Retirement experts Scott Hanson and Pat McClain, hosts of Hanson McClain's Money Matters, advise an investor about wills and living trusts in California.
Scott Hanson: Bill, you're with Hanson McClain.
Bill: Good morning.
Scott Hanson: Good morning, sir.
Bill: We recently went to one of these Living Trust seminars and I wanted to get your opinion on whether, based on my circumstances, I really needed one or not.
Pat McClain: All right.
Scott Hanson: Tell us your circumstance.
Bill: Well, I'm retired. I'm pushing the late 60s and my wife is also retired. Just about all of our money is in IRAs and we have two properties, one here in Roseville and one on the coast.
Scott Hanson: Okay.
Bill: And as far as cash is concerned, we just keep enough cash on hand that we pull out of our IRA every month for emergencies and stuff like that.
Pat McClain: What are the value...Bill, what are the values of the homes, the one in Roseville and the one on the coast?
Bill: Probably...well, here in Roseville's probably about 400 large.
Scott Hanson: Okay.
Bill: And then down on the coast probably 500 large.
Pat McClain: Okay. You need a trust.
Scott Hanson: Well, here's the thing. And the state of California can be a complicated, costly probate process. So the state of California, many people in the state of California could benefit from a trust. But really, when you get a living trust you typically go through, spend some time doing some estate planning where you'll have a will that will say, "Here's how the assets should be distributed." You'll have some other documents that'll provide a power of attorney so, should you or your wife, something happens and somebody needs to act on your behalf from either a financial matter or also from a healthcare, you should particularly have an advanced healthcare directive as part of that whole package. So usually, the retirement accounts will pass based upon beneficiary, regardless of what you state in your trust.
Scott Hanson: So that's nice. But the properties are something different entirely, and you're...
Bill: I did forget to mention that we have no kids and probably most of our money will go to grand nieces' and nephews' education funds.
Pat McClain: Okay. You still need a trust.
Pat McClain: Actually, you need...
Scott Hanson: Maybe more so with that…
Pat McClain: Even more so. If you told me it was all going to go to the SPCA or whatever, a charity, then actually what I would tell you is to contact the charity and they'll actually pay for the trust. And they'll do it for you. But in your situation, because you have no children, you probably need it even more so that no one can contest it.
Scott Hanson: And I appreciate your situation, but as financial advisors, we've dealt with a number of some people over the years that don't have children and they have assets. And part of you is probably thinking, "Why should I pay all this money for..."
Pat McClain: Correct, like, "Why do I care?"
Scott Hanson: Well, he cares but it's like, "Why do I want to..."
Pat McClain: No, he just called us up to ask, "Why do I care?" Is that why you called, Bill? I mean, let's cut to it.
Bill: No. That's a good point, though. I never thought of...because we had been looking at a couple of charities that we really like, as well, and I have never thought of them setting up a trust.
Scott Hanson: So if let's say...
Bill: That's only if it all goes to them.
Scott Hanson: No, no, no, no, no.
Pat McClain: No, no, no, no, no.
Scott Hanson: If you said you were going to give 10% or whatever to a charity they would be more than happy to do it. And you'd probably be best off to leave some of your retirement account, your IRA, not a property.
Pat McClain: Yeah. And the reason you would leave the IRA to the charity and not the property is because a charity doesn't pay any income taxes. So you leave the IRA to the charity they get the money. You leave it to a niece or nephew, they pull the money out, they have to pay taxes on it.
Pat McClain: So if your objective is to pay the least amount of taxes possible, which by the way, most people, that's their objective. You would actually name the charity as the beneficiary in the IRA. But if you went...so I'm the Board Chair of the Sacramento Food Bank and Family Services and I have been for many years. If you came to me and said, "Hey, I want to leave $300,000 to the Sacramento Food Bank--by the way, it wouldn't be a bad idea, Bill--we would pay for the trust to be done.
Scott Hanson: Of course. You would for much less than that, too.
Pat McClain: Correct. If you said, "I was going to leave $50,000," we would pay for the trust to be done.
Scott Hanson: Yeah, yeah. So if you want to leave...You're in an interesting situation. Bill, if you were 10 years older, we'd probably be a little harder, "You should probably get this done." I mean, you're still relatively young. You might not feel that when you get out of bed in the morning, but doing some estate planning, I think, is important. And I would just encourage you as...you're looking at this as the pain to have to deal with an attorney and pay the fees. But maybe you and your wife can sit and have some fun. It's like, "Look, here's these assets. Odds are we're not going to spend them during our lifetime. I don't know what's going to happen, so we don't want to give a bunch of money away while we're alive, but we'd like to help our nieces and nephews with college if possible." But what else could you do that can leave some legacy?
Pat McClain: So, Scott, I went...Bill, I went through this recently with clients of mine that, for years and years, they had been putting it off. They have no children. They were going to leave some money to their nieces and nephews. They had an estate pretty similar to yours probably worth a couple million dollars when you added it all up.
Bill: Yeah. We've got about $1.6 in IRAs.
Pat McClain: So according to the numbers here, the round numbers, you're worth about two-and-a-half million dollars. I suggested that they each make a list of five charities that they wanted to give money to--independent of each other--and see what matched, what charities they had in common, and then who they wanted the money to go to. They each went their own separate ways, made this list, and then came back and compared the two and then that's how they decided where the dollars would go. And some went to nieces and nephews and some went to charities and they both went to the same college and the money went to their college, but that's my recommendation. You and your wife go to the house on the coast, you go there, she stays in Roseville, you make your list...
So you're going to share a nice weekend, you make your list...you've been married a long time. It's time for a break. Anyway, that would be my recommendation.
Bill: Yeah. Well, you've given me a good direction here. Thank you.
Scott Hanson: All right, Bill. Glad you called.
Pat McClain: Thank you.