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Beneficiaries
Episode 12124th October 2023 • Financial Life Planning for Busy Parents • Mike Morton, CFP®, RLP®, ChFC®
00:00:00 00:26:07

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 “For every minute spent organizing, an hour is earned.” - Anonymous
You’re organized, right? You made an estate plan…set-up guardians for your kids, named beneficiaries in your will. Everything will go as smooth as butter should you meet your ultimate demise, yes? Maybe, but maybe not. The best way to ensure everything goes according to your plans is to get organized. Creating an assets and liabilities spreadsheet, while tedious, will help you and your loved ones navigate your financial wishes in the event of your incapacitation or death. How will a spreadsheet make the process easier? Let’s use a real client example to highlight the use case:

I have a client, we’ll call her Amanda, that I’ve been working with for years. Amanda’s mother passed away two years ago, not unexpectedly. She had two children, Amanda and her brother and had remarried and acquired three step-children. She worked her entire life, leaving behind some assets in trust and a will to assign her retirement accounts and two businesses to her beneficiaries.

While it may seem as though Amanda’s mother had her plan carefully arranged, it turns out that asset allocations were a lot trickier than anticipated. The plan was to give her retirement account, valued at $1 million to Amanda and her brother to split. The two businesses were valued at $500k each. $100k was set to be given to each step-child from that while the other $700k was to go to her widowed husband. Unfortunately, the businesses were not worth $500k each, making the distribution of funds a nightmare for her survivors. Had the assets been accounted for prior to her death, the plan could have been reevaluated without the tremendous effort and headache left for Amanda to deal with upon her passing.

What can you learn from Amanda’s story? First, take the time to create an asset and liability spreadsheet to include all of your accounts and where they are held.   👉  Here's a handy template to get you started! Next, use that spreadsheet to review all your beneficiary forms for each account. Why is this important? The Wall Street Journal recently published an article explaining how different states have different rules for beneficiaries. For instance, if you name your eldest child the beneficiary of your 401(k), but then get married, the beneficiary automatically changes to your spouse, even if you later divorce that person. How do you keep it all straight? Via an asset and liability spreadsheet review completed yearly.  It may take you thirty minutes to prepare an itemized list of all your accounts and beneficiaries but it will save you and your loved ones hours of trying to organize everything in the event of an emergency or death.

Transcripts

Matt:

You've saved your whole life and you think your money is going to your kids, but is really? How can you protect them and make sure that it really will. I’m Matt Robison, this is financial life planning the Mike Morton podcast and I'm joined by my co-host, the eponymous Mike Morton.

Mike:

Wait, first of all, I don’t even know what that word means.

Matt:

Well I was going to ask you do you know what eponymous means?

Mike:

No your your money, your money should flow to me and Matt to this podcast, not to your kids.

Matt:

Well if your listening in the financial life planning feed, then I don't know it. Thank you for your listenership through today. If you're listening in beyond politics by podcast feed, thank you. Because by listening there we are ad supported Mike, this your financial life planning supported?

Mike:

Oh, yeah, that's right. There's ads, and then from those ads we get like a few dollars, right?

Matt:

It's amazing, actually, you know, because we're also on YouTube, for a lot of the other shows, do you know that actually you earn a higher rate for ads, quite frequently on audio pods. It's weird. Anyway, people don't care about that people are here to understand how the government might be robbing them and their children and how they can stop that from happening. Is this, is this real? Like I mean, I have a will like, isn't that the end of the story?

Mike:

Yeah, you'll be all set. I know, unfortunately, it's not the end of the story. So this is making sure that you're setting yourself up for success, which is what this podcast is about, setting you and your family up for success. And one of the areas we work on all the time is estate planning. It's not the most glamorous or the most fun, and it's definitely the most tedious. Matt, I'll try not to bore the listeners, but it's so important because if you don't name things correctly, and if you don't have them organized, you're going to leave a nightmare for those that you leave behind. And also, they might not be protected and especially if you've got kids, you really want to make sure you've got the right documents in place, so that you're not setting your kids up for success problems.

Matt:

Then it's that you might leave your kids with a gigantic months or years long headache, and you might work your whole life and the things that you thought you were passing on to them you might not, that those are bad. Yeah.

Mike:

Oh, man, you just reminded me of a story that I want to tell. And this is a client we will call her Amanda. And we've been working together for 4 years so great friends has a family has kids. And about two years ago, Amanda's mother passed away, she was older, it was not unforeseen that she was going to pass and, you know, Amanda's mother worked her whole life and built up some money that she wanted to pass on, she had remarried, so let me tell you a little bit about Amanda's mother. She had remarried a little bit later in life, she had two kids, Amanda and her brother, and then with her new husband had three stepkids. And we knew Amanda's mother had a trust, and wills she had all the documents in place. She had beneficiaries listed and all of that and we knew her intentions. Amanda's mother wanted to provide for her new husband, the three stepkids and Amanda and her brother, so those people, and like I said she had all the documents in place, so we knew where things should be going. And what she had basically, Amanda's mother, was a retirement account with about a million dollars in it. And then she had two businesses valued at about $500,000 each. So two businesses $500,000 retirement account with 1 million, she had about $2 million. The retirement account, she left to Amanda and her brother as two beneficiaries to split that. And then the two businesses she left $100,000 each to the three stepkids and then the bulk going to husband and two businesses $500,000 so a million dollars split $100,000 each to three kids and the bulk of the husband. The problem was, so we knew the intentions, but the problem was the value the schedule of assets. It was a little more complicated than that, but that was the nuts and bolts of it. It really wasn't valued very well. Now, the retirement account, we knew that was 1 million you could see that's just a retirement account. But the businesses, Amanda had to start digging in. She was the executor, she had to start understanding the co-owners of the business what the assets were in stuff like that and work with them. And it took a long time and it turned out that they were not worth $500,000 each. That's the upshot. After really going through it, there really wasn't much money there. And so now we know the intention was to leave $300,000 to three stepkids plus $700,000 to the husband, but they were only worth tens of thousands of dollars, not a million. So we knew the intention was to leave, you know, the assets in this way. But because they weren't valued very well, we didn't have that schedule of assets, is what we call it, listing the accounts, what the value is what you own how much it's worth, we were left doing a lot of work, Amanda had a ton of work to try to honor the wishes of her mother to where the money should go, and the relative amounts, you know, with not as much being there as her mother thought. So this all could have been avoided, if Amanda’s mother had just taken a little time and written, what we call the schedule of assets, what you own, and how much it's worth, and where it is. And I think if she had done some of that work, and realized, with her business partners, hey, these aren't worth $500,000 each, then the retirement account with a million could have been split with different beneficiaries and would have made the whole process way smoother. For Amanda, during this hard time, that would have avoided tons and tons of work that she had to do, and months of work.

Matt:

Yeah, that's what's really, the kicker of all of this is that our whole system is set up around the idea of, we have such complex financial instruments available to us, all of these countervailing accounts, and tax laws and benefit packages, and asset classes. And our whole system is set up so that our kids have to figure this out at the worst time of their lives. Right? They've just lost a parent or a grandparent, and now it's on them to sort of go through all this stuff from who knows where these documents are, like when people talk about getting your affairs in order. That's what they mean. And it's just and then there's sort of this bonus kicker, that, you know, it turns out that you might not, you may think you've done that, but you really haven't. I mean, is there. So, are there, are there trapdoors, or where, you know, you think you've got things clear, because you said he had a will, and a trust, and a named beneficiaries? Is that not sufficient?

Mike:

Yeah. I mean, it's a really great start, and you definitely need that stuff and I want to talk about a little bit more about that today. Because beneficiary's is really top of mind for me right now. But I think it starts with something really simple, so here's an action item and we'll highlight this at the end, too. I think if you can just take the time to simply write down all the things that you own, and owe, maybe some of your debts, on just a single piece of paper, where that stuff is, hey, I own these different accounts at Schwab and my local bank, and oh, yeah, I've got a loan I loaned to my brother owes me 50 grand, but he's paying me back, if you can just simply have what we call the schedule of assets, and write that down. That's tremendous. It goes a long way towards somebody inheriting that and saying, like, geez, where is everything? Oh, that's right, what's on this one piece of paper kind of everything that I need to be looking into. Now, of course your other questions. There's legal things that we need to get into is it in a trust that doesn't have beneficiaries, what type of account it is, but simply being organized with your finances for someone else has to step in whether you're incapacitated, you can’t make decisions or if you're not around, goes a really long way.

Matt:

In your experience, this is something we've talked about in a different context, that just knowing like, how many accounts you have, is it a good thing, where they are. And we've talked before, it's a great dive back into the feed. If you want to follow up on this talk before about you might make a discovery that there's money in accounts that you could roll over and you could do a lot better you could save anyway. It's a really healthy process on its own. Is this also the kind of thing that people will do if you sit down with an attorney to make out a will? Is that a step that people typically go through as part of that process to?

Mike:

Yes, so here's the kicker. Yes, it's absolutely a step that is part of the process. But the thing is, people don't actually do it because here's what happens. So my clients will go to an estate planner, and I've got different ones that my clients might work with. But here's a typical process. You go in, hey, I want to set up these documents I need power of attorney, I need health proxies, I need trusts and wills and they talk to you, interview you, who do you want to leave money to? How much where's it going, blah, blah, who your guardians stuff like that. And then they fill out the docs and then you go in and sign everything. And then their mind, that's it, you're done. Like you've signed all the docs, you've created the trust, you've got your power of attorneys, you're good to go. At the very end, it's now you have to do this and this, they give you a little to do list and send you on your way. And my clients have just gone through multiple meetings with the estate attorneys, right. Trying to figure out who the guardians for my kids are going to be is not fun conversations. So they've already so they've already gone through this they've had multiple meetings that gotta figure out these were like, really hard, annoying things. Then they go into sign everything and it's like closing on a house, you signed like a bazillion pieces of paper and there's witnesses countersign, and stuff like that. You feel like this, like you're done and the estate attorneys like Congratulations, you've got your stuff signed. It's great. And you're like, yes, finally, I'm done. And from my perspective you're just starting dude, you're just starting. Because now that you have your trust, and other documents now, where are you going to keep them you got to fund your trust, okay, you've got to put money into it, you got to make sure all the accounts are listed. We just said the schedule of assets, figuring all that stuff out and the beneficiaries and all that you got to go through and change all these things, and all the different banks and brokerages. And that's not easy either. So just realize like the estate planning process. Unfortunately, it's super important, right? But it's a pretty long process. It takes my clients more than a year typically, to sort of go through the entire thing, and most

Matt:

People are, I don't think most people are like me, for their own sake I hope they're not but I would bet at least one regard most people are like me, my wife and I went through this process. It's everything you just said, Damn, are you like bugging my house? Man, we went through this, we got the documents, yay. Now I know, like if a horrible accident befalls me what's going to happen, great. And we have these documents, and we got them into a secure location. That was like five or six years ago, and I have not put my eyes on them since. And for the life of me. I could not tell you what's in them. I have no idea. And again, less people think wait, why is this guy on the show? It's, I mean, I do I suspect that this is really, really common. Now I've done some of the best practices I do have, I'm not like trying to like, get people to figure out where they can hack these things. I do have in an ultra secure location, a full asset, sheet and liability sheet and like not only that I've kind of put like, you know, here are the accounts and here's where you can find them and et cetera. So I have that. And I've set up a password protection system. And so I've done, I feel like I'm ahead of the game in so many ways. And yet you're making me feel like, maybe I'm not where I need to be.

Mike:

I think you're doing a great job. Even just having the two things, again, the list of assets and liabilities just so people know like what bank accounts do you have and stuff like that. And then the password manager is another one I'm getting becoming a big fan of having password managers that you could share as a family that's really great for everyday use but then especially if something were to go sideways, you've got passwords for your five different banks and brokerage accounts in one area that you know trustees and stuff can get in there and help out, let alone all your digital assets like all those photos and other stuff that are going to be really important to your family.

Matt:

Is that song lyric? What about trust? What about us? I don't know. Some horrible song like God. Would you say that 90% of songs are junk? Can you imagine like all the songs that don't get put out by a record label and how shitty they must be?

Mike:

All the ones you're making up in your basement?

Matt:

I don't want to diss my friends or positions. Come on. You've got their musicians among… I'm just anyway. What about that process? You know, how should people because, you said before that in your story about Amanda that her father had trusts setup? Is that like necessary, but not sufficient? Is that even necessary? Like how does that How did trust work?

Mike:

Yeah sometimes it's necessary and sometimes not. So it really depends on your situation, which is terrible answer but let me put it this way. If you have minor kids, then I would highly recommend implementing a trust, alright what’s a trust trust very briefly. A trust is a legal entity, you sign it into existence. Alright. So it's a stack of papers that you sign and what it is it's a legal entity. All right, fine. So I could have the Mike Morton trust or let's call it revocable trust Mike Morton revocable trust, revocable means I can do anything I want with it. I can get rid of it at any time. All right, so I can just wipe it out from existence because it's revocable, I can revoke it. Okay. So I have the Mike Morton revocable trust, great I sign all these papers. What does that mean? It's a entity that can own things. Alright, so I can change the ownership of my bank account from Mike Morton, to the Mike Morton revocable trust, who now owns this bank account. It's the owner. It's the legal owner, okay, because it's a legal entity. That's what your trust can do. That's what you want it to do. For my client, usually I take the biggest brokerage accounts. Hey, you got $400,000 in this brokerage account, let's have the owner not be Mike Morton. Let's have it be the mike Morton revocable trust owns that brokerage account with all the investments inside of it. And now it owns that thing. Alright. Why do I want to do that?

Matt:

I'll tell you why, you create Randall Stevens because you are red and you're trying to help the warden hide assets because you are in Shawshank Redemption. And Randall Stevens is a second cousin to Harvey the rabbit? No, this isn't shady.

Mike:

No. Okay. This is not shady. And in fact, you're not hiding any assets because this is not an irrevocable trust and we're not also hiding the different names and stuff like that. There's definitely stuff like that you can name the trust the pinkie pick back trust and now no one knows who that is and it's sent to a PO box. And so yeah, now you don't know that, like you could own land. That would be a typical thing. Oh, this piece of land is owned by the yellow shirt trust. And the address is a PO box. And so you really don't know that Mike Morton owns that piece of land so you can do things like that. But here’s why you want to have the bank account $400,000 owned by the Mike Morton revocable trust instead of just Mike Morton. Here's why, what happens if Mike Morton is in a terrible car accident, and had to be put into a coma, and prognosis is good for Mike. But I'm not a condition for a month and a half so you're not getting your podcast for six weeks. But I still have bills that I need to pay and how can I pay them? I can't pay them if I'm not there to sign checks and click the buttons. So that's why if the trust owns it, and I have a co-trustee, Matt Robison, my good buddy is my co-trustee. He can pay the bills, he can go into the bank, click the buttons, write the checks, and do that kind of thing. So this is not only a health proxy obviously, I need someone making some good health decisions for me, but it's also the money. That's why the trust's are really good. My wills no good Matt, I'm not dead. So nothing in my will counts. But the trust owns the money. And therefore we can co-trustees successor trustees can work.

Matt:

First of all I love how gruesome your fantasy is. And second of all, what about the situation where since we're talking about estates? What about the situation where I don't want to say it sounds like casting the evil eye on someone. Let's just say, not you, someone else? What about when someone else actually dies and then their assets are in the trust? There are advantages there as well, right? Because we go through this mysterious process that I think is a mystery to most people probate, right, but you don't have to if you have a trust.

Mike:

Are you ready to create your ideal lifestyle? Let's discover what's most important to you and design a plan to have more of that in your life. Go to meet Mike morton.com. All one word, meet Mike morton.com. So that's the reason I highlighted the first instance, why you won't have a trust because that to me is more important for parents with young kids. You've got young kids, you want to definitely get those guardians and other stuff but also, if you're not dead, your money is tied up in your name. Alright, no one else can like access it. So that's a good use of a trust. But the other typical one is what you said, Matt? So when you pass away, we've got your will, you've got maybe trust, and then other accounts have beneficiaries, right. So there's lots of different ways that money flows after you're no longer around. Some of them are rule of law. And some of them go through court and have the judge make a decision. Say yes, this is right. The things that go through court is your will, when you have a will, it goes to probate court. So you're dead, you're no longer around. Whoever your executor is, takes your will and the death certificate into court and says, someone said, I want to leave my money in this way. And the judge says great, gather all the assets, make a list assets, bring it back, and I'll stamp yes that's what the will says so go for it. Distributed amongst the three siblings, the three kids or whatever. That's will and the probate court and it takes a while and you got to go through the judge. Other things are passed by rule of law. So if my trust, you know, owns that brokerage account, and I'm no longer around, it's not part of the will. It's just It's in the trust and the trust is a legal entity and it says what to do with it. There's successor trustees, there's beneficiaries, my kids get it when they're 35. All kinds of stuff can be written into the trust. And it just passes just like that, by rule of law. Alright, not probate court. No judge involved, no contesting my will, you know, and all of that. And the other thing the other way is beneficiaries. So in certain accounts, like your 401K's, individual retirement accounts, those have beneficiaries, and you really want to review those who the beneficiary of your accounts are, because it's going to pass immediately to those beneficiaries. No probate court, no will, or it doesn't matter. It's not in your will. It's like my individual retirement account will pass to whoever it says in my beneficiary.

Matt:

We said at the top, though, that there are all kinds of situations where this gets confusing and where assets don't go through. It sounds like, it sounds like with all the process involved, it can really be a mess. You gave me a hint that there's a staggeringly big figure out there of money that just doesn't reach its intended recipient. Really, what is that?

Mike:

This is why not, you know, again, in that story with Amanda, it's, we knew the intentions, the intentions were very clear, you know, and so we're trying to honor the intentions, but it gets bogged down by all these different mechanisms, and where money is and how much money was there. And so if you don't review your beneficiaries on your accounts, it doesn't flow, alright, your assets don't flow, there's more than $70 billion… $70 billion of unclaimed assets in the US. So this is money that was supposed to go somewhere, but it was not set up correctly. And it has not gone where those people wanted it to go.

Matt:

And it can be tied up for months, years, indefinitely?

Mike:

Yeah, if they can't find the people, if it's not there, like this is why the website here in Massachusetts, and every state has this, you can go put in your name and look up money that was owed to you. So I definitely recommend doing that. But this is where it's $70 billion that's not flowing correctly, hardworking people trying to leave money and just wasn't left correctly. So you really want to not only make that list of assets that we talked about, you know, everything that you own, but review all your beneficiaries on your accounts.

Matt:

That’s a staggering number. That's a really big number, right? $70 billion. And I guess what it really triggers for me is, per your Amanda's story, wow, it's not inconceivable that your assets could be among them. And that just takes us right back in that scenario of, you work, you think you've planned for things, and then you leave your kids this double nightmare of they've got to go through this enormous headache process. And then they don't even get what you intended for them to get. And it could just be marooned, and out there, it can end up with you. You could be getting their money.

Mike:

That's right, it can be flowing right to this podcast.

Matt:

It's like in a wonderful life where they all show up at the Building and Loan and he's like, what's the name of the protagonist? “And I don't have your money. It's in Bill's house” but it's like, “what's my money doing it your house Bill?” Your money might end up in Mike Morton’s house this is terrible.

Mike:

That's right. That’s lucky for me.

Matt:

All right. Well, yeah, that's the really depressing, but how much does it advance the ball? If you at least do those initial steps, you get that asset list, and you make sure that is properly reflected in updated documents?

Mike:

Yeah, look, that will go a long way. So spend that we talked about on other episodes, spend the 30 minutes to one hour to create a simple one pager in a Word doc or a spreadsheet of all your assets, where they are, how much they're currently worth, put a date on it. And then review while you're in there, looking it up, review your beneficiaries, and write that down on that one pager as well just do that just get organized and put that somewhere will really take a message

Matt:

And then hide it with a cleverly constructed set of clues that will lead people on a wild goose chase, like in that documentary, The Davinci Code. Okay, that makes me feel a little bit better. It does. Once again, I don't know, every time we start one of these episodes, you set up a problem that's like “Did you know that aliens are burrowing into your brain?” and that's oh no, that's terrible. And then you make me feel a little bit better by the end of the episode. They're only burrowing into my elbow. So that's good.

Mike:

That's my goal met with these episodes Matt, is to make you feel good.

Matt:

To make people feel moderately anxious and then relieve the anxiety. It's wonderful. That's what this shows all about. Alright, anything else on this before we relieve people of the ultimate thing anxiety of listening to the rest of this.

Mike:

No it's good man we gave a little action and it's important you really want to if you've got kids, you want to set your family up for success. This is really important stuff. So just spend the, you know, the one hour do that. Do that and feel great. Awesome

Matt:

For Mike Morton and for the aliens who are slowly working their way into my cranium. I'm Matt Robison. We'll see you next time.

Mike:

Thanks. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning pod@gmail.com. Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.