I posted this video from a question I received about money managers.
Now, as is typical, I went off on a tangent that for the ill-informed may seem irrelevant to the question at hand. Oh No, no, no, my friends, nothing could be further from the truth. The topic of money managers was very relevant to where the discussion went.
In fact, in my 25 years as a “professional” I can assuredly say the biggest mistake I see time and again in financial planning is this one. And yet, the fix is so doggone easy…IF people know what to do.
So, let’s paint a picture of a typical client for me over the course of my career, Bob and Jane. Bob is an engineer, who worked many moons at Martin Marietta and retired from Lockheed.
Over the course of his career he amassed $2 million in his retirement account. Upon retiring he rolled that $2 million into an IRA over at Vanguard. Nothing complicated here so far, right? Right.
One day, Fauci and Frances Collins come by and suddenly Bob has a stroke. We don’t know what caused it of course and we’ll probably never hold anyone accountable but we’re smart enough to put two and two together and recognize that whenever those two men show up bad things happen. Coincidence? Who knows?
But now Bob doesn’t know who or where he is anymore. Is this a temporary condition? Is it permanent? We don’t know. What we do know is that now Jane is in charge of the entirety of the household to include the financial management which heretofore she left to Bob.
The doctor’s bills start coming in fast and furious. RMDs from Bob’s $2 million IRA are due too. The market’s getting knocked around because of Biden’s Build Back Better and Green New Deal. Jane is beginning to get worried. How can she manage all this? So she calls Vanguard for guidance on the account and Vanguard says “sucks to be you, Jane. This is Bob’s money, not yours and we can only help the owner.”
To which Jane responds, “yes, but I’m the beneficiary and the wife.”
Vanguard rightly responds, “oh so Bob has died? In that case this is easy.. Just send a copy of the Death Certificate and proof of your identification and we’ll move the money to you lickety split.”
“But Bob isn’t dead!” Jane exclaims, exasperated. “He’s incapacitated!”
“Oh, sorry,” Vanguard replies. “When you said you were the beneficiary I assumed he had died because being a beneficiary means nothing while he’s alive. Given that he’s actually still breathing this is going to be much more difficult. We’re going to need a court order nominating you as the manager of his financial affairs.”
“What??? How long does that take? I need the money now!”
“Oh, don’t I know it,” Vanguard responds, agreeing with Jane. “Those bills come at ya fast.”
“Huh? No, I don’t think you understand,” says Jane. “You guys have my money. I need access to it now!”
“Well it’s actually not your money, Jane. It’s Bob’s. Sorry. So until we have authorization for you to act on his behalf, there is nothing we can do.”
Jane slams the phone down(yeah, I know we don’t actually do that anymore. But it’s still a great visual to establish frustration.) The money she needs is RIGHT FRICKIN’ THERE but she has no access to it because she, well Bob in actuality, neglected to properly do estate planning.
Good times, eh? Now, while this little drama may seem somewhat cartoonish, I’d ask you to think for a second…could this happen to you? Do you know?I bet you don’t. Thus let’s get moving on this.
The easiest way to solve many of these issues is to simply see an attorney, yes a real, live one, who specializes in estate planning and get your documents drawn up. The two attorneys Charlotte and I have used in the past are Allison Byrd, here in Georgia and Erin Layman back in Virginia. I recommend both of them.
Now, be advised, it’s been 20 years since I have spoken with Erin and 10 since I last spoke to Allison. A lot has changed over that time frame so not only:
A. will they probably not know me anymore but
B. they might be Fauci fans.
I have no clue. I do know that when we left their respective offices, my better half, Ole Charlotte, felt very comfortable in the work they did for us and that she had a point of contact if something happened to me. That alone is HUGE and well worth the reasonable fee both those ladies charged.
I had a friend in South Texas who used this rancher-type estate planning attorney. I used to communicate with him on occasion and very much trusted and respected his skillset. But for the love of me, I can’t remember his name anymore or I’d add him to the list. UGH. )Getting old and I don’t even take statins… Now I do take Lexapro and am beginning to wonder about that too…)
Okay, so now you’re convinced you need to do something. Yay for you! Unfortunately a mistake many people make, even when they hire an attorney to draw up the documents, can be found in the comment below on the aforementioned video I did:
Man, for the love of all that is good, why do this to your spouse??? Be advised I’m NOT GIVING YOU LEGAL ADVICE HERE but do you not see the problems here? There are so many to name but let’s just go with one right now.
If we’re dealing with Bob’s incapacity a Living Trust won’t do crap with IRA assets! A living trust doesn’t own the IRA and other than having a bank-managed trusteed IRA can’t own the assets! I’m not sure where the commentator got this information but it’s baddddd, and I pray to the Good Lord above that this person is not an attorney doing estate planning.
I don’t want to go into the other problems with his comment because I think my head will explode but I want to point out when it comes to proper estate planning you want to solve problems, not create new ones as this guy’s comment does, exponentially.
To cut to the chase, if we are trying to solve an estate planning problem due to potential incapacity the simple solution is for Bob to get a Durable Power of Attorney. Durable means it survives incapacity. A General Power of Attorney ceases at incapacity. A Springing Power of Attorney only comes to being at incapacity. But it’s the DURABLE POA we’re looking for Jane to have here.
In of itself a DPOA may not be enough. See this lady’s comment below:
Now she’s incorrect in implying all financial institutions DO NOT accept a POA in advance. It’s entirely dependent on the institution you’re dealing with. But she’s 100% correct in pointing out that many institutions want you to have their own Power of Attorney on file. At USAA, for instance, we had an off-the-shelf POA that we’d tell clients to fill out, get notarized and send back. Easy peasy.
A number of years ago I came across a feed at Bogleheads about Vanguard’s requirements which was absurd. Basically you had to send them your POA every 30 days or something to keep it active, which is just silly. Not sure if that’s still the case. But either way, check with your financial situation as to what they need from you in advance of your spouse needing to act on this stuff. Anything to remove the burden from your spouse in managing your affairs is always a good thing.
To conclude. Get your doggone estate documents in order! Contact an estate planning attorney. Fees will run from $1000-$3000 depending on what you’re doing. But with that fee comes the comfort that when the rubber hits the road your spouse has a person to speak with to help navigate the unfamilar terrain. That alone is worth the fee, in my opinion.
Blessings always!
Josh
P.S. The absolute best estate planning books I’ve ever read are these:
It’s been at least 5 years, probably more, since I’ve read either. There may be “better” current estate planning books out there. But I don’t know what they are.