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Death and taxes aren’t topics to liven up a room.And while these conversations seem hard to have, they ultimately decide how you want your loved ones to receive everything you’ve worked so hard for. 

But the pitfalls of probate can leave your heirs more overwhelmed than supported. Your legacy ends up in the hands of the federal government. And no one wants that. 

In this episode, I discuss how estate planning protects your heirs for generations to come – and why it is essential to your retirement plan for a legacy that lasts.

Show Highlights Include:

  • The real reason taxes are renamed and what their confusing wording reveals about your estate planning today. (1:46)

  • How the history of the stamp tax lets the government take your legacy from your heirs (and how to protect it from the IRS now). (5:06)

  • The documents you need to protect your estate from the federal government and keep loved ones from suffocating in your taxes. (8:25)

  • What junk drawers can teach us about estate planning and how this lets you leave a legacy like Rockefeller. (11:33)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.


Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. To find out more about me or my team here at ONE Fire and Police, you can go to our website at PensionAttention.com, or you can give us a call (805) 409-8150, again, the number is (805) 409-8150. [01:04.9]

Benjamin Franklin once quipped, the only sure thing in life is death and taxes. I'm sure we've all heard that. And I think it was Will Rogers, who said the only difference between death and taxes is that taxes get worse every time Congress meets. Even with Trump's federal income tax cut legislation taxes in general, just seem to be on their never-ending slope upward. Sometimes they may be disguised as fees, and sometimes they may be disguised as tolls. And sometimes they just carry like fancy names, like ad valorem taxes or excise taxes. And sometimes they just have a simple name, like the gas tax. But in the end, all those taxes or fees take your money away, leaving you with less than you previously had. What about the phrase estate tax? Doesn't that sound fairly benign? It almost sounds like it's a tax reserved just for the wealthy people after all who, other than wealthy people have estates, right? And as you channel surf around the various news stations, whether you're watching Fox or CNN or whatever it is and these days, right, it's very likely that you've come across an interesting guy. [02:04.4]

He's a political consultant named Frank Luntz, actually, Dr. Frank Luntz. Frank is a very good, he's very good at organizing focus groups. And what he does in these focus groups is to determine the impact that words have on people, people just like you and me, average Americans. In fact, that just finished a book that he wrote called, ‘Words That Work: It's Not What You Say, It's What People Hear.’ So, he'll take a name, something like the estate tax. And today we're talking about estate planning on Pension Attention, that's why we're focusing on this topic. And he'll see how a focus group reacts to those words, then depending upon their reactions, he might call it something else. In essence, he tests the language after all, as we all know the right words can make all the difference in the world. And so too, can the wrong words. In other words, the same thought expressed differently can sway your thinking. It can be powerful stuff. And at times public opinion has less to, with the essence of the idea and more to do with how the ideas express, words really matter. [03:05.3]

It's why we say the pen is mightier than the sword. It's one of the reasons why I wanted to start Pension Attention. A lot of the rhetoric that we see in our career in the fire department and the police department, they're words that matter when we hear things, but they have to be taken in context. And that's what I think is important as we're talking about estate planning today and what that means to you and your family. So, Frank Luntz, Dr. Luntz changed the phrase estate tax and turned it into the death tax. Now I've got to tell you, although some people might be on the fence about the use of an estate tax, everyone hates a death tax, right? It just sounds so ominous. But as Frank Luntz will tell you, they are the same thing and that's why words can be so powerful. In fact, in his book, ‘Words That Work: It's Not What You Say, It's What People Hear’ in the foreword chapter of it, he was discussing the idea about the Obama administration and the Bush administration. He'd worked for both sides on focus groups. Okay. It's not a political side thing here, but what he talked about was the use of oil, right? Or the discussion around drilling for oil. [04:04.3]

In the Bush administration, it was called that it was called directly what it was drilling for oil, right. In the Obama administration, the same topic, same idea was now called energy exploration, pretty powerful, right? Same idea, same topic called something differently, words matter. And it's how we perceive those words and in my world for our clients here at one farm, and for you listening, the idea is to make sure we uncover the words and really truly understand, okay, what the actual context of those words mean, the actual subject matter. We're talking about an estate tax today, in my example, just then we're talking about, you know, maybe investing in a drilling company or an oil company, right? And may, maybe people we’ll have different thoughts about that for different reasons. Okay. But the idea is, is to make sure that we uncover almost take out the word that a lot of these companies can use, or sometimes political administrations can use to derail us from something that's the same thing and the idea is to make sure that we truly understand what that means to us. [05:00.9]

And today's purpose when it comes to estate planning and why I'm using this because America has a long history with a death tax, also known as estate tax. It all began in 1796 with the stamp act, believe it or not, that was effectively a death tax. The act required that a federal stamp be placed on the wills of deceased citizens. It was implemented to help with costs associated with the American military actions at the time. The stamp act was eventually repealed, but then again stated about 60 years later to fund the Civil War. Then over the next 40 or 50 years from the late 1800’s to the 1920s, many other American military excursions were funded in large part by revenue derived from dead citizens of States, again, the estate tax, the death tax. Then in 1916, The Revenue Act was adopted. This act ushered in a more classic death tax structure. And although it has changed over the years, having taken many twists and turns our current death tax can trace its roots back to the revenue act of 1916. [06:05.6]

In 2019, under the new Trump tax cut legislation, each person can pass along a little over $11 million of their estate before paying taxes at the federal level. Now that's a pretty sizable exemption, don't get me wrong. 11 million, that's very high, just about double what it was previously. So not too many of us will be paying a federal death tax. However, it's really important to make sure you put your estate tax and what that means for your picture into a plan. And in my practice here at ONE Fire and Police and our advisors here, I always ask them, we always ask our clients to work closely with a competent attorney and CPA firm for taxes to examine any estate tax death tax implications of your specific situation. And since I'm not an attorney nor anyone here on staff at ONE Fire and Police, we work closely with civil firms to make sure that everyone's on the same page and then we formulate a cohesive plan. [06:58.3]

You've probably noticed in the Pension Attention podcasts and our philosophy as a firm here at ONE Fire and Police is putting a plan in place that coordinates all of your team members if you will, your financial advisor being us, which is also your investment manager, insurance management, also your tax planning, your estate planning, which we're talking about today, your insurance plan, and they all work together as a cohesive plan, moving towards your goal and objective in retirement. And if you haven't done that, okay, and as you're listening today, if you haven't done that yet, or if, or if you have before, you haven't really looked at it and you're not sure if the estate plan I put it together like a couple of years ago is still the one that fits for me. Now give us a call. You can call us at (805) 409-8150, you can also reach us on our website at PensionAttention.com. In fact, at the website PensionAttention.com, you can actually go and set up your free 15-minute complimentary retirement track meeting. And I urge you to do that, it's, it's no obligation to become a client. It's really just more of, Hey, we want to take care of you and make sure you're in the right spot. [07:56.3]

Have a discussion with myself, one of our advisors here at ONE Fire and Police and let us work through where you are currently retirement. We'll take an idea of where your deferred comp is right now. How close you to retirement? You just a few years on that's okay. We're going to build the plan for you and make sure it stays on course. There's a lot of benefits that really, really only benefits you in this matter, which is why we as advisors will always be on the side of the table for you as clients. So, give us a call (805) 409-8150 or you can go to our website at PensionAttention.com. [08:24.8]

Now in the event that estate taxes continuing on with this dialogue for a second are due, they actually tend to be due nine months after the date of death and the government doesn't accept, IOUs, they only accept cash, go figure, right? So just think about that. They only accept cash. It's probably pretty reasonable to assume that most people who have an estate of more than $11 million have likely earned the money by being, let's say entrepreneurial. They probably owned a business maybe in fact, I have a lot of clients in my practice that do own businesses that might have that subjectivity of that amount in their estate. And so, it's important that that is out there for them to plan, but businesses move in cycles, right? There are years when the business might be worth more than other years. And there are years when the business might be worth less than other years. So, what do you do when the government debt taxes are due within nine months, but you're in a business down cycle? Did you have enough liquid assets in the bank? I mean, will your heirs borrow money? Will they send hard assets at a discount or maybe just run a liquidation sale? I mean, all of those aren't great options, but how will your heirs raise cash to pay your estate tax bill? [09:23.3]

Now, this may not be a large conversation for our first responders, but it's important for you guys to know what's out there because many of you do have jobs that the department will fit into or other businesses or family inherited assets that come around, right? That may not be here today, might be there tomorrow. You want to make sure that the up and down I call it and the side to side right up and down, going from parents to kids, to grandkids and however, your family situation is set up. Also, unilaterally, right, going side to side between you and your wife's parents, your kids and their, and their eventual spouses, those kinds of things. So, estate planning is really a fully encompassing thing that needs to be looked at regardless of the amount. Today, I mentioned the amounts of what's out there, but the amount is one thing from an estate tax or death tax play. But the reality is in a state plan to make sure we talk about how you want your assets to pass on is really the focus for today and so we're going to talk about that next. [10:12.7]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? go to www.pensionattention.com to find out how we can help. [10:28.5]

And as we go into the next phase here, what about the probate process? How long will it take your heirs to receive the estate that you left them? The probate process, to be clear about that it's a court proceeding that concludes all of your financial and legal matters after your death. It’s there to settle any disputes that may arise and this is where good legal counsel comes in. Attorneys can suggest strategies that if implemented can better defend your estate against some of the pitfalls of probate. So, you might be thinking as you're listening to this today, what are some of the tools that might help you in this process? Well, wills and trusts are two of the most popular estate planning tools. Each of these tools is designed to pass on your estate, consistent with your living wishes. [11:15.2]

In other words, what do you want to have happen to the financial reward from your lifetime of work? It's a big question. And another question you might be thinking, how do you want to be remembered after your death? Think about it this way. I'm sure the vast majority of you listening to me right now can tell me the first names of your grandparents. For me, on my father's side, it was John and Betty. And on my mother's side, it was Jane and Martin. But if you asked me what my great grandparents first names were, I don't think I could tell you. And in fact, I don't really know. Maybe that's a bad thing, but I'm just being honest. Now, can you tell me the names of your great-grandparents? Some of you may be able to, but I bet not too many can. Yet everyone knows the name of say John D Rockefeller, although he died in 1937, which is now over 83 years ago. And unfortunately, I doubt any of us are related to him. And everyone probably knows the name, Andrew Carnegie, who died in 1919. So, what do you think we know their names, but not the names of our own great-grandparents let's say, well, it's probably because it's how these men structured their estates. [12:15.2]

It was their wish again, not everyone's wish, I'm not saying it's for all of us, but it was their wish to be known for generations. So, on a grand scale, these giants of the industrial revolution use many of the same tools that are available to you and me. They're available to all of us and can settle your estate consistent with your specific wishes, but here's the message for today when it comes to an estate plan. The only time are you able to prepare for your death is during your living years, eventually the clock will run out on all of us. God has told us that, you know, it might be a really good defense mechanism to deny our mortality during our living years, but it's probably a really poor state planning strategy. So rather than focusing on our fragile mortality, perhaps we should focus on something more enjoyable to think about like, what will be our legacy? How will you be remembered? Whose lives will you impact perhaps for generations to come? Now, despite the recent rise in the Federalist state tax exemption that I mentioned, it isn't a stretch to say that no retirement plan is complete without an estate plan. [13:16.8]

You know, I focus most of this show, Pension Attention material on helping you maximize your retirement income. I talk a lot about market volatility and how that can impact your retirement goals. You know, unforeseen events in the markets that hold the potential to impact your retirement nest egg if you will, as well as strategies to protect and grow your wealth. All of those that I talk about are encompassed, have a plan building that plan and continuing that plan that encompasses not just retirement planning and investment planning, but again, insurance planning, tax planning, and today's topic of estate planning. And the first goal of this show will always be to make sure that the plan is put in place and all the corresponding parts get involved in there because helping you live out your retirement years in the lifestyle that you always envisioned is our goal for each one of our clients. But maximizing your retirement income can provide the money needed to fund your generational desires, your estate planning, dreams, retirement planning, and estate planning go hand in hand, one facilitates the other, and neither of these topics are do it yourself projects, the stakes are high here, everyone. [14:23.4]

It makes sense to involve professionals like me here at one fire and police and others like a good CPA, good estate planning attorney in order to build that plan and provide those two hand-in-hand retirement planning, the, the overarching retirement plan with a good estate plan. And that brings me to one subject I wanted to bring up the department has brought out a quite a lot of good tools and something that I want to make sure that we use Pension Attention for is to bring these up as you may or may not hear about them in stations or through newsletters or white papers or social media posts from the pension department or the police department and personnel, but the Hyatt plan, H Y A T T, the union put in place is actually a great plan to look at. I'm not saying it's for everybody, but it's a way you can actually build an estate plan and find the right estate planning attorney through that program. [15:14.9]

And again, this is something that will help you build as well here at ONE Fire and Police. We'll utilize that as an option. There's other options, it's not just a state planning, but again, it's a great way to know about those that are out there along with the relief associations. I believe it's $600. So, if you do a, a trust or an estate plan, you can send the invoice in and they'll reimburse you up to $600. Again, I would check with the association about that, but these are tools at your discretion and disposal to be able to use. And I would really advise here. And again, like I mentioned before, the idea with Pension Attention is to advocate for some of these tools that are already out there. But again, don't do them in a silo, make sure they work as the bigger picture. In one of my podcasts previously, I mentioned the use of, or the term I use sometimes the junk drawer, right? We kind of have this drawer in our, our kitchens that has all this meaningful, useful stuff that we collect over years, right. But none of them really work together and we don't want your retirement plan to be like that. We don't want you to have, you know, an insurance policy you got 20 years ago, you think still good. You know, a conseco policy or a cancer policy got off the drill tower, kind of signing up your deferred comp went over here, eventually look at, you know, drop entrance. All those things are kind of out there by themselves. You don't want to have that junk door of a financial planning situation, right? [16:25.2]

You want to make sure they're all working together in the same light and you are looking at best practices, making sure, Hey, I want to build trust in someone to help me walk from active duty to retirement. And that's what we do here at ONE Fire and Police. We've been doing this over 15 years with first responders and we know the landscape you're going to be going through and so really, it's important for us to make sure that number one, you know about it, number two, you know about the tools that are out there within the department, and then three, how we put that all together for you on a custom-tailored basis. And the reason why I use those words and the reason why we mean those because you're unique, the state conversations, the tableside conversations are all great. But when you leave that station, you have your own life, your own family, right. That you want things structured, how you want to be structured. And that's why having an advisor helps you go down that path. [17:11.3]

And if you're listening to this right now, and, and you don't have that advisor, you haven't really built that rapport. Give us a call (805) 409-8150. You can also reach us on our website at PensionAttention.com. In fact, you can find some of these resources I mentioned today on our website at PensionAttention.com and you can schedule some time to meet with myself or one of our team members to go through your specific situation. And if you set up a trust before or a will, that is great. I'm not saying that's bad, but you also want to make sure that that is exactly what you want to have happen and understand, and sit down truly with a professional to make sure it still works for your goals and objectives. Because remember, and I've said this before on many of these podcasts is golden objectives can change. You can, other kids can come into the picture or kids can be going to different schools or take different routes in life. A lot of things change in a lifestyle plan needs to be adaptive. Okay. So, understanding that an estate plan, a trust already put in place no different than an insurance policy, you may have had years ago or a current allocation, you defer competent all topics we discuss here on Pension Attention. [18:12.1]

They are living, breathing animals, so they need to be looked at and plan accordingly and adapt to the changes and update things. It's a continual process. So, estate planning is not just for the super-rich it's for all of us, because we want to make sure that the hard work that we put in, it goes to our heirs, our kids, our spouses, our churches, wherever you want to go on your unique and specific basis that it goes that way. And it goes in the most efficient manner, so the government doesn't get his hands on it more than they need to. Right? And then it works for your plan and goals between you and your wife or you and your family. And that's, what's most important to us here at ONE Fire and Police. And so, we help coordinate that plan with your estate planning attorney. If you don't have one, we have resources, we can help with that, including the Hyatt plan I mentioned through the union. So, take a look at that. And the idea is to make sure that all these plans work together. [19:01.8]

Next week on Pension Attention, we're gonna be discussing, why insurance is important. It's not a topic everyone loves to discuss, but it is an important one. And what I want to focus on that show next week is how to use insurance, what you should be looking at when it comes to your insurance policies and how it makes sense for you both while you're active and when you get retired. So, I'm looking forward to it until then stay safe. Before acting on anything discussed today, remember to speak with a financial advisor near you about your specific situation, or if you'd like our help, you can visit us at PensionAttention.com or give us a call at (805) 409-8150. [19:38.4]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [20:02.4]

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