Women and Money

Women and Money

Guest: Patricia Annino, AEP
Episode 50
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The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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  1. Guest Introduction: Patricia Annino
  2. Estate Planning is for the Living, Too!
  3. Why Everyone Should Have a Living Will
  4. Revocable Trusts
  5. The Need for Revision
  6. The Wife/Female Partner Should Always Attend the Meetings!
  7. Roth IRA Contributions are Still Possible after Filing Taxes
  8. Choosing the Right Executor
  9. A Woman’s Team of Advisors
  10. Taking the Children in to Account

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.

1. Guest Introduction: Patricia Annino, AEP

Nicole DeMartino:  Hello and welcome to The Lange Money Hour. I’m Nicole DeMartino and we are talking smart money tonight with two nationally recognized estate planning attorneys, and of course, I am here with Jim Lange, best-selling author of Retire Secure!and The Roth Revolution.  We also have our guest tonight, Patricia Annino.  Are you there Patricia?

Patricia Annino:  I am.

Nicole DeMartino:  Well, Thank you for joining us.  We are so thrilled to have Patricia here with us tonight.  She is a partner in the prestigious Boston law firm, Prince Lobel.  She is a dynamic public speaker and a prolific author and tonight we are going to be specifically talking about her book, Women and Money, The Practical Guide to Estate Planning. Before I turn it over to Jim, I just want to remind everyone that tonight’s show is live.  Feel free to call in.  The studio number is 412-333-9385.  Again that is 412-333-9385.  And for our female listeners out there, Patricia has been so generous to us already.  If you call in with a question, I am actually going to send you a complimentary copy of her book, Women and Money, The Practical Guide to Estate PlanningAnd we also have another book, and I have read both of them, but the second book is titled Cracking the Money Code: What Successful Men Know and You Don’t.  Unbelievable, it was excellent and so we also have that. So if you call in with a question, I will send that out to you tomorrow.  Good Evening, Jim.

Jim Lange:  Hi.  Thanks for joining us.  We appreciate it Patricia.  The thing about Cracking the Code, which we are not going to talk about tonight because that is, I think, more for working women and not necessarily for estate planning. That might be more relevant to the show, but you had some great tips in there and I thought that they were really excellent. So my hat’s off to you.

Patricia Annino:  Thank you.

Jim Lange:  But if we go on to Women and Money, one of the first things I’d like to discuss and you start right out with it, about the reality of estate planning, and I thought “wow what a great idea,  I never really think of it like that.” You say that estate planning isn’t just for dying but it’s for living, too, and that all women should have a will regardless of how old they are, what their financial status is, etc.  Could you tell us little about your philosophy about why it is important for the living and it is not just preparation for dying and why women, specifically, why every woman should have a will.

2. Estate Planning is for the Living, Too!

Patricia Annino:  There are two parts to that, to answer that question.  One is the chances are most of us are going to lose some level of mental capacity during our life time before we die.  At that period of limited capacity could go on for years or decades.  And women spend all of their time making sure that everyone else is alright, it’s their instinct.  They make sure their husband is alright, their partner is alright, their children are alright, their parents are alright, their siblings are alright, but they forget what that flight attendants says every time you get on the plane. If the barometric pressure in the cabin changes and you are traveling with a small child, put that mask over your own face first.  You can only protect that child if you have made sure you’ve protected yourself.  And women don’t remember that message because it’s not instinctive to them.  And they forget about, well you know what, maybe they’re not just going to drop dead, maybe they are going to live a long time. And they may be unable to handle their own medical or financial decisions.  And so that’s a plan for the living, estate planning today is thinking about how you are going to be sure that you are protecting yourself for the duration of your lifetime and if the people who you are living with or depending on or depend on you, lose the same ability to handle their own affairs, how does that impact you.

Jim Lange:  Well let’s say we get more specific with that, and I like that.  So what are the specific steps that you are going to recommend, specifically with the idea of protecting yourself?  Of course, I mean everybody knows about the transfer of property at death (actually not everyone knows the right way, we’ll get into that a little bit).  Specifically on this issue of protecting yourself while you are alive, what specific steps and what specific documents do you recommend be drafted for a woman who is planning for an uncertain future with, as you said, a diminished mental capacity or diminished physical capacity?

Patricia Annino:  Well let me make an observation and I have a feeling that anybody who is listening to this program is the most responsible person in their family because they are paying attention to things they need to pay attention to. So as they are listening to what we are talking about, I think they should listen on two tracks.  One is their own affairs, second they are going to get the call when something happens to anyone else because they are the most responsible person.  And women instinctively understand that and think about it but don’t go a step further and then think, “And therefore, what should I do about it?” except take the call and do what I need to do.  It behooves the person, the woman that is listening, to not only make sure that her affairs are in order but also the affairs for anybody she is going to get the call for. 

You know, it really hit home for me last year around this time.  I was flying to San Francisco to give a presentation and the man in front of me on the airplane in first class had a heart attack.  I had never seen or been on a plane with a medical emergency, I don’t know if you have.  The pilot said “Are there any physicians on the plane?” and two came forward.  The pilot leaves it to the physicians to determine whether or not the plane can go to its destination in San Francisco or whether it must make an emergency landing for medical reasons.  And the physicians determined that the plane could not go to San Francisco and we made an emergency landing in Dallas.  And I looked and that man going off in a stretcher, he had gotten on that plane just like all of us that morning, and I thought, “You know something?  His wife, his office, everybody thought he was going to end up in San Francisco, he’s ending up in an emergency room in Dallas.”  So does he have documents with him that give him the, that would tell the EMTs who to call?  Now that was during the day, they might be able to find his office, but what if it was at night?  So the most important document, and it’s a simple one, is the health care proxy or that equivalent in which you give somebody the authority to make your medical care decisions for you and a backup.  And I think that proxy should have every phone number that you have on your person or cell phone, and you should carry it with you when you are traveling and carry it with you when you are out of the country.  Because it is the beginning clue to give someone the answer as to who has the authority to make the legal decision.  If you have got kids in college, 18 or older, or above the age of majority and they have some kind of an OUI or are in some kind of car accident, again, because of the privacy rules, you’ll want that document, a very simple, but powerful document and it is a really important one, and I think everybody in the family once the reach the age of 18 should have a valid health care proxy.

Jim Lange:  Now see I have learned something already because we have been preparing, I am going to say we have probably prepared in the neighborhood of 1600 health care proxies. I always tell people keep one on file, give one to your physician, give one to your attorney if it is not us.  I have never told people, oh by the way you should carry it with you, particularly if you leave town. So I have learned something already.

3. Why Everyone Should Have a Living Will

Patricia Annino:  The other thing I learned in that incident, and you probably know this, is that all paramedics in this country are trained if they come upon an accident to open up the cell phone and type in ICE, in case of an emergency, and they will start, in order, to call the people you want to call in case something happens.  It doesn’t give that person the legal authority to act but it starts the chain of communication to get going.  So think about all those teenage kids: 18 year olds and 19 year olds and 20 year olds that have those cell phones and probably have programmed their phones ICE, and it is easy to go online from your phone and figure out how to do that.  It is a simple that to do that and it could really make the difference in letting the people know immediately that something is going to happen to you.  I think those are important documents. 

Also no matter how old you are, you should have a living will.  Terry Schiavo, that Florida case, I can’t remember maybe it was about 10 years ago now, she was very young when she had a stroke or whatever it was that put her in a coma.  And Florida law defaulted and said if you have not affirmatively picked who’s going to make your health care decisions for you, then it is your spouse.  And the parents fought the husband for a long time because Terry Schiavo never made the decision. The law defaulted the decision.  So in many of these cases you have to own the responsibility for making these decisions.  I know that you know, the scariest estate planning case that I have ever come across is someone in the second marriage.  So if you are in a second marriage and you’ve got someone who you’ve been married to for 3 years and you have adult children who are in their 30’s and 40’s and everybody loves you and you love everybody and under the law you can only pick one person to make those medical care decisions for you if you are unable to make them yourself. That’s a very difficult decision to make. But you know what?  The buck stops with you.  It has to be you who makes that decision and you need to do it now.  Not when people are sitting around you in an emergency room trying to figure out, oh “he meant me,” and “he meant me” and “she meant me” to make that decision. 

So the biggest challenge that I face is, and Jim, I am sure it’s the biggest challenge that you face, is getting people to be motivated to do this kind of planning when there is no need to plan, because that is really when all these decisions should be made and people don’t want to deal with that.  They don’t want to deal with disability; they don’t want to deal incapacity, so they keep putting it off till tomorrow. But tomorrow, boom, can happen just like that and it really behooves you to get on this planning process when there is no need to do it and stay with it.  If all you do after you listen to this show is do one take away, like finally get everybody to in your family to do a health care proxy, do that but then move on to the next step. In addition to the medical, what if you lose the ability to handle your financial affairs in your life?  Have you thought about who should be in charge of that.  What kind of checks and balances do you want in the system?  Most people don’t understand this, but if a husband and wife own their home jointly with the right of survivorship, and the husband dies, then the wife gets it.  But that’s a jointly owned home and in the event of disability or incapacity, like a stroke, that house is frozen even though it is joint.  Though most people in this country, the couples have 2 assets of significance, which is a retirement planning asset and a jointly owned home which are totally inaccessible in the event of disability or incapacity unless they put legal documents in place.  And any single person out there, or single woman, who has everything in her own name, her assets would be completely frozen in the event of disability or incapacity.  So thinking through who should be in charge of that, whether or not it should be a team of people and how you want to document that, I think is really important.

Jim Lange:  Well for whatever it is worth, in our law office, what we do is we usually don’t market or say, “Hey, come in to get a health care proxy,” but what we do is everybody, unless they specifically said, “We don’t want one,” (and then we try to argue with them) they also get a living will.  Everybody who comes in for a will or a revocable trust or what I’d call ‘the moneyed estate planning documents,’ we will prepare that living will and we will also prepare that power of attorney so I am kind of shocked when I see people come in with wills and beneficiary designations or retirement plans and I will say, “Do you have health care proxies and power of attorney?” and they often say no.  And it seems to me that maybe this is more of a question for attorneys, that it should just be standard practice for attorneys, that when anybody is in for a will, they should just do them.  Certainly it is not very much work in terms of time to prepare, if you are preparing trusts anyway, and you have the notaries there, you have the witnesses there. So it is not a big deal to notarize and witness those documents.  That’s the way we have done it.

Patricia Annino: I completely agree with you but I think who you and I are talking to are those people who are listening who haven’t gone into your office yet.

Jim Lange:  Well that is one of the reasons that we are talking. 

Patricia Annino:  Yes we are motivating them to get to Jim’s office to get their more complicated documents, but don’t forget the simple.  Sometimes it’s those simple ones that are going to get them in the door and then lead them to the other documents that they need that are a lot more complicated.  But at a minimal, they should be dealing with these.

4. Revocable Trusts

Jim Lange:  Well that opens up one other issue.  And frankly I have changed my tune a little bit.  You know I have been practicing law for close to 25 years now and in my early years, I did a lot more traditional wills as opposed to revocable trusts, partly on the theory that I was trying to deliver the biggest bang for the lowest buck to my clients.  And the other thing is, I have a lot of clients that have the majority of their money in their IRAs, 401(k)s, 403(b)s etc. that avoided probate anyway.  But one of the advantages of a revocable trust, where we avoid probate, is not only the advantage where we avoid administration and costs at death but also, I think that they are valuable in the event of incapacity.  Let’s say for discussion sake, you have a husband and wife and either one, although I guess we are talking about women today, let’s say for the benefit of the woman, the husband develops an incapacity.  I think it is a lot easier if the husband’s money is in a revocable trust with his wife named as a successor trustee than just having a power of attorney. So I think that there are some living benefits of avoiding probate.  I don’t know if you would agree with that.

Patricia Annino:  I completely agree with you, and I think that there are some assets like the IRS and retirement planning assets that can’t go into the trust while you are alive, so you need the power of attorney to make the trust successful.  And something that you and I were talking about earlier, which I think this may segue into is, you know, people come in to my office and come in to your office and they understand it for the couple of house they are there and then they promptly forget about it.  They don’t want to deal with it again, it’s too complicated, it’s a stack of papers, it refers to the code.  You know, that’s human nature, but it’s important to understand that if your husband drops dead tomorrow, who is in charge of the money in his trust, what your access to the money in that trust is, what is the standard of distribution for getting you that money, what are your choices and how you can join in to the administration of that trust?  And it never ceases to astound me how many men and women go in and sign documents and forget about it and think it has to do with taxes.  And as the federal exemption has now gone up to $5 million, we know that a lot of this has nothing to do with taxes anymore.  Of course state taxes are important, who knows if the federal is going to be in play.  But it also has to do with the control and distribution of those assets and anybody who did a plan 5 years ago may have inadvertently put a plan in place that would have been fine then but a complete disaster for them now.

Jim Lange:  Well we certainly want to get back to that, I want to make one more point, and then we are going to have to take a break.  One of the ways that I combat the issue of people forgetting what is in their documents is, along with the documents, we actually have a letter in English as opposed to legal ease and we try to write as straight forward wills as we can, but, truthfully, some of it is legal ease and some if it is a little hard to understand.  So we actually write a letter and sometimes it is more than 1 page, in fact it is usually more than 1 page, but we try to write a letter saying, basically, here is the essence of your will, here’s how your money is going to be distributed at your death, here’s how the money is going to be distributed at the second death, here are the choices that are involved.  And that way even if a client, let’s say a month after coming to one of our offices can explain at a cocktail party what their estate plan is, that same person may not be able to 2 years or 5 years down the line. So they would have that.  I think we are going to have to have a break.  Please stay with us, we have lots more. 

Nicole DeMartino: Welcome back to The Lange Money Hour.  We are here with Jim Lange and Patricia Annino having a great conversation.  I am going to turn it back over to Jim but before I do, Patricia, I want to tell you myself one of the parts I loved about your book was, and it goes along with what you were saying about taking care of yourself, protecting yourself for the duration of your life.  All the women out there should know that in Patricia’s book, she covers all different kinds of women.  What she is saying is that regardless of what your stage in life is, you do need an estate plan, and she covers single women, divorced women, married women, widowed women, all the different kinds of places.  And I just thought that specific advice, in my heart, Patricia, you really helped me.  It was very, very good.

Patricia Annino:  Thank you.

5. The Need for Revision

Jim Lange:  I think that you also, I think it is a little bit of a wake-up call.  I think we probably all know objectively that usually women survive men and sometimes, we don’t think about for how long and the consequences.  And you had started to mention earlier that the traditional estate plans that might have been drafted 5 years ago or more should be revised.  Some of the work that I do is much different than traditional estate plans and I thought maybe we should spend a few moments talking about the traditional estate plans and talking about some of the alternatives, as you also mentioned disclaimers.  I think that would also be helpful and maybe if you could start by telling people a little bit about what might happen in the event that they have one of these old traditional estate plans that might have been drafted 5 or 10 years ago and what might happen if there is no review, no change and there is a death in the family.

Patricia Annino:  Sure and I want to follow up on a comment you made at the beginning and highlight something that occurred to me when I was writing this book.  Most women in this country are going to inherit money twice, once from their parents and once from their husband. And therefore women must assume the responsibility of beginning to understand the consequences of that inheritance. So we have to get to the table and not just assume, that everything is going to get taken care of for them, because that’s not true.  And in no way, shape or form am I bashing men in this discussion because men don’t understand or pay enough attention to it either. It is just that when you look at it this way, women are probably going to inherit money twice and have the responsibility of dealing with it at some point in time.  It is better to understand it when they can make an impact in the plan than afterwards when choices have been set in concrete.  So anybody who has had their documents done more than 5 years ago must have them reviewed and that’s because I don’t remember when the tax exemption was $600,000.  It might have been more than 5 years ago.

Jim Lange:  Yes that was actually in 1996 but it creeped up.

Patricia Annino:  It jumped and it may or may not last.  So anyone who got a document done and said, “When my husband dies or when I die, when the first spouse dies, the federal exemption,” which would have been $600,000 or now $5,000,000, “goes into what called a family trust or a bypass-trust for the whole pot, of myself and my kids in a lot of situations, and the balance goes to me.” When it was $600,000 in 1996, most of it went to the client and then minimally went to the whole family.  Now, depending on how your documents were drafted and what your assets are, you could inadvertently be disinherited and a significant amount of the wealth that your husband leaves you, could be left for the benefit you and your children, you probably wouldn’t be completely disinherited.  But you would not be the clear primary beneficiary.  And where that becomes a problem is when one of those children becomes divorced or something else and needs money and believes they have a right, then there are consequences to that. 

So, Nicole, you talk about the fact that I wrote the book for single, married, widowed, and it’s because when you are in different phases of life, you have to pay attention to different aspects of it and it is a planning process.  So if you went to Jim 10 years ago, you better go back.  If you went to see Jim 5 years ago, you better go back.  Not only has the tax law changed and not only do the documents need to be adjusted, but your life has changed somehow.  Because almost everybody’s life changes dramatically every 10 years, I just haven’t seen that not be true.  So, it is the causes of those events that say it is time to get back in there and get that done and the old traditional estate planning documents might not make as much sense. Jim, I think you were probably going to lead me into a disclaimer, which is that there is as much that can be done, that is called ‘post-mortem planning’ which is planning after death, as the planning that comes up to it.  There is a 9 month window of time after the fact when somebody dies that choices can be made that can get you where you need to go.  As long as the documents are up to date and as long as the assets are titled and positioned in a way that when implemented, the plan will make sense. 

Jim Lange:  Well that’s actually been one of my big pushes this year, is to alert all the people out there.  I haven’t done it necessarily by saying, “I’m a woman’s advocate,” but I think maybe, indirectly, the type of work I have been doing, which is to alert people who have these dated documents that, as you said, forces up to 5 million dollars, which might be the entire estate, depending on how assets are titled, not to the surviving spouse, or in this case, the wife, if we are assuming the husband is going to die first, to a trust where his house only gets the income.  I don’t think that women think about it in the way that, if you are married and you and your husband or you and your wife, now have 100% control of all the martial assets. You can do anything you want with that money.  You can sell it, you can spend it. you can burn it, you can go on a trip, you can give it to your kids, you can do whatever you want.  But if that money happens to be in the name of your husband or even split in a variety of ways and there is a death, women could find themselves in a position to ask their kids or ask their local bank for their own money and I think that is a terrible position and now that we don’t need that trust for estate tax purposes, I would say that that document is worse than what I would call an ‘I love you will’ that would leave everything to your spouse and then with the second death, it goes to your kids and, as a final option, to grandkids. 

Patricia Annino:  I completely agree with you. 

Jim Lange:  So that is actually one of the emphasis of what I am doing this year and that’s what I talk about at the workshops. I talk about how the way the traditional estate plans work and then I talk about, let’s say, an alternative that would involve a series of disclaimers starting with the spouse not throwing away the B trust or the family trust, because in some situation in the future it might be useful, but only if the spouse makes the decision later, not now, and then children and then multiple joint trust for grandchildren.  That is my emphasis, that and I also get into the nitty gritty of IRAs and retirement plans and Roth IRAs.

Patricia Annino:  That’s great and I think that’s the issue that most couples should be addressing in the next 5 years or so.

6. The Wife/Female Partner Should Always Attend the Meetings!

Jim Lange:  Let me ask you this, most of my clients tend to be 60 or older and I have a lot of what I call ‘Leave It To Beaver’ marriages, with the original husband, original wife and the same kids.  And for some reason, I tend to attract quantitative types: a lot of engineers, a lot of mid-level managers, a lot of college professors and while there are plenty of exceptions to this rule, I find in more times than not, particularly with the engineers, it is the man who is driving the show, in terms of the will, the  decision to get a will, whether or not they are going to use me, the decision of what goes in it, and sometimes the wife says, “Well, do I have to come?”  And I say, “Yes!”  I scream, “Yes!”  And sometimes, to be fair to the husband, sometimes the wife is willing to give that up and I fight that as hard as I can.  Can you say something to some of the women who are listening that might just be in the habit of deferring to their spouse for money, and some of them actually know that their spouse is not on top of things?  So I have a lot of engineers that like to do their own investments and that might be fine if they are on top of their game, might not be.  But sometimes, they aren’t on top of their game but they are still doing it.  And frankly the wife, I suspect, fears he shouldn’t be doing it.

Patricia Annino:  You know, it really hit home, what you are saying, about 3 weeks ago when I was in a client meeting with a very significant client of mine, a self-made man, 55 years old, built a huge empire and it is a complicated business, I mean, we were talking about revising the estate plan significantly and who should be in charge. He has a wife and 5 daughters. Around me in the room was that man and 4 male advisors and we talked about whether the family should be in charge, whether an advisor should be in charge and he asked me what the difference is.  And he looked at me in the eye and said, “Well my wife should be in charge.” I said, “Then why isn’t she here?” and he looked at me and said, “Now that’s a good point.”  Then I thought, now, it is really easy to blame him, but that’s not completely fair.  His wife knew where this meeting was going on today and she wasn’t there either.  So the thing I like to say is, the keys to the kingdom are on the table, no one is stopping you intentionally from picking them up.  You better pick them up.  You better pick them up and get in that room because you are probably going to inherit twice and it is ultimately going to be your problem.  So get in the room now to figure out what it is and to assist, because if your husband dies or becomes disabled and you’re alive, you have to deal with the consequences forever of the decisions that were made in that room.  You make this really good point, Jim, that people might think it is the man but it is really both. The woman sitting at home knowing the meeting was going on is just as guilty as the man who didn’t think about inviting her.

Jim Lange:  Yes and I know in my practice, unless someone is disabled or maybe they have dementia themselves or there is some extreme extenuating circumstances, I actually insist on both people being there.

Patricia Annino:  Absolutely.

Jim Lange:  And when someone says, “Well, I am just here to scope out if you are the right guy,” then I say, “Well, I’m sorry, not really” because I really do think it is joint decision.  And if something does happen, I want to have a relationship with the person when everything was good.  Not just in the traumatic event when someone develops a disability or Alzheimer’s or dies. 

Patricia Annino:  You just said you have a lot of “Leave It To Beaver” couples and I do too, but I also have a lot of second marriages.  And that becomes more complicated because of the conflict, especially if there is a prenuptial agreement in place.  People may not want the other spouse in the room and that becomes a lot trickier to deal with and those are situations that have to get navigated through, but still need to get navigated through.

Jim Lange:  I do have quite a few of those couples as well. Although the majority are the “Leave It To Beaver” type and frankly, if I was the second husband or second wife, I would want to be in the room.  I think the conflict there is to provide for both children from the first marriage and the second spouse.  I will tell you, for whatever it is worth, I am not a huge fan of family trusts in those situations because a lot of times the children don’t get any money until they are in their late 50’s or 60’s and then the surviving spouse doesn’t have unlimited right to the principle, so I am not sure that some of the traditional planning is the best.

Patricia Annino:  You and I completely agree because I believe that they are natural enemies and the strategy should be conquer and divide. 

Jim Lange:  Yes and to quote myself, and that’s one of the nice things about writing a book, as you know, in particularly if there are IRAs involved, I started a section as saying I hate Q-tips as beneficiaries.

Nicole DeMartino: Welcome back to The Lange Money Hour.  We are here with Jim Lange and Patricia Annino.  We are talking about Women and Money and, specifically, estate planning. Now that we are back, I know Jim wanted to say a couple tips and spend a couple of minutes, because we want to get back to Patricia.  I know we are inching our way towards April 15th and I know he had some last minute tax tips, things you can do before even if you have already filed your taxes. So what do you have for us, Jim?

7. Roth IRA Contributions are Still Possible after Filing Taxes

Jim Lange:  Well, that’s right, this is just a quick reminder of some things.  Usually tax planning is done before year end but here are just a couple of thing that can be done even if you have filed your return.  As many of you know, and I have really beat this home last year, but I am going to remind you again, if you have not done it, I am going to encourage everyone who is working to make contributions to probably Roth IRAs (there are certain circumstances where it might make sense to do traditional IRAs, but if you’re married and your income is more than $177,000, maybe even consider nondeductible IRAs) because you can put in $5,000 for yourself or, if you are 50 or older, $6,0000 and if your spouse if 50 or older $6,000 for your spouse.  That’s $12,000 that can go into an account and grow income tax free and while you are at it, and if you like, you can make your 2011 contribution at the same time.  So you can get a lot of money into your retirement plan very quickly, even if you have filed your tax return, don’t worry about it, tell your preparer the next year.  There is a form that you have to fill out if you do a nondeductible IRA on the other hand, but if that form is filed later, that is ok.  The deadline on that is April 18th, 2011, and the reason why we get that extra couple of days is because the 15th falls on a holiday, so we get until the following Monday.  So we can go back to estate planning now but I did want to get that in because it is surprising to me…you know, our office still does 500 tax returns, and I can’t tell you how many tax returns that I have reviewed and I write a note that says, “Please make a Roth IRA contribution of $6,000 each before April 18th” and these are people, these are my clients who get newsletter after newsletter talking about Roth IRAs and Roth IRA conversions and what they should be doing. I send out multiple tax cards and I send out a lot of information to my clients but a lot of them, for some reason, are not doing it and sometimes they don’t understand, even if they don’ have the liquid money available to do it, let’s say in a checking account, they would be better taking money out of a savings account that is growing at a taxable rate and transferring it to a tax free account.  So, if you could put in $6,000 for yourself and $6,000 for your spouse and if you cover 2011 and 2010, you can get a quick $24,000 to start growing tax free.  Thank you for your patience Patricia, you have been sitting there waiting to get into the next issue. I know you were about to finish up a point and then I have another one for you.

Patricia Annino:  You will have to remind me, what was the point? 

8. Choosing the Right Executor

Jim Lange:  Alright, why don’t we go to the next point that I wanted to talk about.  I am sorry, I thought that you were not quite done.  You talk about the choice, and I am going to expand the conversation to executors and trustees and personal representatives.  I thought that those are some pretty important decisions and I hear some pretty bad reasoning like “Oh, he is the oldest son, he should be the executor” or “She happens to be a CPA, she would be a great trustee.”  I was wondering what kind of criteria that you often use in recommending people for, the legal word for it is ‘fiduciary duty,’ but let’s say for someone who is working for the benefit of others, and that might be in the example of an executor or a trustee or a personal administrator.

Patricia Annino:  Well right of the bat, I know you and I know this, it is a thankless job to ask anyone to be an executor or trustee.  So it always amuses me when I am in these conversations, and people are fighting about it, thinking it is some honor to bestow upon someone.  Really, they try to pick the most responsible member of their family and that most responsible member already has a very full life.  So dumping your life on top of theirs is not exactly a favor, and I think one of the most important criteria is that it has got to be somebody who has the ability to the job.  That is a complicated job and they have to be able to team up with somebody like you who can back them up with the administration of it because there are tax returns and there are tax elections and it is very complicated.

Jim Lange:   Well I sometimes jokingly tell people, “Name the child you like the least,” for that exact reason.  What tends to happen, at least with a lot of our clients, is since the money is going to be shared between siblings, a lot of times the executor will waive a fee so it ends up being a lot of thankless work. So that is one of the reasons why I sometimes kid people and say, “Name the child that you like the least,” because it’s not an honor, it is a burden and a responsibility.

Patricia Annino:    I agree and I also believe that whoever does the job should be paid for it because they already have plenty of other things they can do with their life.  I think if they are a family member or not a family member, that needs to be taken into account.  You shouldn’t be asked to do it just because you happen to the most responsible person in the family. 

Jim Lange:  Yes, and I also have a personal biases.  I have to be a little careful because we are on the air but I am still opinionated and I can say what I want, if somebody wants to give me grief, they can.  I tend to choose family members over, the legal word for it is, a “corporate fiduciary,” (in Pittsburgh that might be Melon Bank or PNC or one of the other trust companies) mainly because I like to keep the control in the family. Typically, the executor will hire an attorney, usually the person that actually drafted the will and, in my opinion, and I am sorry to the attorneys that are listening, you make a lot of money by charging a percentage of the estate, they should shop around.  You know, we charge hourly for estate administration because we think that is ethical and it is right.  If we can do a job in 10 hours or 20 hours, there is no reason we should charge 3% or 5% or some percentage of the estate.  The other thing is, if we are not doing our job or the executor does not like us, they can fire us and go somewhere else.  So I tend to prefer to keep the power in the family, if we have the luxury of having at least one responsible person who would be able to get the job done, presumably hiring a law firm like ours or a CPA firm in the event of taxes, or, you know, a firm like ours because we actually do both. I don’t know if you have a preference on a corporate versus a family member as an executor or trustee, etc.

Patricia Annino:  You know I think I am almost as opinionated as you are.

Jim Lange:  Are you going to go the other way?

Patricia Annino:  I believe that the power should always be seated with the family as long as it is a competent person in the family.  I have recommended because of the busy life syndrome, if you don’t have somebody like you who is geared up to do it, and you go to a major financial institution and hire them as an agent to do the work, they can do that too, but the power is still seated with the family.

Jim Lange:  Yes, but the one time I am a little bit more open to having a corporate fiduciary is in a situation where you have a couple adult children and one of them is a spendthrift or drug addict or alcoholic.

Patricia Annino:  Or special needs.

Jim Lange:  Well special needs, I would say that is a slightly different situation because a special needs child may be a difficult situation but might not be sanctimonious and you may not have the conflict that you would have in other situations.  So one of the things I worry about is, let’s say there are two children Joe Responsible and Jay Irresponsible, wait, this is a woman’s show so Jane and Jill, but I sometimes worry about naming the responsible one as the trustee for the irresponsible one because I worry about their relationship after Mom and Dad are gone.  So in those situations, I am a little more open to having a corporate fiduciary, but to be honest, even in that situation, I’m going to say 8 or 9 times out of 10, the client ends up choosing the family member as the executor as opposed to the corporate fiduciary.  I don’t know what your experience is.

Patricia Annino:  I have one of those situations right now and they are insisting that it the family member and I think it is going to be a big disaster.  So what I told them is that I want to put the hammer clause in.  The hammer clause basically gives that well-meaning person, who is going to start off in that fiduciary capacity, the right to get out of the way and put a corporate fiduciary in, so that there is leverage there.  So that they can back in and say, “If you create any more trouble, you’re disrupting the home life here, I can’t deal with it any more, I’m going to have no alternative and XYZ trust company is going to come in instead of me and handle this.” 

Jim Lange:  I like that solution.  Let me throw out one other one that I have used in practice.  I have used this solution, and this is particularly appropriate for older children, so let’s say that the spend thrift child or the alcoholic child is in their fifties or even older, I sometimes give the trustee the power to buy an immediate annuity.  So, let’s say, for discussions sake, there is half a million dollars for each child and the irresponsible one, you know that there is going to be a fight on the trust about when the money comes out and how the money comes out or how the money is invested and everything else.  Sometimes, and it might depend on interest rates at the year of death, that’s why I like to do it as an option, I don’t force it, I give the power to the trustee to buy an immediate annuity, usually I prefer inflation adjusted, and that way the spend thrift child gets a certain amount of money every month and for the rest of their life and there is no fighting and no trustee fees and in effect, the trust is terminated so that the child is provided for but it is without the trust.  Of course, what you are giving up is the ability to have that money invested in stocks and maybe perform better in terms of investment performance.

Patricia Annino:  I like that.

Nicole DeMartino:  One thing I would like to ask you, Patricia, going back to your book, you talk about women needing to get started in three simple steps.  First, you want to set goals and number two is to get organized and I think that is crucial.  But the last part, it hits home, is put together a team of advisors.  You and I know, women take on everything and we think we can do it all.  Can you tell me a little bit about who you think should be in this team of advisors that women should have?

9. A Woman’s Team of Advisors

Patricia Annino:   You need a confident estate planning lawyer that you have a relationship with for the long term and I think that is really important.  There are plenty of technically confident estate planning attorneys, and that’s good.  You need a technically confident estate planning lawyer but you also need to have someone that you are not afraid to ask questions to and you can have open and honest conversations because a lot of what we are talking about is very personal, like your daughter has a drug issue, and nobody needs to know it.  Your son-in-law is a gambler and no one needs to know it.  You have to have a rapport where you are comfortable telling the most intimate, dirty little secrets in the family and putting them on the table and developing a relationship.  That’s a hard person to find but when you find that person, that person can become the quarterback that puts that team of advisors in. 

You need an accountant.  It sounds like, Jim, you are not only an estate planning lawyer but you are also a CPA and that’s great, but a lot of people are not going to have that luxury.  They need to also have a confident accountant they can put on their team and maybe someone who has financial savvy and can direct them in their investments, whether it is the person or institution that is currently managing their money or beyond that. 

Now, when there are special needs, a special needs child, you might need a social worker, you might need a psychiatrist.  If it is a family business, I’m dealing with one now, they have an organizational psychologist.  So, depending on what’s going on in your family life, you might want to ask different questions.  And the other thing, let’s say you are not the person that has the business, your husband is the one that is running the business, I think you should ask him annually, “If you drop dead tomorrow, what should I do?”  The person who is running the business is the person who is thinking of that all the time.  “Would I sell, would I not sell, who would I sell to, how would I trust it, how would I handle it?”  That changes, who you trust, and that’s the other thing, who you trust today and who the most important people in your life are now will not be the same 20 years from now.  I think the number one reason why young people don't complete their estate plan is because they can’t agree on who the guardian is.  Just pick the best people now because you can always change it.

Nicole DeMartino:  Yes, you can always change it.

Patricia Annino:  You can change it and just keep working it through. 

Nicole DeMartino:  We are going to have to take one more break.  Just real quickly, through the years I have worked with a lot of woman myself and I have run into a lot of married women who have their own team different from the team their husband has.  Do you think that that is ok? Or should it be the same team?

Patricia Annino:  If it works for them, it works.  You want to have the line of communication open, so that you know what your spouse is doing.  Ultimately, that is really going to impact you.  The thing that people don’t understand is what you husband is doing with his affairs and his finances and his documents is going to impact you more than what you are doing with your own. 

Nicole DeMartino:  We are going to take a quick break, the last one of the show.  I think Jim has one more question for you. 

10. Taking the Children in to Account

Jim Lange:  I did want to pick up on a point that Patricia made which is an excellent point, the point of having guardianship provisions in the event that you have young children.  So I would say, even if there is zero money, no life insurance, no anything, it is still critical, which by the way obviously isn’t a good thing, it is still critical to have wills that would specify who, in the event of incapacity or two deaths would take care of the children.  The interesting thing that I think, and I have seen people come in with wills that have that, is that it is not terribly well thought out most of the time.  So for example, let’s say that one of the spouses has a brother or a sister and they might say, “Well Joe and Susie, my brother Joe and his wife Susie.”  Well, okay, but what if Joe and Susie are divorced at the time.  Do you want it to be Susie by herself or do you want it to be somebody else?  They go, “Oh gee, I haven’t thought of that.”   I would say a lot of times, lawyers are not as responsible as they should be because that’s a very important decision.  I know we have a 16 year old daughter and if I were to over simplify, couple number one as the primary guardian given something happens to my wife and I, but if couple number one is not a couple then we actually have couple number two.  We are kind of old fashioned this way, we kind of like the idea of a two parent family.  Somebody else is 100% free to say that I really want my sister whether she is married or not. I think that attorneys don’t press that issue as much as they should and that’s one of the points I’d like to cover.  I don’t know if you have had experience in this issue as well.

Patricia Annino:  I agree and the other one they don’t pay attention to is: what’s the relationship to the money with who is going to be the trustee if they are not the guardian of the children, because they have to work together as a team. Especially for a lot of younger couples who have life insurance, they are going to be worth more dead than alive.  So, if they are dumping their children on someone who is not at their level of wealth, then who is administering trust funds and who is making decisions about what funds get spent for what purposes becomes it is important and there has to be a coordination between the person in charge of the children and the person in charge of the money.  A lot of people don’t really understand that and it doesn’t mean anything untoward is going to happen.  That well-meaning brother that takes the children may feel uncomfortable receiving money to support his own family and so having some checks and balances on that system is also very critical.

Jim Lange:  I agree with that completely but I have one more point that I want to bring out because you brought it up in your book and it is an important part.  I happen to be a believer in prenuptial agreements.  I know that sounds very unromantic to a lot of people.  I have one myself and I am particularly interested when I have clients that have a significant amount of money that their children have prenuptial agreements that, if nothing else, protect inherited and gifted money.  I don’t know if you have experience in that and some of the tensions.  You have about 2 minutes to answer.

Nicole DeMartino:  Well about 1 minute, unfortunately.

Jim Lange:  One minute.

Patricia Annino:   It is almost a standard technique that I use because in some equitable division state like Massachusetts, gifted inherited assets are divisible in your child’s divorce.  So the only way to exclude them and their evaluation, so if you got a family business, not only do you want to exclude the gifted/inherited business, you want to stop the family predator, the ex in-law, from prying in and getting that valued.  So the prenuptial agreement protects against both of those and I think it is critical.

Jim Lange:  Alright Great!

Nicole DeMartino:  Thank you so much.  We have had Patricia Annino on the show this evening.  As always this show will be rebroadcast the following Sunday. I also want to mention she is the author of Women and Money, The Practical Guide to Estate Planning.  I also just thoroughly enjoyed Cracking the Money Code:  What Successful Men Know and You Don’tPatricia where can, if people want to learn more about you and all of the books, these aren’t the only books Patricia has written, where can they go?

Patricia Annino:  Amazon.com

Nicole DeMartino:  Amazon.com.  Last name Annino.  Again this will be rebroadcast on Sunday because we are on every Sunday at 9 am.  And the audio file will on retiresecure.com shortly after the show.  Thank you so much, you have been listening to The Lange Money Hour:  Where Smart Money Talks.  Good Night.



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James Lange, CPA

Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania.  He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again.  He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans.  Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger's Retirement Reports and The Tax Adviser (AICPA).  Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.

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