of online type of programs out there. So I really want to just, you know, pick your brain a little bit today and get into the details of what estate planning really is. And I guess the best place to start, Andy, is just to have a conversation and break down the different parts of estate planning and then we can get into some specific situations.

Sure, Brian. And from my perspective, it's well worth putting an estate plan in place and whether, at least for Missouri residents, whether they knew it or not, when they pass away, the state government has an estate plan for them. If they don't have a written estate plan, and we refer to it as our statutes of descent and distribution or our intestacy statutes, and they define what happens to a Missouri resident's assets when they pass away, if there is no written estate plan and if they made no designation for a particular asset or assets as to where they're supposed to go. So if people have a misconception that they don't have an estate plan in place, at least for residents of the Show Me state, in many cases they do. From my perspective, the estate plan should normally include documents that cover incapacity. What happens if I can't act for myself? And that might be from a financial perspective or at the hospital. And then also what happens when I die with the two most popular instruments being a will and or a normally revocable trust that is used to eliminate, if they so desire, probate court administration. And for most of my clients in modern times, they do desire to eliminate probate court administration. Just because probate court is a public process, it is going to include filing an inventory for a deceased party And I know they're gone, but that means that everything that they owned that's passing through the probate court system, it's got to be valued, and in a sense, the public knows what they were worth. Most of my clients want privacy, and they don't want that kind of publicity with whatever their assets were at the time they passed. And probate court does have some fees associated with it that revocable living trusts normally do not have court costs. And most importantly, I just kind of laugh attorney costs because under our laws, at least in Missouri, every probate estate is going to have an attorney involved for that personal representative that is, in a sense, marshaling the assets through the estate. And by state statute, those fees are not insignificant. They're going to average, at least in Missouri, for many estates, 2% to 3% of what the deceased party was worth. And most of my clients want to involve. Want to involve their family, but don't necessarily want an attorney, in a sense, becoming a minor heir of the estate through these attorney's fees. So the revocable trust does the same things in terms of making sure that assets go however you want to whomever you want as a last will and testament. But unlike a last will and testament, where probate court administration is likely going to be needed, that's not going to be the case with a revocable living trust.

Okay, so I guess what you're saying is that a will is just basically a piece of paper, and it goes through probate. And the probate courts then read through that and determine how things are going to happen from that point forward where a trust, and I oftentimes explain it to a client best of my ability is a trust is like a box that you actually put things into and then. Or it's like an entity that actually owns something where a will doesn't do that. Am I correct in saying that?

That's correct. You can think of a trust, Brian, as a will substitute without the probate court administration, if the trust is set up properly. And you're great at this for your clients, making sure that once the trust has been signed by the client, that the assets are actually retitled, or at least a beneficiary designation of the trust occurs. So, and that is how probate court administration is actually eliminated. And that's a good way of thinking about it. It's basically a will substitute during your life. It uses your Social Security number, so there is no separate tax identity to it. And normally my clients want to control all of the trust assets they're going to be the trustee of that trust during their life as long as they can serve.

And you hit on a couple other things in there too, which I think are critically important when people are thinking about. I think most people assume that their financial planning know they have control over it, they have control over the decisions and their assets and all this. But what a lot of people don't think about is that if something happens to you health wise or an accident and you're not able to act on your own behalf, you're still alive but you're not able to act on your behalf. So the question becomes, okay, who's going to make those health decisions? Who's going to make those financial decisions?

And.

And there are legal documents in place for that. Right, Andy, that actually allow somebody that when they are good and they are healthy that they can give people permission to be able to act on their behalf at the bank or pay their bills or talk to the doctor and do these types of things. And I see it all the time. It's just something that's overlooked. I don't know if you see that. I'm assuming you do.

Oh, I do, absolutely. Brian. A great point. Incapacity. Covering an event of incapacity is every bit as important as covering death, hopefully at the end of a long life. But anyone can have an event of incapacity, whether it's a car accident or some type of medical event. And then you need to have documents in place, such as a power of attorney for financial matters or a power of attorney for health care matters where you've put people that you trust in place to handle matters while you can't. And the hope is certainly that you do recover and can take over the management of your own financial affairs or the management of your health care affairs. But if that event occurs where you can't do so, you've got to have people in place that you trust to make those decisions for you. And it could be something as critical as I've got an individual retirement account, an IRA and I've had a stroke as an example or a heart attack and something's going on in the markets that my financial advisor is advising that I do whatever it is. Without that power of attorney, I don't believe any financial advisor can do anything without seeing, for example, a court order with somebody be appointed, what we call a guardian conservator of that incapacitated party's assets. And that could take weeks or months. And then the financial event, whatever was going on in the markets is over and you might see a significant drop in, for example, that IRA's value. So the incapacity documents, such as a power of attorney or the health care directive, are critical.

I think it's worth, I guess, just sharing this, is that, and I know you've been great at this, is that I'll actually have clients contact me and say, hey, you know, my mom or dad are in the hospital. You know, they're still coherent, they're still with us. They haven't got to that point yet. But it's kind of a wake up call to say, you know what, we need to get some things in order. So it kind of goes without saying that sometimes people think that maybe they don't need any legal work. But really, as you've said before, is that everybody should have some form of legal work, even if it is just a power of attorney or health directives.

Oh, absolutely, Brian. For anyone, for example, with a minor child, even if they don't have much in the way of assets, wills are where in Missouri, at least, we appoint the guardians. You know, if you're gone and your spouse is gone, who is going to be the party that you want to take care of your children, at least in Missouri, until they reach the age of 18 if you don't name that party, it's in a sense a court process with potentially other people petitioning. And they may not have been the parties that you and your spouse would have chosen. And certainly for the hospital, even if you had not a dollar to your name, you want to set out, in a sense, while you had your wits about you, what you wanted to occur and who you wanted to make decisions at the hospital for you if you could not make them for yourself.

Yeah, I know a lot of times when I'm talking with younger couples and I say younger, I mean, people have kids that are much older too, that don't have assets. But a lot of times people will say, well, you know, I'm worth more dead than alive. Right. I have a lot of life insurance and I have some kiddos, but I really don't have a lot of assets. And I try to help them understand that, yeah, you may not have to do the traditional estate planning. I think back in the day, you know, most estate planning was simply to avoid tax. But really it's much more complex than that. It's a lot deeper than that. And so when I'm talking with people, I'm helping them try to understand that, look, if something happens to you, where are these kids going? And not just that physically for the kids. But what about all this life insurance that you just mentioned? Where is that money going to go? What responsibility are you going to burden a family member with or somebody with? Are you just going to dump hundreds of thousands or millions of dollars into somebody's lap and just cross your fingers and hope they take care of your kids? And so there's more structured ways. Andy, am I correct that there are ways of going about that to get that more organized?

That's absolutely correct, Brian. And even if someone has nothing other than a life insur policy for a spouse or for minor children, that kind of planning needs to be done. If they don't go to college, when do they get, in a sense, what's left of the death proceeds that you paid for through that policy? At what age or ages do they actually receive it? Or if they have some type of need that arises, can the trustee help them with that need? Something like far down the road starting a business or buying a first residence, you may want to itemize what you desire because the only way someone's going to know once you're gone is what that document said and what kind of direction was given to the trustee in this case as to how assets were supposed to be used for that minor child as life progressed.

One thing that sometimes people will bring up with me, and I have it more in conversation than I do in actual client meetings, but I have some people say they have a POD or a TOD or a A paid on death or transfer on death and they feel like they got all their bases covered. What are your thoughts on that?

Yeah, that is a very simple estate plan, I will call it that, but can be fraught with problems. For example, if you POD or TOD pay on death or transfer on death, a large bank account or a large brokerage account to, for example, a minor child, they can't receive it as a minor. Those assets are going to wind up with the probate court in what's called a conservatorship. That could be very expensive while that minor is moving towards attaining the age of majority. And then for better or worse, they would get the entire account value upon attaining the age of 18. At least in the state of Missouri. I know as a freshman at the University of Missouri, Columbia, I would not potentially have done very well with a large inheritance at age 18 had my parents passed away. It might have gone for some great parties in my fraternity and lots of nice sports cars, but it might very well have been squandered. So I always warn people that pods and tods will, quote, unquote, avoid probate. I hear that phrase a lot. But it may not be in a sense the type of sophisticated planning that you want to do with a large asset.

I think like with many things, I mean, we're, I think people inherently procrastinate certain things. Right. But I think legal work is definitely one of those things where they wait till the last minute to do some estate planning. It's, it's, I can take care of that later. I can take care of that later. Unfortunately, you know, there's times where I'll meet with clients and they haven't done their legal work and they have done anything. And there are candidates that really need to get it done. But there are situations where waiting until you need it is too late. Right. And so I don't know if you have some examples of that you want to share and what we need to be thinking about there.

Sure. Brian, another excellent question. The question I get most often that I really can't do much for, let's say a married couple or a couple of any type, is when they come to me and some type of unfortunate health event has occurred where one of the spouses, let's say, needs long term care and they don't have any long term care insurance in place and they're looking to preserve assets and still qualify for Medicaid. Well, since the days of President Clinton back in the 1990s, there is a 60 month look back on asset transfers that will in a sense count against the applicant that is looking to go into a long term care facility and obtain Medicaid. So if a whole bunch of assets are transferred two, three, four, even six months before someone makes application for Medicaid, those assets count against that applicant and may very well cause Medicaid to be denied for their entire stay. And all of the assets that in a sense the family built up have to be spent on that care. So with a 60 month look back on the transfer of any assets to, let's say the next generation to leave some type of legacy, you've got to start your planning early, well before the tragic event, whatever it is, or the event that's causing Medicaid to be needed, actually takes place. And very much the same, possibly with the Veterans Administration. The Veterans Administration provides a benefit for long term care for our veterans and their spouses. However, even the Veterans Administration for budgetary reasons is considering a 36 month look back. They're at least considering that. And there are proposed regulations out there for that type of look back for the VA system too.

I guess to dig a little bit deeper into that, when we're talking about Medicare planning or Medicaid planning, we're really trying to avoid having to spend down our estate to cover long term care, right. We're trying to lean on either a long term care policy or the benefits the state has to help subsidize that. We call it a bed or a room or that care, right. So if we could just dig a little bit deeper on that. You know, there are times when clients come in ahead of time and if we had the perfect scenario where we have a client that's got some assets they're trying to protect. And I will say this up front, I think from my perspective too, when we talk about assets to protect, it doesn't have to necessarily be millions and millions of dollars. It could maybe just be a few hundred thousand dollars or maybe just some valued property in the family. There's a lot of things that can define an estate, right? It's not just, I think a lot of times when people hear the word estate, they assume it's millions of dollars. I don't qualify for that. That or that's not me, that's somebody else. But in reality is that, you know, if we can catch them early enough, we can talk through the idea of what long term planning is, long term care insurance, which we won't get into today, but then also setting up special kinds of trust. Andy, would you want to maybe tap into that a little bit?

Sure. That's a great question, Brian. So the Medicaid system from all the way back, and I believe the 1960s, 60s was meant to truly help the indigent. And at very, very low levels of assets, people start to get disqualified and not be able to qualify for Medicaid without spending down those assets. And again, there is a 60 month look back for any transfer or gift of assets, let's say to a child or a grandchild or more commonly an irrevocable trust for the benefit of these people, parties and those types of planning scenarios need to take place far in advance of that 60 month look back when the person's healthier, hopefully and doesn't have concerns. And as you pointed out, long term care insurance, which is a topic all by itself, if the party can qualify, is a great way of, in a sense, funding the long term care and also maybe buying some time, I will put it that way, to run that 60 month look back. In other words, the long term care policy might be paying for, let's say 36 months of the 60 months. And if you're able to transfer at least some assets away, even if you have to spend some money on care, at least you preserve something for the family and still been compliant with the government statutes on Medicaid.

There's a couple other areas that I want to make sure we cover today. But one area that I think hits home with a lot of people is the area of special needs. You know, people are in situations where they have a child that is maybe never going to be fully dependent on themselves or just needs some additional care or maybe is just incompetent to be managing money so that the idea of special needs planning comes into play. And it's. It's a topic really. I think a lot of people are unaware of that, that they think and worry sometimes about, okay, if I'm not here, what's going to happen to our child? But there are some things that they can be doing. You want to elaborate on that?

Absolutely. So the things that most of my clients with a child or loved one with special needs are concerned about are, is there a way to qualify for public assistance while still having a pot of money? I will put it that way there for my child with special needs that could be utilized by somebody. I trust a trustee to help them with anything that might come up in addition to what the public system is providing. And it is possible to do that. Brian. You can have trust that lasts for that party with special needs entire lifetime where the trustee can supplement, in a sense, the care coming from the federal and or state governments. The key is going to be that there have to be certain terms in that trust. Most importantly that that child, grandchild, whoever it is with the special needs, cannot mandate that income or principal come out of that trust directly to them, because that will normally end public benefits if any amount of assets are available to them and let's say, hit a bank account in their name. That usually ends up unfortunately making it very difficult to ever get those public benefits back. So it's a matter of, again, trusting that person you've chosen, having the right clauses in there and making sure that they can do what they need to do for your child or grandchild, but that that money's never flowing directly out to that child or grandchild.

And I think the idea of how to fund something like that comes into play too, because a lot of times, and we've talked about this in many different topics, and I think it applies here as well, is that, you know, people are working, they're making an income, they're able to satisfy their obligations to themselves and as well as to the special needs child. But if they're gone, that income stops, obviously. So a question may become, okay, well, what's the point of having a trust if I don't have any assets? And that's where we talk a lot with folks about setting up life insurance policies to actually fund the future financial needs of that child if they weren't there producing the income. So that is, I guess, another layer. And that's where you and I work closely together on making sure that the financial planning side's done in conjunction to the legal side to really make everything come together. And again, just underscores why I have you here today and why it's so important for us to be working together on these topics. One more quick thing. You know I've discussed the topic of generational planning with clients. You know, I've written books and done blogs and recorded podcasts on the subject, and it's just something I feel pretty strongly about. And the idea of accumulating assets over a lifetime and then at death, simply giving everything at one time to the next generation, to me that just seems like a lost opportunity to invest in the legacy of the family and to future generations. What are some of your thoughts or ideas of why somebody should be doing that and maybe how they could be doing that?

Oh, that's a great point. Intergenerational planning, from my perspective, is something that ought to be considered by many of our clients and they don't need to be super affluent to do so. The concept that out of either a will or a trust, that when you pass away and assets have to go outright and free from trust to a child, where for example, you do know that they have a creditor issue, they're in a business where a creditor might attack them, or they're in a marriage where there might be an issue down the road in terms of divorce, they may want to do some protecting from the grave, I'll put it just that way. And make sure that trusts are set up for that child or grandchild to ensure that the hard fought assets that they built up during life and accumulated aren't lost. And that kind of planning usually ends up being very beneficial to the next generation, protecting them from creditors and then maybe also even giving them a sense of what the elder generation wanted in terms of charitable planning or types of things they wanted to see for even their grandchildren or generations beyond. It's worth having that discussion with each and every client.

Yeah. So when somebody accumulates assets and they just kind of dump it onto the next generation. What I have found, and maybe you tell me if, if it's any different for you. What I have found is that when people come in here and they've received an inheritance, oftentimes that money is used for consumption. It's used to upgrade homes, it's used to pay off debt, and that's probably the number one thing people use it for. There's never really a discussion too much or too often about wealth creation, about actually planning, okay, we received this money and now we should maybe, you know, prepare that for the next generation. That kind of conversation is not happening. And so that's kind of what, you know, I like to talk about with the generational planning is helping the next generation make those decisions for the generations that follow. And helping to try to perpetuate those.

Assets couldn't be truer. Receiving an inheritance does not suddenly give, in a sense, the next generation wisdom. And they may not have any financial background, I will put it that way. And may be sort of lost when what might be a large amount of money for them, a couple hundred thousand dollars, is in a sense bestowed upon them by a parent or a grandparent. And they don't know where to even start. And you're right, Brian, oftentimes they start, I'll put it that way, by squandering it, it might go into assets that aren't going to do well over time. And in a sense, whatever the elder generation wanted to, from a financial perspective, can be lost.

When I'm visiting with people, and maybe you have these conversations with folks too, I think, you know, we only know what we know, right? And so when we hear these terms, wills, trusts, special needs, generational planning, Medicare planning, I mean, it's terms a lot of times people have probably heard about, but they just don't really understand it. And it goes back to the idea that, you know, ignorance is sometimes an excuse for not doing things. But what are some of the things that people need to think about or maybe excuses you've heard as to why people aren't doing their legal work? I feel strongly about this topic because it does hit just about every home. And I see it time and time again with people in urgency trying to get things figured out or trying to, or saying they wish they would have done this or they wish they want to do that. And nobody has a crystal ball to know what's around the corner. But what are some things that people need to overcome, I guess is probably the best way to frame the question. Overcome when it comes to getting their legal work actually finished.

Right. And I think there's a misperception to some extent in the public that it's going to be a tremendously expensive process. It doesn't need to be. Most of these documents, certainly they have a cost, but it's not gigantic in the scheme of things. And as I'm fond of saying, the documents really matter when they matter. And you don't know when that event, whether it's a health event or, unfortunately, passing away, you don't know when that event's going to occur. They really do matter, and they're not extraordinarily expensive in modern times. And it's worth, from my perspective, putting an estate Plan in place.

Andy, I really appreciate you joining us today. Like I've said a couple of times, and I really feel strongly about this, and I appreciate you taking time and sharing your experience with us and your expertise, and I just appreciate your time. So thanks for joining us today. Andy thank you, Brian.

Thank you for having me.

If you have any questions about what you've heard about today, or if you would like to discuss your estate planning, shoot me an email@yourmoneyfgplan.com and I will do my best to point you in the right direction. That concludes today's podcast. I am Brian Scribonia and thank you for listening to the Common Sense Financial podcast.

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