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Thinking about your death is something every human struggles with. We tend to glide through life, tricking ourselves that we’ll live forever. 

While we know we won’t live forever, we act like we do because thinking about our death makes us uncomfortable. 

But failing to plan your estate could make your family foot a large bill that they don’t have the money to pay. The only thing worse for your family than an unexpected or untimely death is combining it with a huge financial burden. 

In this episode, I reveal the importance of planning your estate. And you’ll discover some simple ways to plan your estate and protect your legacy. 

Listen to the episode now and protect your family and legacy before it’s too late. 

Show Highlights Include:

  • How sneaky politicians try to steal your money even after you pass away (6:12) 
  • The “Life Insurance” trick that helps your heirs pay your death taxes so they don’t have to foot the bill themselves (10:09) 
  • How to use the same state planning tools as John D. Rockefeller and Andrew Carnegie to protect your legacy and family after death (13:10) 
  • The insidious way your emotions rob your retirement and estate portfolio blind (18:22) 
  • Why thinking about your mortality today is the single most important thing you can do for your family (even if it’s uncomfortable) (21:40) 

To schedule your complimentary retirement track review, head to https://onecapitalmanagement.com. You can also call us at 805-410-5454 or text the word ‘TRACK’ and we’ll reach out to you.

Read Full Transcript

Welcome to Make your Money Matter, the show that aims to change the way we think about financial advice. So, you can make better decisions.

Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1500 clients nationwide. With over $2.5 billion in assets, they’re a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now here's your host Brad Barrett. [00:26.1]

Brad: Welcome to Make your Money Matter, the show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett, and it's my goal to help you distill the best ideas when it comes to your finances so you can make more confident money moves. Here at One Capital Management, our mission is simple to help our clients and you listeners take control of your finances and build the life you deserve. Friends, today the challenge is no longer the access to information, but rather it's finding the right information, and more importantly, how that information applies to you. And that's my commitment to you here today on the Make your Money Matter podcast, because after all your money matters and knowing how to plan your financial future is vital to your financial success. [01:13.0]

And as always, before we get started on the week's episode, you want to find out more about myself or any one of our advisors here at One Capital Management, you can go to our website at onecapitalmanagement.com or give us a call. You can reach us at (805) 410-5454 or shoot us a text. We just set up a text line. You can text the word TRACK, T R A C K to that same number (805) 410-5454 and we’ll reach to you. So, for those listeners who listen to us each and every week, we see your comments and we see your feedback and we really appreciate, and we want to help you. So, if you're listening right now and you're not currently working with an advisor, or maybe not working with an advisor like us, a private wealth manager who holistically and comprehensively looks at your overall retirement plan and how your investment plan, your insurance plan, your tax plan, your estate plan, all fits together, shoot us a text, text the word TRACK, T R A C K, to that same number (805) 410-5454. We’ll reach out to you to set a complimentary retirement track review meeting to provide you with what we call our black book. That is our proprietary financial plan built just for you. This is not a cookie cutter plan that you go into most retail advisor shops. This is built for you. We want to offer that to you. So, reach out to us. [02:35.6]

And today's topic is actually a great one because it has to do with one of the larger conversations around planning. And that is estate planning specifically. I titled this estate planning 101, because I want to start at the bare bones of estate planning and how we ought to look at it and how we talk to our clients about estate planning as it relates to their overall retirement plan. Now, the first thing I want to say is that any well-designed financial plan should encompass discussions about legacy planning, otherwise known as estate planning. If your advisor's not doing that, you're missing out. The combination and the coordination between retirement planning, investment planning, meaning your portfolio tax planning and estate planning and I'll throw in insurance planning as well. If those aren't going together in your plan, seek counsel and find that advice to make sure that you can build that plan for you. [03:31.0]

Ben Franklin, once quipped, the only thing sure in life is death and taxes. And I'm pretty sure it was Will Rogers who said the only difference between death and taxes is that taxes get worse every time Congress meets. And I think old Will was correct. With all due respect and I love what Trump did, the recent federal income tax cut registration a few years ago, taxes in general just seemed to be on their never-ending slope upward, thanks to this even new ministration who's talking about that starting next year. Now, sometimes they may be disguised as fees, and sometimes they may disguise as tolls. And sometimes they actually carry fancy names like ad valorem taxes or excise taxes. And sometimes just sometimes they simply have names like the gas tax. You probably know what I'm talking about here, but in the end, they all take your money away, right? Leaving you with less than you previously had. [04:29.5]

So, what about the phrase, estate tax doesn't that sound fairly benign? It almost sounds like at the tax reserve for just like wealthy people. I mean, after all who, other than wealthy people have estates. So, as you channel surf around the various news stations, whether you watch Fox CNN, MSNBC, it's very likely that you've come across an interesting guy. He's a political consultant named Frank Luntz. And I'm bringing him up because I just finished his book called, Words That Work: It's Not What You Say, It's What People Hear. That's actually book was referred to me by our president, my business partner, Pat Bowen. And it was really interesting when you think about it, this guy has been around for a long time. Frank is very good at organizing what he calls and what we know now is focus groups to determine the impact that words have on people. People just like you and me average American. So, he'll take a name, something like the estate tax, and he'll see how a focus group reacts to those words. Then depending upon those reactions, he might call it something else. [05:37.1]

In essence, he tests language. He's a man after my own heart because I love words. 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. So, at times, public opinion has lesss do with the essence of the idea and more to do with how the idea is expressed. Words really matter. It's why we say the pen is mightier than the sword. So Frank Luntz changed the phrase, estate tax and turn it into what we know or what we were heard from him and his focus groups as the death tax. Now, I got to tell you, although some people might be on the fence about the use of an estate tax, I'm pretty sure everyone would hate a death tax, but as Frank Luntz will tell you, they're the same thing. And America has a long history with a death tax. It all began in 1796 with believe it or not the stamp app that was effectively a death tax. [06:46.1]

The act required that a federal stamp be placed on the wills of deceased citizens. It was implemented to help with costs associated with American military action. The stamp act was eventually repealed but reinstated about 60 days later to fund the civil war. Then over the next 40 or 50 years from basically the late 1800s to the roughly 1920s, many other American military excursions were funded in large part by revenue derived from dead citizens estates. Pretty wild if you think about it. In its own way, it's kind of clever, right? I mean, because dead citizens can't vote, although that has been somewhat debunked, I digress. So why not raise revenue from them? Today's politicians, heart, the first sneaky politicians, I hate to admit it. [07:35.6]

So 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. So, in 2019, under the New Trump tax cut legislation, each person can pass along $11.18 million of their estate before paying taxes at the federal level. That's a pretty sizable exemption, just about double what it was previously. So not too many of us will be paying a federal death tax. However, we need to be aware death taxes may be owed at the state level like in Massachusetts, for example, only a million dollars is excluded. So, want to check your estate. Now on my practice and our practice here at One Capital Management, we always ask clients to work closely with competent attorneys and CPA firms to examine the death tax implication of your particular situation. That's why we have strategic partnerships set up with estate planning attorneys, certified public accountants, to make sure that we create that team for you. That's one of the best value adds other than our philosophy and our basically our investment team, not to mention our planning and all the proprietary build-outs that we can make for each client, but it's also coordinating all the professionals that need to be involved to make sure you have a well thought out and efficient and effective overall retirement plan that encompasses an estate plan. [09:16.2]

And since we are not attorneys, we work closely with these firms. And if you are subject to death taxes, I assure you, you will need a plan. Estate taxes are generally do nine months after the date of death and the government really doesn't accept [inaudible], they only accept cash, go figure. So just think about that. They only accept cash, you know, in the main, it's probably pretty reasonable to assume that most people who have an estate of more than let's say that $11 million number have likely earned that money by being entrepreneurial, the American way, they probably owned a business maybe. But businesses move in cycles. There are years when a business might be worth more than other years. Any of my business owners listening right now will know exactly what I'm talking about. And there are years when their businesses might be worth less than other years.So, you got to think about it, right? What do you do when you owe the government death taxes within nine months, but you're in a business down cycle? Did you have enough liquid assets in the bank? Will your errors borrow money? Will they have to sell hard assets at a discount or maybe, maybe even run our liquidation sale? I mean, how will your errors raise cash to pay your potentially estate tax bill? [10:29.4]

So, over the years, many people have turned, believe it or not to the insurance industry to put in place products or really plans designed to fund futurist state tax is something we consider for our clients here as well, whether at the federal or the state level. And when designed correctly lit life insurance, really the policy that we can put in place there to provide liquidity that can be paid to your heirs in a timely manner. So, by using an example, life insurance, as a part of the planning process in essence, death taxes have been somewhat prepaid when your money was earned. Now, that sounds like a pretty good solution if you think about it and it's certainly better than a fire sale. So usually, I bring that up when it comes to estate taxes, because a lot of times people shy away from the conversation of life insurance. And by no means, am I saying we're selling life insurance here on the daily, we provide it as a service for each of our clients based on the need. That's how you should properly do it. So, I want him to bring that up because when it comes to estate planning, death tax planning, legacy planning in general, pre-funding that or funding the insurance, the risk management really around that is really important. [11:36.0]

So, in addition to death taxes, what about the probate process? How long will it take your heirs to receive the estate that you left them? The probate process, by the way, it's a court proceeding that concludes all of your financial and legal matters after your death. It's basically there to settle any disputes that may arise. And this is where good legal counsel comes in, I might add. Attorneys can suggest strategy that if implemented can better defend your estate against some of the pitfalls of probate. So, let's talk about that. What are some of the tools that might help you in this process? Well, the first thing that comes to mind are wills and trusts. They're the two most popular estate planning tools if you will. Each of these tools designed to pass on your estate, really consistent with your living wishes, I call it the six feet under clause. In other words, what do you want to have happen to the financial awards from your lifetime of work? It's a big question. And how do you want to be remembered after your death? Think about it this way. [12:39.9]

I'm sure the vast majority of you listening to me right now can tell me the first names of their grandparents. For me on my father's side, it was John and on my mother's side, it was Martin. That's how I got my middle name. But if you asked me what my great-grandparents first names, I I'd have a tougher time telling you. I actually don't know. I'm not saying that's good or bad, but it's just the truth. So, can you tell me the names of your great-grandparents or your great, great grandparents? Some of you may be able to, but I bet not too many yet. Everyone knows the name of say John D Rockefeller. Now, although he died in 1937, which is now over 80 years ago, I'm sure we still know about him. And unfortunately, I doubt any of us are related to him. And everyone knows the name of Andrew Carnegie. he died around 1919. So why do you think we know their names, but not the names of say our own great-grandparents. Well, I'm bringing it up because it's probably because it's how these men structured their estates. It was their wish for right or wrong to be known for generations. [13:43.1]

Now on a grand scale, these giants of the industrial revolution, which is why I'm bringing them up, use many of the same tools that are actually available to you and me right now. They're available to all of us and can settle your estate consistent with your specific wishes. This is the part of planning that I speak so heavily about when it comes to tailoring your goals and objectives for your plan. And yes, we have to look at all the numerical data, the assets, the investments we'll put that all together. But we also want to take in consideration what I'll call the qualitative information or the qualitative data - your goals, objectives, interests, relationships, ultimately your values, those matter in a lot of planning, but probably most so when it comes to legacy planning. But the only time that you're really able to prepare for your death, believe it or not is during your living years. [14:44.0]

I know this sounds like a little bit of a morbid subject matter today, but I wanted to bring it up because it's an important planning topic. Eventually the clock will run out on all of us. Remember the only certainties in life as Ben Franklin said are death and taxes. You know, it might be a really good defense mechanism to deny our mortality during our living years, but it's a really poor estate planning strategy. So rather than focusing on our fragile mortality, perhaps just perhaps we should focus on something more enjoyable to think about like, what will be our legacy? How will you be remembered? How do you want to be remembered whose lives will you impact perhaps for generations to come? So, despite the recent rise in the federal estate tax exemption, it isn't a stretch to say that no retirement plan is complete without an estate plan. [15:36.1]

You know, I focus most of this show the material on helping us understand investment concepts, maximizing retirement income. And I state very clearly, almost every week that retirement doesn't need to be that you're 55, 60 or 65. Retirement is being financially free. I talk a lot about market volatility and what's to look at unforeseen events like black Swan events that hold the potential to impact your portfolio as well as strategies to protect and grow wealth. And that's really the first priority helping you to live in your freedom years or your golden years, your retirement years in the lifestyle that you always envisioned. But maximizing your retirement income as an example can provide the money needed to fund your generational desires, your estate planning dreams, essentially. Retirement planning and estate planning go hand in hand, one facilitates the other, and neither of these topics are do it yourself projects.I must admit the stakes are way too high. It's too important. It makes sense to involve professionals like me, like our advisors here at our firm, because we're experienced in putting together the right plan that suits you. Not someone else, not your friend or your family or a colleague, because yes, they may have the same similar setup if you will. But their goals, values, interests’ relationships are all different than yours. So, I can't think of a more custom approach than estate planning when it comes to your overall retirement plan. [17:13.8]

And I wrote this week's episode after something a couple of weeks ago that I noticed, and I started thinking about something and bear with me here for a second. Have you ever imagined a world different than the one you know. I mean, if you have you probably, I don't know, contrasted it to your reality. Maybe you imagine a better world. Maybe you see something worse or maybe a little bit of both. At times, you know, we might lament over things that we should have done. Usually really aided by 2020 hindsight or Monday morning quarterback kind of philosophies. And we replay the past wishing that we could have done certain things different, you know, and our emotions might slip into maybe a state of regret. We all know there are certain things we should have done, but we didn't. And there are a whole bunch of things that we know we should be doing, but we don't. Like, for example, we all know that we probably should be going to the gym or getting some workout in, but how many of us really do on a regular basis? We all know there are certain foods that we shouldn't eat, but we eat them anyway. I mean, yesterday I had in and out and it was glorious. So why do we act like this? You know, torn between what we know we should do and what we actually do. [18:21.9]

Well as Greek philosopher, Plato once said, ‘the mind is pulled by an emotional elephant and a rational pony.’ Our emotions tend to dictate our behaviors. Rationally, there are a whole bunch of things that we know we should be doing, but our emotions compel us to do something else. So rather than getting out of bed and going to the gym on a cold morning, we pull the covers over our heads and maybe retreat into deeper sleep. And an hour later when we actually get out of bed, we feel guilty. Anyone with me on this? A psychologist might say that we have what's called cognitive dissonance. I had to look this up as I was writing this week's episode. We're torn between two contradictory beliefs. We know that we should get out of bed, yet we sleep. It's kind of like someone who smokes yet knows full well, the ravages of cancer. Your emotional mind that the odds with your rational mind. And here's why I'm bringing this up. [19:20.4]

A few weeks ago, I was traveling on an airplane. I was heading back to our office in Westlake village. And when I boarded the plane, I sat in my seat. I had a newspaper actually believe it or at a magazine, I was reading and looked out the window. Everything was normal day. The plane got to the end of the runway, effortlessly climbed into the sky. You know, it was a smooth sailing. And as we reached cruising altitude, I had a cup of coffee, it was in the morning, and we just made our way east from where I was coming. So about three hours into the flight, we had a little bit turbulence. We've all been there, which very quickly turned into a lot of turbulence. And I remember, I remember such a look of concern on the woman's face next to me. She was really scared. Then there was this loud noise and oxygen masks fell from overhead. It was actually in all my traveling, it was quite an experience and the expression on the woman's face. I don't mean to laugh about this now, but the expression a woman's face turned immediately from concern to full-blown panic. And I could feel my heart racing and the palms of my hands, you know, kind of sweating. I was, I was pretty nervous myself. And of course, a thousand thoughts were racing through my head all in a split second, mostly I thought about my wife and my kids would never see them again. [20:36.2]

But in a matter of moment, those turbulence subsided, the plane seemed to gain strength and stability. Heart rates dropped and all the faces calmed, and the captain's voice actually came over the Planes PA system. He was really calm and reassuring as he announced that everything was, was all right. The flight attendants help passengers remove their oxygen mask and eventually landed safely in California. It was quite a flight, one that I'll remember. And as I started thinking about a couple weeks ago in writing this kind of an episode. More importantly, it was quite an experience because it really got me thinking about my mortality. You know, at the end of the day, we all know we are only on this earth for a limited amount of time. It is just a fact that everyone who's ever been born in the history of mankind has died at some point, no one lives forever. Yet many of us believe it or not, sometimes I think if we really honest with ourselves, many of us think we will. I suppose it's just natural to deny our own mortality. In a way it's probably a defense mechanism to keep us from getting too depressed about the thought of our own demise. [21:39.1]

But you know, when I got off that airplane, I wasn't thinking so much about my own mortality. Rather, I was mostly thinking about the impact that my death would have on my wife and children. And more than that, the legacy I would want to leave to them. I would say, you know, how would they survive emotionally and financially? You know, we talk a lot here as a financial firm about the financial side of things, but really there's an emotional side of things, which is why speak so heavily about the behavioral traits we all take into consideration within ourselves as it relates to our finances. And I wondered how my kids would remember me, or what would my wife do? Would everyone have time to grieve and heal. And at this time, I mean, I'm in my mid-thirties here I had some money in the bank, but not a King's ransom. And I asked myself, had things worked out differently on that plane? How would my family financially keep a flow? Would they need to sell our home? Would they need to move to a lesser community? Would the kids, need to change schools? And on top of all those concerns, how would they emotionally heal? [21:39.8]

Now I'm a fortunate guy here because I work in the financial services industry, and I have always understood the value of say life insurance as an example when it comes to estate planning. I felt reassured that my life insurance policy that I did a couple of years ago when my kids were born, would help the grieving process. It would also help the trust that my wife and I put in place and what the goals I had with that money to not only provide liquidity for my family, for my wife, really to pay the mortgage and to make sure she was set up, but also the legacy I want to leave with my family. And I share that today only because in the writing of this week's episode, it came from an experience something that we've all had a little bit of turbulence on a plane, and maybe it was that day. And I was just kind of thinking about the family kind of missing them as I was traveling. And I just thought, you know, I'm really happy and grateful that I set up that time to be able to build my estate plan. [23:33.9]

My estate plan happens to encompass some insurance planning just to pre-fund and provide liquidity. It doesn't mean that's right for everybody, but I bring that up as an option. And so, when we're writing today about estate planning, I wanted us to go through the basics of estate planning. Why we know today is that known as the death tax, thanks to Frank Luntz, which is really just the estate tax. And so, I want us to talk about it mainly on these points. One, it's a huge planning subject that needs to be brought up as it relates to your overall retirement plan. And also, it's something you really want to bring up with your advisor. And if you're not doing that with them, or if you don't have one, and if you're not a client listening right now, call us, you can call us at (805) 410-5454. You can also text us, text the word TRACK, T R A C K to that same number (805) 410-5454, we'll reach out to you. We offer a complimentary first discovery meeting. We want to provide you with what we call our black book. It's your custom proprietary built financial plan that encompasses all of these aspects, including today's subject around estate planning. [24:40.4]

I want to thank you for listening to the, Make your Money Matter. Before acting upon anything discussed today, remember speak with a financial advisor near you. And if you're not sure where to turn and you'd like our help, you can visit us at onecapitalmanagement.com or give us a call (805) 410-5454 and you can also text us. Text the word TRACK, T R A C K to that same number (805) 410-5454, we'll reach out to you. And until next week always remember make your money matter. [25:11.1]

The information in this podcast is educational and general in nature and does not take into consideration the listener's 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. [25:34.4]

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