Ep. 19 - Your Family's Roadmap

Welcome to the Good Steward Law and Wealth Podcast, where host Ledly Jennings explores law and finance to help listeners become better stewards of their wealth. Each episode covers the latest trends and strategies in estate planning, elder law, investment, and wealth management. Tune in for the knowledge and tools for financial success and security.

Hey everybody, welcome back to the Good Steward Law and Wealth Podcast. Excited to have everyone here today because today We are going to talk about the roadmap for your family, mainly roadmap for estate planning, but really this applies to your family's wealth, values, everything. So what does a roadmap and a plan for your family look like? Well, so I start with this quote is I heard someone say this, the difference between a document and an estate plan is like having a map versus knowing how to use it. So what we're going to do today is give you the map and tell you how to use it. And by that, I mean, an estate plan is a roadmap. It is a path for your family. It talks about what happens if life goes wrong, but what happens when life goes right? How do you plan for that? And when we think about our roadmap for a family, you know, really I start as I always go with about age 35. I've been, been on that age here lately. When you have a job and a family, young kids, is kind of at that point in your life when you're building wealth. What does the roadmap look like for your family? Well, there's 3 time periods that we're going to talk about. The first time period is when you're alive and well. Second time period is if you are incapacitated. And the third time period is upon death. So we want to plan for each of those situations in your roadmap. The risk in not planning is the state has a plan for you. Whether you know it or not, the government has a plan for you in each of those time periods. So where I come in is we want to plan for each of those time periods ourselves rather than use the plan that the government has for you. So here is the map for that plan. Well, the first stage, proactive planning while you're alive and well. This is when clients come to me, like I said, say that age 35, they're married, they have kids, they want to plan for their family because they're in a stage now where they're, they know where they are in life. They have a job, they have steady income, they know their goals for their family. So how do we plan for that? Well, it starts with estate planning because we want to plan for worst case that you can't control. You can't control accidents. You can't control death. So you need to plan for that. You need to make sure your family's provided for. Um, and that includes your wills, your trust, your power of attorneys, all that. That's usually where I start, but then we go into the financial and wealth plan. You know, part A of that is we are growing and building our wealth. That's usually the stage you're at when you're a younger family. So when I start talking with people about this roadmap for growing and building your wealth, We want to first make sure, are you contributing enough to your savings to plan for your future? My general benchmark for that is about 20% of your income you need to at least be saving in various forms. But the first part is contributing enough. The second is, are you contributing in the right places? Meaning, are you doing it in the most tax-efficient manner that will let you take home the most money? So it's, it's not about what you make, it's about what you keep. And that's how we want to plan is contributing in the right locations called asset location. Maybe that is an HSA account, which if you listened to the episode previous to this, we went in depth on that, but maybe it's a Roth IRA. Maybe it's life insurance. You know, you just want to be contributing in the correct location. And that is not a set formula. It depends on your situation, your income, and your goals. So when we meet, we always talk about that is what are the goals? And then we solve for that based on the asset location. The next thing we look at is, are you getting the best rates and the best deals out there? This comes into play, you know, one with your mortgage rate. Do you have a good mortgage rate? Um, insurance, um, car insurance, life insurance, all that. Um, are you getting the best deal for things that you need? So optimizing our income, that's the growth and building phase. And then we look into part B, which is the risk phase. Are we prepared for what could happen? I'll dive into this a little more when it comes to asset protection and disability. But the one thing I wanted to hit on for my proactive planning clients is life insurance. A big component is your life insurance because while you're young, say at that 35 age, you are making money and can provide for your family, but you don't have a lot of wealth built yet. So if you died, Your wife and kids most likely could not maintain their lifestyle, pay their bills without your income. That's where life insurance comes in. I'm not a huge proponent of other types of life insurance, but I am of term life insurance because it gives you peace of mind and protects your family. Everyone can have term policy. Ours are cheap, you know, maybe I think $60 a month, something like that. And that gives us enough, um, benefit. To, if I passed away and my wife loses my income, she can maintain her lifestyle. We can pay for the home. We can pay for kids' school, all that they're provided for. That gives you peace of mind. And why I like term policies is because it's so cheap, but also it's for a term. It's for a period, maybe 20 years. And then the idea being is while we're young and building our wealth, we have that policy, but 20 years from now, Maybe I've built the wealth and I have enough to cover our expenses and savings and various things. So we don't even need the life insurance policy. So it serves a specific purpose. Um, so when you hear life insurance, I'm not talking about whole universal, anything like that. We're talking about term here when you're being a proactive planner. So that's phase 1 in the roadmap. And then we look at phase 2 of the roadmap, the incapacity phase. You know, what happens if you're in an accident? It can be a car accident. It could be a stroke. Um, it could be down the road with dementia, Alzheimer's, um, anything can happen. And in fact, a lot of it will, you know, accidents are common, but when you start talking about dementia, I heard a stat the other day that 1 in 3 people, um, get diagnosed with dementia. 2 out of 3 people need long-term care at some point in their life. And 20% of those people need long-term care for more than 5 years. 5 years is usually the ballpark number I use when planning long-term care, but there is that set of people that need it for longer than 5 years. So how do you protect your family during incapacity? In the roadmap, that starts with the key documents of financial and healthcare power of attorney. You need to name someone you trust to make those decisions for you. I mentioned earlier that you may not know it, but the state has a plan for you. Same with this. Uh, the government's plan for your incapacity is called guardianship. They appoint someone to be your guardian and manage your affairs, and it may not be the person you wanted to appoint. So you need to name someone proactively that you trust and that you plan for. Um, and I say this, uh, a quote I heard that Good parents plan for their absence because they know life happens. So it's your job as a parent and as a leader of your family to plan for what could happen. It's your responsibility. Um, during incapacity, we talk about long-term care planning as well. So one way to plan for long-term care, and you can listen to a previous episode I did on this, but you have irrevocable trust that we can plan for that. But a proactive way to do it is with your health savings account and HSA. I'm very high on that right now. My favorite way to pay for long-term care. Another one is long-term care insurance. For the most part, long-term care insurance is not affordable in and by itself, but there are different types that are asset-based that can make it affordable. So talk with your advisor about that also, but you need to be saving and planning for that in some form or fashion. And the HSA is one of the best accounts to do that because it's triple tax advantage. You're getting the most bang for your buck. Um, yeah, so that's how I would do that. Now, one other piece that I'm doing, uh, with clients is disability insurance. Is you, you can shop good rates, um, for that. But what it does is if say I'm an attorney and I, something happens to my hands or I'm in an accident and I can't do my job. Then I have disability insurance that pays my salary during my disability. And that's a way to protect your family during temporary periods. Life insurance protects death, but disability insurance protects while you're living. Um, so that's very valuable and you can get pretty affordable rates for that too, through maybe it's your company has a plan. Uh, us attorneys, our bar association offers a very discounted rate for disability insurance. So we go that route, but Just, we help clients search through the different options that they may have for incapacity. Now let's talk about that final stage in the roadmap, um, death. You know, what happens at the end of the line whenever we've reached the end of our road? How do we plan for our death? Well, I'll start with the statement that a will is not enough. Um, many people fall under that misconception that all you need for your estate plan is a will. But that is not enough because a will only answers one question. It answers who gets your stuff. It doesn't answer anything else, um, about your values, about who's in charge, about when they get it, about how they get it. It just answers who gets it. And more importantly, the person that answers that question is the court. So the government answers the question. They follow the will, but they decide who gets it and how gets it. So I don't ever want to be involved in the court system if we can avoid it. And we proactively plan for that to avoid the court system. So an estate plan is more than just a will. Uh, there's a lot of ways to avoid probate. The main one being a trust. I think a trust is the basis of every good estate plan. So that's where we start with planning for death in most cases is a trust. Now, how do you do that? The main thing there is it avoids probate. You push your assets in the trust. Someone you trust is in charge of that trust. They manage it on your behalf if you're incapacitated, and then upon death, it goes to who you want and how you want. But we need to talk about that roadmap. The most important part of the roadmap is how you provide for your kids and how you protect them. Um, inheritance is known as a gift of love and how you show love is protecting the assets in the best way possible. For the things that really matter. And what matters is, yes, it can be your financial assets, but it's a lot of other things. So we want to protect our children and how we pass things on. And I'll start with this, that passing things on to your kids outright is dangerous. Meaning if you die, you just give it to them outright, free and clear, it's theirs. That is dangerous. It is like, um, an attorney used this example a lot that I work with. It's like putting your stack of money on top of a table in the middle of a tornado. It's very dangerous. You can't control what happens and everything is just flying everywhere and open to anything that may be out there threatening your kids. So you need to pass it on to them in a protected manner. And by that, I mean in a trust. And we did a previous episode on beneficiary-owned trust, and this is mostly what I'm talking about here., but if you pass it on to them in a protected trust, it is protected from creditors, from divorce, from lawsuits, and from their own ability to, or bad ability to manage money. So most of my clients want to protect their, their kids from creditors and divorce. You know, you never know what happens. Even the most successful kid that's a doctor can still be sued for malpractice. So Why not protect your kid from that? And it can be done in a very flexible manner. Um, one, if they are young kids, you know, under 18, you have a 12-year-old at home. You don't want to leave them their inheritance outright. So when at age 18, they get all this money. No, you want to leave it to someone else to manage for them, whether it's another family member, friend, or bank. They manage the money for them. They provide to them until they are of age to manage it themselves. That is the way you protect your kids. Now, adult children, same concept, but maybe your kids are good with money. You're fine with that, but you still don't want them to be open to creditors or divorce. So you leave it to them in a trust that they are trustee of, and they have full access and control to. They're the beneficiary and they're the trustee, meaning they make the decisions, but it's protected. Um, so that is how you want to leave things to someone. The old school way of planning and a lot of trust I review is, you know, at age 30, my kid can get a third. At age 40, they get another third. Age 50, they get the rest of it. That's kind of an old way of planning because at age 30, when they get that third, it's theirs outright, meaning it's open to creditors, divorce, all that. So why would you even do that if you can keep it in the trust, but still give them full control? And you give them protections by their spendthrift provisions. There's limited powers of appointment that can protect them from estate tax, all kinds of things. But you give them the freedom to access these assets by discretionary principal and income. So you say what they can and can't use it for, and it can be up to their discretion. Some people worry about the admin cost or their access to the capital. I draft my trust very flexible to where you can access what you need when you need it. There's even a more flexible power called a 5-in-5 power that you may have heard. Um, well, you probably haven't heard of, but a lot of attorneys use that, at least that are specialized. It allows you to access 5% of the trust, uh, for any reason. Um, but if you're trustee and it's up to your discretion, you can access it for any reason as well. So that's the roadmap for how you plan for your death and your kids and your grandkids. As far as the wealth is concerned. Now there's another end to that roadmap is how do you pass on and honor your family values? How do you teach your kids on how to, how to manage wealth? You know, I provide frameworks for that and it could be values as it relates to religious values, moral values, even financial values. One thing I've been looking at with my family, we are designing a financial framework for our kids. You know, if something happened to us, how do I want them to think about investing and making money? And it starts with just a framework that I use with my clients, but generally it's just a roadmap of what you do. So say my first principle of planning is you tithe 10% off the top, whatever you make, you tithe. My next one here is contribute to a safety investment fund of 6 months expenses. You know, build up 6 months of expenses. Next one is take your free money, meaning take anything your company is willing to match and then do it in a tax-efficient manner as to where you locate it. Whether it's like I've been talking about a lot lately, the HSA account, your Roth, that kind of thing. And then our framework goes into a lot of other stuff about types of assets to invest in, you know, invest in assets that don't require your time, like real estate, um, various other things that you can scale and build wealth. So we go really in depth. But another thing you can do is proactive education. Make a list of books that you want your kids to read, videos you want them to watch, professionals you want them to talk to, because it is more than just the wealth. Um, wealth means a lot more than finances. Um, wealth is a lot of things for a lot of people, and it varies from family to family, but you need to provide that roadmap for your family. So I hope this provided you at least some roadmap, um, where when you're planning for your family, you need to plan for proactively how you make and build wealth, how you plan for incapacity, and then how you plan for death. And if you follow that roadmap, you can kind of rest easy, sleep good at night, knowing you're doing the best you can do for your family and being a good steward of your wealth. So this has been the Good Steward Law and Wealth Podcast. Thank y'all for listening. This is where we consider everything a gift, and it is our job as good stewards to manage what we've been given to the to the best of our ability.

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