Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc., a broker dealer, member FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. This is Nate. James joining me again today. Nice little pleasant walk up the hill this morning again for another mid-June morning that we’re having, before it looks like another round of heat’s coming.
James Nelson:
Yeah, exactly. Another nice day today, and 90 degrees by the end of the week, it sounds like.
Nate Kreinbrink:
Let the summer come, huh?
James Nelson:
Yeah.
Nate Kreinbrink:
People who have pools are going to be getting back into them again, after those cool days that probably cooled it off a little bit and get back in the summertime and enjoying that time in the pools outside and sunshine, I guess.
James Nelson:
Yeah, but it’s been good for the high school sports though last week or two. Temperatures have cooperated and it’s been pretty good for the baseball players.
Nate Kreinbrink:
State of Iowa, back to playing the games of baseball. Only state in the United States who has summertime baseball to be able to get back and playing. So a lot of teams, softball, baseball kicked off Monday night, and we’ll try to cram as many games as they can, I think, into about the next month and a half and get what they can get. Hopefully everyone continues to stay healthy and it’s glad to see the people and kids back out on the baseball field.
James Nelson:
Yeah, exactly. Now the big question is going back to school. Who knows what that looks like?
Nate Kreinbrink:
Further along. I don’t have to worry about that right now. But looking at today’s show, I know James and I always discuss as far as what way we want to go as far as topics for this program. I know a couple of weeks ago we talked tax planning. Had Andy Ferguson with NelsonCorp Tax Solutions on.
Nate Kreinbrink:
James and I last week talked a little Social Security, Medicare, planning, how that looks given the current environment. Obviously numerous shows with David with volatility in the markets where we’re currently at economically.
Nate Kreinbrink:
But wanted to kind of hit an area that usually oftentimes gets overlooked, and that’s estate planning and just making sure that people again be cognizant of the importance of putting some planning into this area and what it can or potentially could hurt you if you don’t look at those areas.
James Nelson:
Yeah, it’s generally a topic that a lot of people find boring and not as fun to talk about instead of talking about investments and whatnot, but estate planning is really important and it’s not just getting a will or a trust drafted. Most people think estate planning, they’re thinking, “Hey, we got to redo the will or we got to update our trust.” It’s sometimes just as simple as updating beneficiary forms, taking a look at how accounts are titled.
James Nelson:
We came across a case a week or two ago where someone had been divorced for over 10 years and the ex-spouse was still the primary beneficiary on the 401(k) plan. And they still had a bank account that didn’t have any money in it, but it was a joint bank account. So go ahead and close that out or just get it in one person’s name, but that’s what we’re talking about here.
James Nelson:
Sometimes it’s just that simple. Updating beneficiary forms of if you’re divorced or somebody’s deceased. That is very important to keep those current, whether that’s an IRA, 401(k), 403(b), any retirement plan at work, life insurance, any old life insurance policy. Those seem to get neglected the most.
James Nelson:
We took out a policy 20 years ago and nobody’s looked at the beneficiary form. Nobody’s updated anything. That can be a problem. And then again, just the simple stuff, joint checking accounts, how are they titled? Are they in good shape, or do we need to make any changes there? And again, that all plays into the whole estate planning discussion and making sure that everything’s taken care of if something were to happen.
Nate Kreinbrink:
Right? And I think it’s important that people sometimes think, “Well, I’ve got a will done or whatever, that’ll take care of it or whatever.” But normally if you have a retirement account, whether it’s your 401(k)s, 403(b)s, IRAs, Roth IRAs are all beneficiary driven, which oftentimes supersede what you have written down in your will. So again, as James mentioned, making sure that those stay current, because again, it’s something if you set up that account, you put the beneficiaries down, you don’t even think about it. You look at your investments inside of the account, and you completely forget about the beneficiaries and keeping them updated.
Nate Kreinbrink:
So again, very important to do, making sure that they’re coincide with any wishes and anything. And they may change whether it’s a spouse, whether it’s kids, grandkids, charities, or whatever it may be that you want to do. Again, making sure that those stay up to date. And again, along that goes with a will or trust, and we won’t have enough time to get into the specifics of each one of those in depth to see where it fits at you. But again, most people say with a will, “Okay, I’ve got that taken care of, and I should be good,” but they don’t necessarily understand the limitations that that may bring as far as that it doesn’t necessarily do exactly what it is that they think they’re going to do.
James Nelson:
Yeah, exactly, and going down that path of will versus a trust, a will’s pretty straightforward. I would say 90% of people if they have an estate plan, it’s a will. Pretty straightforward. Assets are distributed at death, and that’s about it.
James Nelson:
Trust is a little bit more involved, lot more flexibility there. You can say, “Hey, in five years, there’s 50% of this has paid out, in 10 years the rest of the money is paid out.” So beneficiaries have a first chance and a second chance at handling the money.
James Nelson:
The other big difference is a will is a public document. A trust is a private document. So if somebody’s a little bit sensitive on having their assets disclosed when they pass away, obviously that’s a pretty simple decision. Go the trust route and get it taken care of.
James Nelson:
One other thing I wanted to just bring up, as far as beneficiary forms go. We had also come across a case that we were not involved with until after the fact. As far as a 401(k) plan having the estate listed as a beneficiary. That is generally a very bad idea that the money all had to be paid out. It was in a qualified retirement plan. All the money had to be paid out immediately to the estate meaning it’s been a taxable event. It was a seven figure account, so they absolutely got hammered on taxes. And then the beneficiaries are there to pick up the pieces.
James Nelson:
Rather than having those kids in this case named as a primary beneficiary or contingent beneficiary and have their half or third go directly to them non-taxable, a big difference there. Non-taxable. Yes, they’re going to get taxed at some point, but they could stretch that tax liability out over a number of years versus having just the estate listed generically because somebody didn’t fill out the beneficiary forms properly is a bad situation in most cases. Maybe there’s a specific case or two where that would make sense or somebody doesn’t have a beneficiary to name so they just default to that. But I thought I’d bring that up because that was another one that we just recently came across and again, you’re losing 40% on the dollar in taxes when that, in this case, wasn’t necessary.
Nate Kreinbrink:
Again, a lot of times planning will help you avoid some of those big things, and another way that goes on to that that takes the beneficiary designations just a step farther is just understanding who was getting what type of an account that you have and understanding the tax consequences of each one of those.
Nate Kreinbrink:
And where that comes into play sometimes is if you have, let’s say, parents have their kids listed as 50/50 beneficiaries on all their accounts, whether it’s a Roth, whether it’s a tax deferred account. But again, understanding that the Roth accounts comes out tax free. Tax deferred accounts, you have to pay taxes when you come.
Nate Kreinbrink:
But now let’s just say you have two kids. One of them is in a high tax bracket. The other is in a lower tax bracket. It may oftentimes make sense to divvy up those accounts based off of the kids who’s going to pay the most or least taxes into them.
Nate Kreinbrink:
So if we go 50/50, the kid in the higher tax bracket is not going to get as much because they’re going to pay more in taxes on it. So it may make sense to defer your Roth account more to the person in the higher tax bracket versus the lower tax bracket.
Nate Kreinbrink:
So again, in depth stuff, but a lot of times discussions that people, as James said earlier on in the program, just don’t want to have, because either one, they don’t understand it, two, what they think they have isn’t necessarily what is actually going to happen, or three, in order for these to come into play, obviously we’re talking to unfortunate circumstances and again, not oftentimes pleasant conversations but conversations that nonetheless need to happen.
James Nelson:
Yeah, no doubt. And I think what you brought up earlier, Nate, is just as far as somebody puts together a will or trust, and they say, “Okay, I’m done,” type thing. Well, not even close. You’ve got to actually fund that estate plan. So if you put together a will or trust and you don’t change beneficiaries on your 401(k), your IRA, your life insurance policies, then nothing’s going through it. So, we talk about it all the time. Yeah, getting the estate plan done is important. It’s more important to actually fund it if that’s where the money’s supposed to go. If it’s supposed to flow through the trust, then obviously we have to go back through and change the beneficiaries on the assets that we want to flow through that trust. If you don’t, then the trust is almost worthless.
Nate Kreinbrink:
I compare it to basically thinking if you have a nice, shiny new brand new car that doesn’t have any gas into it. You have to put the gas in it to have it function. Well, the trust is the same way. You have a nice, shiny trust. You’ve got everything unless you put the documents into it, it doesn’t do anything.
James Nelson:
Exactly, and that goes for the bank accounts as well. People have these trusts and then we find out after the fact that a bank accounts in an individual’s name, not going through the trust. So bad scenario there, but I think that’s very important for people to understand, even when the estate plan is in place, we still have to go back through and make sure we fund it. And by funding it, that means switching the beneficiaries to get the right assets flowing through these state plan the way that we want.
Nate Kreinbrink:
Again, questions on any of this, questions you need to start having, give us a call. We’d be happy to sit down with you and start guiding you in the right direction with some of the things.
Nate Kreinbrink:
I did want to mention real quick that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to the Backpack Buddies program, which is sponsored by the information referral and assistance services.
Nate Kreinbrink:
James, thanks for joining me again this morning.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s financial focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be into directly.
Announcer:
Registered representative securities offered through Cambridge Investment Research, Inc. A broker dealer member, FINRA SIPC. Investment advisor representative Cambridge, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.