[INTRODUCTION]

[00:00:00] Andrew Rafal: Your Wealth & Beyond Podcast, we’re here to help you find purpose and build wealth, and one of the most important factors that a lot of people miss is estate planning. It’s not the most fun topic, thinking about our invincibility, we’ll get to it next year. But if we don’t do anything and we procrastinate, the government or the state has their way of how things will go. So, today we have on Allison Kierman. She is almost 20 years estate planning attorney. Her background is helping people understand their goals, uncover what they can do, what are the options. And we’re going to talk through on some of the mistakes people make and how to avoid them. Lot of great nuggets in this episode so take some notes. And without further ado, my episode with Allison Kierman on Estate Planning Mistakes to Avoid. 

[INTERVIEW]

[00:00:53] Andrew Rafal: Welcome back to the Your Wealth & Beyond Podcast. Allison Kierman, thanks for joining us today. How are you doing on this hot Arizona Tuesday? 

[00:01:04] Allison Kierman: Thank you for having me. Good. I’m happy to be at the office, inside, away from everyone else. 

[00:01:11] Andrew Rafal: Yeah. This has been a summer to forget I think with this spring that we got. We knew it was coming. You know, we talk about a Bayntree dream plan to retire. And one of the areas, as I’ve been in this business for over 20 years that we see a lot of issues with is one of the most important pieces of the overall planning puzzle, and that’s the estate planning side. So, who better to have on than Allison, who has, is it been over 15 years as estate planning and your own firm since 2017? So, this is your passion. This is what you do on a daily basis. So, I think today going through some of the main mistakes people make or mistakes to avoid is a great way to get people over that hump. So, as we dig in today before we jump into everything, is estate planning been your passion where you’re sitting in college and saying, “I want to be in the legal field and I want to help people on the estate planning side,” or where did that come from? 

[00:02:16] Allison Kierman: I think a lot of it. I grew up a large part with my grandparents on a small farm that they ran that’s been in our family for generations. So, it really was grandparents’ issues, family issues, small business issues, legacy taxes, the idea that you’d have to sell the farm to pay the taxes. It’s in every movie that I ever watched on AMC with my grandmother. So, I think I always knew this is where I was going to be. Getting here was fun but I really love what I do. People tell me about their lives and their stories and who they like and who they don’t like all day long and it is fascinating. 

[00:02:54] Andrew Rafal: Yeah. The whole term fire sale in the farm is based off of truth. You know, you don’t really know what that means unless you’re in the crux of it. So, did you see that happen with your family that they hadn’t planned properly and then with an estate tax issue or something of that nature? Did that help lead you into wanting to help people? 

[00:03:14] Allison Kierman: So, I say the good news is this actually did not happen to my family. My grandparents were very smart. They always got very good help. I mean, my grandmother is one of the only people that got her masters in the 50s, so I was super lucky. It’s still in the business. The business is still in the family today. My aunt is running it. She’s doing a great job, even though she was a librarian, sort of, as her career and this is her second career. But as a family, we have done a really good job maintaining the legacy. 

[00:03:41] Andrew Rafal: Beautiful. That’s what we like to hear, a positive story because we’re going to go into some negative things right now. So, we got mistakes people make and this is part of what we try to do is instill and push for getting a plan done because that’s really when we look at it, the biggest factor we see a lot of people do is procrastinating, “I’ll get to it.” And why do we think that that’s instilled in people is like, is it just them thinking about the invincibility of themselves and not wanting to face the facts? 

[00:04:14] Allison Kierman: I think it’s hard for people to think about the what ifs, right? Sometimes you feel like you don’t have anybody responsible to count on. So, it’s like I joke, I can’t make you trust someone, right? We can always write a plan for the people that you have. And that’s hard for people to either accept emotionally or to think about I say you have to judge your family and your friends, and that’s difficult. But as you know, everybody has some kind of plan. It’s just whether you chose it, right, because the government has a plan for you if you do nothing. 

[00:04:43] Andrew Rafal: Yep. And that’s really, we break it down, there’s three things people can do. There’s nothing and then there’s your basic will and then more of the advanced estate planning. And it’s not until a lot of times they have an issue with family or they see something happen to mom or dad, or they have to go through a probate that they’re like, “We got to get this done.” And that’s part of it is on us as financial advisors, obviously, on you. We can only push people so far. So, what’s some advice, if you were to talk to somebody, whether in their thirties, their fifties, or their seventies, what would push somebody to get something done? Is it what you indicated there that with nothing the government steps in, the state steps in? 

[00:05:23] Allison Kierman: I think for some people, right, I think they just think, “Well, my family will figure it out.” It’s like that’s not true. There are laws in place If you don’t have a plan that says who gets what, when, under what circumstances, and that may 100% end up being your ex-wife. So, if you don’t like that plan or you’re not sure what the default rules are, you should at least investigate. Nothing else. Something simple. I will also say, though, I have people say, “I just wrote this down. It’s better than nothing.” And that is definitely not true, right? From a probate court perspective, a note that you wrote something down on, even if you signed it, is worse than nothing at all. 

[00:06:05] Andrew Rafal: What if it was notarized? Would that help at all if it’s notarized? 

[00:06:09] Allison Kierman: It definitely can help but in Arizona, a notary is not enough. You need two witnesses and a notary. So, if you really didn’t do it formally, it is almost like you didn’t do it at all. And yet there is an expectation in your family, right? I have a client and she signed something giving the house to her daughter. She has two other boys. I’m like, “Look, that’s not valid. That’s not legal, right? I can’t enforce that. That’s not coming from the law.” But the daughter believes she’s getting the house. And it’s like, “I wish mom had done nothing because now everybody’s mad.” 

[00:06:45] Andrew Rafal: Right. And now it’s going to become a battle when mom dies because she – let me work backwards. She did not set up or sign a beneficiary deed, which Arizona does have. This was just literally signing a piece of paper that said, “I want to give the house to the daughter.” 

[00:06:58] Allison Kierman: That is correct. 

[00:06:59] Andrew Rafal: And then tell the listeners and the viewers let’s say that stays the course and you weren’t able to get her to change things and then mom passes away. What’s going to happen with this piece of paper? 

[00:07:12] Allison Kierman: So, we’re in probate court right now. The brothers found me first. But basically, the court says that piece of paper isn’t a valid instrument. It’s trash. It is a piece of paper. You can’t bequeath a multimillion-dollar home on a piece of paper. So, the boys can honor mom’s wishes, which becomes a gift from them to their sister, which has gift tax implications or they have to evict the daughter, which is kind of what we’re doing now, is we have to evict her to sell the house and divide the proceeds in thirds. The problem is the daughter has no credit. She’s like, “I can’t get another house. I don’t have options.” And we’re in a really horrible place and everybody feels bad for everybody. It’s just there’s tax implications. There are court implications. And the judge is not on her side. 

[00:08:10] Andrew Rafal: Well, and there’s also emotional implications. This is ripping apart a family. Whether they were in a good place prior or not, these are the type of things that mom and dad when they’re not planning, they don’t think about that this could rip apart generations. That’s the hard part. It’s hard part for you because you can only go in and fix what’s as much as you can. But if it’s broken, you can’t fix it completely. And now we’ve got your time, we’ve got costs, and who knows? Arizona, these things can take a long time. And then what if the housing market goes against all these factors? Well, you brought up also a good point. And we get a lot of this where we try to talk them out of it is, “Okay. I’m just going to give my house to my daughter. Now, I’m going to actually deed it over.” What’s the problem there? 

[00:09:06] Allison Kierman: It’s a gift often exceeding gift limits, so it’s taxable. You then are making the house subject to whatever poor decisions that may happen, divorce, bankruptcy, creditors, leans, foreclosures. So, you have to really make a smart decision about was that good and reasonable? Can you afford it? Did you need that property for your own retirement? If you gift it, I see this happens sometimes, you gift it to the child and then they sell it and you’re like, “Well, I could have sold it like that could have been cash in my pocket.” So, once you’ve gotten rid of it, you don’t get it back. And if they make bad decisions, then that just happens. 

[00:09:46] Andrew Rafal: And then the other factor that they would lose, especially in Arizona with step up in basis and community property but now what would happen is let’s say mom bought that property years ago for 50,000 and it’s worth 500,000. One of the benefits right now, and so they change the rules on us but when somebody passes and they leave an asset, whether it goes to probate or not, there’s a step up in basis. So, daughter could sell the house at whatever the market value is. So, with gifting it, would the daughter then would take on the original basis of mom and lose that step up and that is a huge potential tax liability that they don’t think about? 

[00:10:27] Allison Kierman: Absolutely. I have talked somebody out of this but mom and dad bought a house in PV for 95K. The house is worth $11 million. We are talking about a significant tax that if they were to transfer it and he sold it, that he would have to pay that he wasn’t thinking that far ahead. Crazy. 

[00:10:48] Andrew Rafal: Wow, 11. That’s a pretty good return. We don’t offer those type of returns here. 

[00:10:54] Allison Kierman: They got lucky. 

[00:10:55] Andrew Rafal: That is. That’s like winning the lottery. Right place, right time. So, we talked about the procrastination. Let’s just talk real high level. We have somebody that, “Okay, I want to get something done. I don’t have anything in place,” let me talk high level but the basics it be just the will versus what the revocable trust can do. And then we can walk into what that looks like with funding the trust or some of those mistakes, what people do once they get a trust done. 

[00:11:24] Allison Kierman: Right. You know, I always like to identify what’s your goal. Is your goal just to pick a power of attorney, right? Is your goal to identify who gets what? Is your goal to make things easy for who comes after you? Are you planning for a blended family? So, I don’t think it has to be this horribly long, drawn-out emotional discussion. It’s kind of a 5 minutes of, “What do you want to do? I need you to trust me to do it.” There’s that kind of element, just like with your investments but it doesn’t have to be so overwhelming. And I think people are like, “I want to do what’s easy and simple.” Does that mean you want to do what’s easy and simple for you or what’s easy and simple for your family later? Because those are very different discussions. All wills still gets probated in Arizona. So, that’s not simple for your family. That might be simple for you. A trust is more complicated. I view that as time and money now versus time and money later. But you have to, as you said, you have to be all in on the funding. You need a banker. You need an advisor to do these things kind of within for you. If you’re ad hoc doing your own plan, you have to expect you’re going to miss something. 

[00:12:29] Andrew Rafal: And so, you made a reference there. This is where I think a lot of people get confused, “Oh, I’ve got a will. Everything’s going to be fine.” But in most states in Arizona, we have a will, just define what probate means, what that will or having nothing at all. So, nothing at all. It’s going to go through probate and now you don’t have any wishes. It’s going to go based on state but why do we have to probate a will? 

[00:12:53] Allison Kierman: So, that’s the law in Arizona, right? So, probate is the legal process for taking over ownership of assets and being appointed the executor of the estate when someone passes either without a trust or without solid beneficiary designations. So, definitely, for people who either have a beneficiary deed for their house and/or only have financial accounts, you have beneficiary designations, sometimes you don’t even need a will. 

[00:13:20] Andrew Rafal: Right. Like, we call it fast food planning, right? And so, the beneficiary deed is something not all states have but we talked about that earlier. It is a nice way if we got the house in a retirement account, a life insurance and maybe a little bit at the bank, it’s like you could be okay and then a deed basically says it’s going to avoid probate if done correctly. 

[00:13:39] Allison Kierman: Correct. But I can’t be like to six people and this is where it gets tricky. It can’t be too, “Well, my grandson, who’s seven and my daughter who’s 40 but not if she’s going through a divorce. And actually, she’s not good with money. So, I don’t want her to manage the property. I just want her to live here.” Too many exceptions. That’s not happening. 

[00:14:00] Andrew Rafal: And so, with a trust and this is where the mechanics of it, a lot of people get confused or they think, “Oh, I need millions of dollars and I’m going to lose control of my assets.” So, these are mistakes people in their mind think, “I don’t need that.” So, break down how a simple revocable trust works for the listener and how it can be beneficial to both protect upon death but also how maybe it’s more seamless upon incapacity as well. 

[00:14:29] Allison Kierman: Right. And this is where I view it, not about what your assets are but what about your goals are, right? A trust is a more foolproof protective structure. You are creating it. I call it the business of your personal life. We’re going to put your assets in it. We’re going to retitle them. You get to decide as part of the trust who manages that today, if you become incapacitated, 20 years from now, when you pass. And that could be just you, you and someone else. I actually have a mom right now who 100% knows she is vulnerable to scams. She doesn’t want to be the trustee at all, even though she’s not incapacitated. She is recognizing that it is not in her best interests. So, you get to pick those roles as part of the trust, which is really a wonderful thing. And you can change it. So, especially people who have young kids or feel like, “Sometimes my family’s in a good place and sometimes it’s not,” you can always change it. 

[00:15:23] Andrew Rafal: Yep. It’s the word revocable, right? It’s changeable while we’re sound mind and body or we’re still alive. 

[00:15:30] Allison Kierman: So, tell people not to be so overwhelmed. Don’t be so stressed out about what could happen in 30 years. Let’s talk about the next five and then we’ll revisit it. But the work is you have to give the thought to who you like, who could be in charge, and we have to take the time to make sure all our assets get put into the trust. 

[00:15:48] Andrew Rafal: Yep. And that is one of the key mistakes that we see, is that they spend all this money. Attorney did a great job, and it’s set up exactly the way it should be right now. And then they think, “I’m done.” And so, when we talk about funding the trust, the one misconception we have a lot of ours is, “Oh, am I losing control of it?” And I always use an example, The Rafal Family Trust and my wife are the trustees. We are the creators and the controllers. Creators can make changes. Controllers, nothing changes in regards to how we manage our day-to-day. But what do we have to do like a house that is not a rental and then an LLC, what’s the process there? What do people have to look to do on the house, which is a lot of times someone’s most valuable asset? How do we get that into the trust? 

[00:16:34] Allison Kierman: So, honestly, it’s very simple. You have to deed it into the trust and the person who creates the trust for you should be doing it. That’s pretty standard. But if they don’t, can literally walk into the Maricopa County Recorder’s office, there’s one downtown Phoenix. They have a self-help desk. And actually, the people who work there are very nice and you just tell them, “I need to transfer my property into the trust.” It needs to be signed and notarized and recorded but it is actually a pretty easy process for you to do. And you can call up almost any lawyer in town and they’ll do it for you. 

[00:17:06] Andrew Rafal: And listeners, remember, you still control the house. Nothing changes except now if you pass away, boom, we get to done correctly. One of those factors is we’re avoiding probate. Now, one of the mistakes we see is what? So, let’s say put the house into trust, interest rates go down. They refinance the house. What happens? The banks a lot of times do what? 

[00:17:32] Allison Kierman: So, sometimes you have to take the house out of the trust for a temporary time period. You have to put it back in. 

[00:17:37] Andrew Rafal:  Right.

[00:17:38] Allison Kierman: Right. So, I view all of this as an ongoing conversation with your advisor, with your estate attorney, with someone who’s kind of looking out for you. I check in all the time just to sort of say that also. Did you refinance? We just need to fix it. A lot of title companies now will do these three consecutive deeds out of the trust in a mortgage and back into trust seamlessly. So, you might not even have to do anything at all, just so long as people know the trust is out there. 

[00:18:04] Andrew Rafal: Well, that’s great news because we’ve seen a lot of times where the banks don’t care once the refinance is done and then they forget to put it in the trust, and maybe they’re not having that ongoing relationship like you have with your clients on the estate planning side. So, now we as the advisors have to always make sure what kind of changes have happened, and then we’ll go on and look at even though they tell us. So, I think it’s put back into trust. We’ll actually go on to the recorder or the assessor and we’ll take a look at it. And a lot of times they didn’t get it back in the trust and then they don’t realize that if something happens, you’ve got this trust, it’s done correctly. But if the house is still out of the trust, then we still have this potential of probate. So, that’s an area where you know that ongoing, just making sure you’re working with the right planning team. And then a lot of times we see retirement accounts done, there could be the right way, the wrong way, again, probably goes back to goals.

But if we don’t have beneficiaries set up correctly and this is where you can have this, we could probably have a whole podcast on. Should you have your trust as the beneficiary of an IRA? It can be a lot of reasons why but more so than not, it’s probably not the right reason, especially if there’s no special needs or the kids are a little bit older. So, talk through a little bit of that with the SECURE Act and what you’re looking at when you look at IRA accounts, which again could be one of the most important assets that a family has to pass to their next generation. 

[00:19:30] Allison Kierman: So, I see retirement accounts are good for retirement. They’re not good for inheritance. So, you have to balance that at some point in your life. But it’s about goals again. From a taxable perspective, spouse is the primary beneficiary, adult children is the contingent is easiest. But that may not match the goal. Definitely, I’ve had clients who have weighed blended family issues with the taxes and have just accepted, “I need to have a little more control over the money in order to make sure that it’s protected and not mismanaged or misspent or blown in Vegas. And so, we’re going to pay the taxes to just keep it in the trust. And then the trust will do distributions of money as is needed.” So, I view this as you have to be intentional. It can be inconsistent intentionally. I have a client now. We’re not putting her in the trust. She’s going to give them to her kids. We’re not touching it in the trust at all. That’s okay. But the key is that you have thought about it. 

[00:20:27] Andrew Rafal: And I think important too is not just have the estate planning attorney but have a good team of advisors, both on the financial side, the CPA side. So, with all these changes, with the SECURE Act, there’s a lot of different things in regards to not being able to do the stretch or a qualified beneficiary that can do the stretch. So, those are the things that you do it on your own. It’s very difficult having a team working together, which a lot of times we don’t see that where we got the great attorney and we’ve got the great CPA but nobody’s talking. And so, that’s a critical miss if we don’t have everybody together or somebody driving that train so that we can work together to make sure as life happens as laws change, that you’re doing everything you can. It’s hard-earned money. And if you don’t do it right, you could lose quite a bit of it to the government. So, then you talked a little bit about what happens next like with the trust.

So, some of the areas of concern we see is this successor trustee. Who’s going to step in to manage your wishes? And what do we see there in regards to all these years of you planning some of the potential issues that arise when it’s being created? Or as life happens not making the proper changes? 

[00:21:37] Allison Kierman: Right. You know, the biggest thing is I view this as the work doer. You have to choose someone who will communicate with your advisor. He’s going to go to the bank. He’s going to clean out and sell the house. They need to have time in their schedule with their work and their partner and their children to make time for your life. That’s kind of the biggest hurdle. I have clients sometimes and they choose a child who lives abroad and that might be okay but can they actually come here to manage your affairs for an extended period of time? Otherwise, nothing happens. Now, I often say you have two years to make things happen. That’s kind of the deadline. But we have to be honest about choosing someone who gets things done. Then we have to choose someone who is going to be fair, right? Not take more for themselves, not preference, different people who really is going to follow the rules of the trust. I can make the trustee whatever you want but in the real world, people do bad things all the time. So, we have to pick people who won’t do that and who are real followers. 

[00:22:40] Andrew Rafal: There’s the word trust in there. Trustee has a word “trust” so we have to focus on that. And what we try to tell clients is like there’s not going to be these police that come after the trustee who doesn’t follow orders. But if they start not following because they are, in a sense, a fiduciary for the trust so now the beneficiaries do have access to the trust documents. And so, if they start doing things that seem a little bit ambiguous or maybe red flags go up, there is still some protection for the beneficiaries, even though they don’t have the control to manage what the wishes were. 

[00:23:16] Allison Kierman: There are. You have to be prepared to execute them. And that’s where some people they’re like even with parents they’re like, “Well, I don’t want to have to fight with my mom.” So, you have to be your own advocate. You have to measure what that’s worth to you. And sometimes you have to get a lawyer, which I know sometimes we’re not super popular. So, there’s a balance there in terms of how much money, what’s it worth, and are you going to advocate for yourself or not? 

[00:23:44] Andrew Rafal: And then a factor you had indicated a lot of trust we see is that kids are older, there’s no real issues, and that it disperses in a manner. It could be a year, could be up to two years, but done in a manner where the trust isn’t going to in a sense to live on. Well, factor in and this is where we may have a special need situation. We may have a child that has potential responsibility issues or drug issues. So, what can we look at to protect a special needs situation where maybe they’re getting some benefits from the government or the state and we do want to have them have access to what we’ve built but we don’t want to lose that. And then we also want to make sure that it’s protected from them doing something stupid if we can’t trust them going to Vegas, buying that car. So, what are some things that you talk with your clients and ways that you can put something in for now or even as time goes on and things may change, having some language in an estate plan to protect from all those factors? 

[00:24:46] Allison Kierman: There are so many factors. This is where I sort of joke that you might have to judge your family when you’re talking to me. Some people are diagnosed with special needs, right? That has very specific legal language required by both the state and the federal government that needs to go into the trust so that they don’t lose government benefits but can still have supplemental income through the trust. That’s a special created type of trust. You know, I have a lot of clients and their kids aren’t receiving government benefits. They might in the future but we still need to exert controls. And a lot of studies show that beneficiaries spend their inheritance within two years. So, if you don’t want that, that’s not a good choice. You needed to be still in separate property, right? You’re worried about divorce, gambling. Then we have to put restrictions in place that give them limits on their principal, possibly limits on their income. Sometimes I mandate, you have to work with a financial advisor. I joke, I can make you get advice. I can’t make you take it. But we have to put controls in place just to protect the money. And at some point, clients are just like, “Well, I guess if they blow it, they blow it.” But again, that has to be your goal. 

[00:25:53] Andrew Rafal: And then there is if they did really want to protect and there’s special needs situation and they don’t want to put that responsibility on, let’s say, the other child, there are some things where you could look at as a successor trustee, whether it be a bank or there’s “fiduciaries” that can be there to help carry things out and not put all the onus on the sibling who maybe doesn’t want to be associated with their brother who’s got these drug issues and those type of things. So, is that something that people should also be having that conversation on is who is going to be there for the next 30 years to handle what mom and dad’s wishes were? 

[00:26:31] Allison Kierman: A corporate trustee can be very helpful, especially even people doing legacy trusts. Who’s going to be here for the next generation? Then you need to get those and be sort of honest about that. You know, if you have a relationship with an institution, that’s often your best choice. So, we say ask your advisor or your banker who they use because you already have that relationship really managing your assets. And then that is a more seamless transition. But you can also ask, right? Multiple institutions in town can serve in this role. So, you could appoint them. 

[00:27:05] Andrew Rafal: Do you ever… We’ve seen it with a couple of attorneys that we’ve worked with. Sometimes they’ll step in if it’s a situation but do you try to not do that part of it? 

[00:27:15] Allison Kierman: It depends on the circumstances, right? Some of them are a good idea and some of them aren’t. I definitely had a situation where their attorney in New York was this nephew and he was going to be the trustee. The aunt lived here. She was very incapacitated. We knew that death was imminent and he was like, “I can’t come out there.” So, I stepped in. We cleaned out her house. It was actually a pretty easy process. And that made sense because the beneficiaries had played a role in deciding who the trustee was. So, they didn’t resent me or my fees and that was good. So, I have somebody else and their son is coming in to meet with me because if they don’t like me, it’s not going to be a good working relationship in the future. 

[00:27:58] Andrew Rafal: Yeah. I hope they don’t resent you do good work, you know. So, you had mentioned something earlier about divorce. We know that, unfortunately, divorce happens. It’s whatever the rate is, 50%, it’s easy to just throw that against the wall. But we know divorce is imminent for a lot, some people. So, what are the common misconceptions? You know, how can we protect mom and dad’s inheritance? What are the ways that estate planning can be there? Because no matter how close we are to our spouse, we know it may not be forever. And so, what are some of the mistakes people make or some of the things that people can do now or understand when mom and dad die to protect the inheritance? 

[00:28:41] Allison Kierman: A lot of times we’re talking about sole and separate property. Either isolating that into an account or both parties understand not everybody has access doing a sole and separate trust. It is actually very interesting to know that a good portion of those divorces actually happen after the age of 70. So, even though you think, “Well, the kids have been together for years. It’s fine,” we have to be honest about the fact that they could still get divorced as they enter their last years. And if we want to protect those assets, we have to be specific. Tell them that they have to maintain a disowned separate property, create sole and separate property trust for your kids. I did have a client. We did their family trust. He received an inheritance. He’s over the age of 70 and he was like, “I think I need a sole and separate property trust. And my wife isn’t totally on board but it’s like a lot of money, just in case.” And that’s where we just sort of have to have the hard conversation, which is it is much easier for mom and dad to mandate in their trust that it’s on separate than for you have to tell your spouse later you want to keep it separate. 

[00:29:46] Andrew Rafal: Very good point because there still is a way for this particular individual that’s still married, there’s a way that they can create this trust. Sure, the assets are sole and separate but then also you can set it up where if he passes first, she is going to receive benefits of it, whether it be just interest or have the ability to maybe invade the principal for certain reasons. But ultimately, in that case, they’d be able to prevent, in theory, the surviving spouse to make changes to the beneficiaries or the components of the trust itself. 

[00:30:23] Allison Kierman: Right. A lot of people view inheritance as to go directly to their kids and not their spouse. That’s what my parents would have wanted. And so, we set it up like that. So, the good news is, for this particular example, the wife should need that money, they have their own assets. And so, if she passes, that money will go to their kids. It’s her kids, too. So, it’s not so horrible. This is benefiting your kids but it’s a hard conversation. And she did have to sign off because we live in a community property state. I had her sign a waiver understanding that she didn’t have rights to that money. 

[00:31:00] Andrew Rafal: And to the biggest mistake that people make who are unaware of this is that mom passes, they get this big chunk of money, and they put it in an account that’s joint or they put it in their revocable trust that’s joint and they don’t specify or it’s joint tenants with rights of survivorship. So, when that happens and that money moves into this account that they own together, meaning son and wife, do they lose that protection? 

[00:31:32] Allison Kierman: They do. You can cure it subsequently or if you do, okay, we need to do an amendment to the trust and/or we’re going to sign a postnup. But you have to do an intentional action in order to cure that. Otherwise, you need a very good divorce lawyer at some point. 

[00:31:50] Andrew Rafal: So, it’s almost like doing a post-nuptial at that point. 

[00:31:53] Allison Kierman: Right. 

[00:31:53] Andrew Rafal: Yeah. So, don’t make that mistake. That’s an easy one. Just keep it separate. I know it can be sometimes hard on the relationship but blame it on mom and dad. This is what they wanted and especially if it’s a second marriage. 

[00:32:05] Allison Kierman: Right. Which is why it’s super helpful if it’s already in mom and dad’s trust because I actually say, “Oh, blame it on the lawyer.” I don’t know what she did. 

[00:32:13] Andrew Rafal: We blame you all the time anyway. You attorneys do great work. So, that is, yeah, I mean that’s just part of what we’re trying to teach the multi-generation as clients are getting older is making sure that they teach their kids that in regards to, okay, something happens to us, call the attorney, call Andrew and his team at Bayntree but just don’t do anything right away. Understand the rules and how things work. Same thing we see with IRA accounts. Don’t do anything. Understand what the options are because once you do something, it’s very hard to go back, especially things like that or IRAs where they didn’t realize they could stretch it out over ten years and they have to pay the tax and it’s a huge ordeal in that realm. Second marriages, third marriages, goals change. We want to protect the spouse. We love them but we’ve got these biological children that we love just as much.

So, what are the things that people can do to avoid some mistakes in regards to planning that way and just saying, “I love her or him,” and things are going to go the way it should? Because when money gets involved, we’re not there, that usually doesn’t happen. 

[00:33:23] Allison Kierman: Multiple spouses and adult children, that’s always a disaster, right? They get along. They get along, but money and death change people, 100%. And this is where we have to be most intentional, what we want. Maybe you definitely don’t want your adult children to have things or you’re okay for your adult children to wait till they’re 80. But we have to be very specific and intentional.

Arizona actually has a blended family law that says that your spouse gets half and your children from other marriages get half. So, I’ve actually had spouses be kicked out of their own homes by the children. If you don’t want that to happen, especially if she invested in the home, we have to plan against that. So, both spouses need to understand what their rights are and how to protect them and how to be specific about the circumstances of death.

[00:34:19] Andrew Rafal: And simplicity of that can be where they each own half of the house is, in a sense, tenants in common with their own trust, owning it and then having that language detailing if one dies, the surviving children of the one who’s passed can’t kick them out. But once they sell the house or they die, then it gets disseminated. And so, that’s just one way. A lot of different ways. But as you indicated, get something in writing because it’s going to make your life easier. So, they actually try to go in and they try to kick her out or him out of the house?

[00:34:50] Allison Kierman: They did. And they can. The point is you can completely be evicted from the home.

[00:34:57] Andrew Rafal: No heart. Wow. I know, right? Money gets involved and they lose home. But it’s planning, get it done, make it at least that first step to get things done. As we get close to the end, the one area, and I know this doesn’t affect a lot of people right now, but it’s the estate tax, right? It’s like probate versus estate tax. This is where also people get confused. I don’t need a trust because they get confused with the estate tax exemption. So, what does that amount right now? What does that mean for people?

And then as we know, in 2026, it’s supposed to drop back down. We can’t guarantee where it’s going but look at the deficit. We know it’s probably coming after the higher net-worth people. But right now, what’s that look like and what are some things that we can start planning for now to take potentially advantage of protecting the estate from the government coming in and excising the 40% plus tax upon death?

[00:35:55] Allison Kierman: Right now, for married couple, we’re looking at a $25 million exemption.

[00:35:58] Andrew Rafal: Woo-hoo!

[00:36:00] Allison Kierman: For us people, it’s not an issue, right? Arizona doesn’t have an estate tax. Some states still have a $5 million estate tax. So, you have to sort of be cautious about where you live. We know it’s changing. Say, the bad news is, in the history of the profession, it’s never regressed before. So, my advice is only so-so right now because I don’t have anything to learn from. We’re making it up as we go. So, definitely, there’s gifting in advance for some irrevocable trusts. I think it’s really staying in tune with your advisors and your attorney so that you know what’s coming down the pipeline.

Before Biden was elected, I talked about one client for a while about gifting $11 million because that was the current limit. His wife had passed and he was over the marital limit at that time. And he waited, which was fine because Biden didn’t change anything. But the election is coming up, everybody needs money. We’ll see what happens.

[00:36:58] Andrew Rafal: And let’s untangle that real quick. So, the gift exemption, the lifetime gift exemption, a lot of people are reminded, like they know, what is it, $17,000 right now that I can gift. So, I got a daughter. I can gift to her. My spouse can gift to her, if she’s married to him. So, a lot that we can gift without getting into our lifetime gift exemption. That’s where people get confused. So, what does that mean in regards to, I want to gift my child $200,000 or give them this house? That’s obviously more than the $17,000. What does that lifetime gift exemption allow for? And the simplicity really, of it, of just identifying that you use some of it.

[00:37:36] Allison Kierman: Right. So, you can use up to $25 million. So, you can definitely gift more than 17, but you’re supposed to do a filing so that that’s recorded. So, we know how much you’ve used for you and/or your spouse in the future. We do portability. When one spouse passes, we want to identify how much from that spouse they’ve used also if we’re giving things away after the passing of one.

So, it’s really just kind of staying on top of things and being strategic. Sometimes the gifting is not in cash. Sometimes it’s just I’m going to give you an additional percentage of the family business but still valuable. We have to account for it somehow. So, there are definitely things that you could do, whether your kids need the cash or you’re just trying to reduce your estate. But there were specific steps to make it legal and to make it understandable in the future so that the IRS doesn’t come back three years after you pass and levy a big tax on your family.

[00:38:30] Andrew Rafal: Then you brought up a really good point, too, in regards to when one spouse passes. An important component is valuing the estate, and then potentially, depending upon the level of the estate, utilizing the bypass feature of the trust you’re making irrevocable so that we can get some of the assets and move it into this, we call it the B trust, but moving into a trust that then, what is the benefit there? So, if we have a family that’s worth $15 million right now, they have married and they have a revocable trust, one spouse passes, what do we have to do over the course of the next year to 18 months to ensure that we’re taking full advantage of that so that we don’t, again, have these mistakes that haunt us in the future?

[00:39:14] Allison Kierman: We’re going to have to amend the trust so that it calculates sort of what is the then-current exemption, and anything over and above, we’re going to separate out. So, surviving spouse isn’t going to get or use that money maybe ever or unless there’s like a real need, and that money’s going to be protective. Often, we just give it to the kids, generation-skipping. The reverse that I’m doing a lot of right now is sort of the grandchildren’s trust, which is the principle is for the next generation, but the preceding generations can use the income. So, again, we’re just trying to make the money last as long as possible, repay as little taxes as possible so that we’re maximizing what you’ve worked hard for.

[00:39:57] Andrew Rafal: And once it’s in that B trust too, then it’s a way from no matter where the estate tax is down the road when the surviving spouse passes off, put $7 million in there and it grows to 30, the estate tax exemption is only 10. That money, if done correctly, would be shielded from ever having to pay that estate tax.

[00:40:17] Allison Kierman: Right. So, that’s a benefit of having a good advisor.

[00:40:20] Andrew Rafal: Yep. We haven’t really had to use this recently just because not that many are over that 25 million mark, but I think part of what I’m sure you’ve done in the past and some of the things we can look at is CRATs or GRATs but also ILITs of making sure that we have leveraging and having an insurance policy that somebody maybe already owns or buys one for the sole purpose if done correctly. Again, we’re not going to get the mechanics of it, but that can be a death benefit held out of the estate for the sole purpose of paying that tax so that they don’t have to fire-sale the farm or the commercial property building that they own.

[00:40:58] Allison Kierman: I’m a big fan of insurance – life insurance for you, for your spouse, for your kids, for the taxes. There’s a lot of things I don’t think can be cured with life insurance.

[00:41:07] Andrew Rafal: I mean, another mistake is you’re close to that amount and then you got this big life insurance policy and you’re the owner of it, meaning the client is, they don’t realize that that is also when they die, even though it’s tax-free, usually, tax-free to the beneficiary, it still would be included in the estate tax. So, if you got that $50 million example, they’ve got a $15 million policy and they think, “Oh, I’m all good.” Boom. They don’t have it in a manner that protects it. That’s going to get taxed. That’s why you need Allison.

[00:41:42] Allison Kierman: To be intentional.

[00:41:43] Andrew Rafal: I know we went through a lot. This, we could spend probably another five hours talking through on things. The key takeaway for you as you’re helping to educate because you’re really good at that with just getting out really good information and educating what’s in– talked about a lot of things today, but if somebody would state, what’s the key takeaway that as you preach in your daily practice when it comes to estate planning, what would that be?

[00:42:10] Allison Kierman: I think, let’s identify what your goals are and how to get there. Maybe it’s doing nothing, right? Maybe it’s something complicated or something in between. But you have to help identify your goals in order to make it easier for when you pass.

[00:42:24] Andrew Rafal: So, do something. Don’t put your head in the sand. Once you do something, stay on top of it. Make sure we’ve got a great team. Show notes, there’ll be some links out to some of the areas that we’ve talked about. That’ll be a great way for you to get a hold of Allison and her team at Kierman law firm and you’ll be able to follow her on just some great stuff, social media with regards to videos, quick five-minute videos, ten-minute videos. So, you’re doing some really good work. And as a fellow entrepreneur, you’re doing a great job in building out, helping people, and building a great company along the way.

[00:43:00] Allison Kierman: Thank you so much. I really appreciate it.

[00:43:01] Andrew Rafal: Thanks for joining us. This was enlightening. And hopefully, listeners, you took away a couple of good nuggets. And as we say, don’t do nothing. Make sure that you continue to plan so that you can reach those goals, so that you can live the life that’s not even just retirement, just living the life to protect you and your family. Stay tuned later this month for a brand-new episode of Your Wealth & Beyond. Allison, thanks so much. We really appreciate you. Have a great rest of the week and stay cool.

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