Bogleheads® on Investing Podcast 079: Mike Piper, CPA, After the Death of a Spouse, host Rick Ferri
00:00:00.000 | (upbeat music)
00:00:02.580 | - Welcome everyone to the 79th edition
00:00:12.140 | of Bogleheads on Investing.
00:00:14.480 | Our repeat guest today is Mike Piper.
00:00:17.520 | Mike is a CPA and an expert on taxation,
00:00:21.160 | estate planning, and social security.
00:00:23.880 | Today we're gonna be talking about what to do
00:00:26.800 | if you become the executor of an estate
00:00:29.720 | with an emphasis on providing a financial guide
00:00:32.680 | for surviving biosecurity.
00:00:34.720 | (upbeat music)
00:00:37.300 | Hi everyone, my name is Rick Ferry
00:00:45.440 | and I am the host of Bogleheads on Investing.
00:00:48.520 | This episode, as with all episodes,
00:00:51.040 | is brought to you by the John C. Bogle
00:00:53.200 | Center for Financial Literacy,
00:00:55.320 | a nonprofit organization that is building a world
00:00:58.200 | of well-informed, capable, and empowered investors.
00:01:01.800 | Visit the Bogle Center at boglecenter.net
00:01:05.280 | where you will find a treasure trove of information,
00:01:07.980 | including transcripts of these podcasts.
00:01:10.920 | I have a couple of announcements
00:01:12.120 | before we get started today.
00:01:13.640 | The YouTube videos from the 2024 Bogleheads Conference
00:01:18.640 | in Minneapolis, Minnesota are now available online
00:01:22.960 | at boglecenter.net.
00:01:25.600 | All of the sessions were recorded
00:01:27.480 | and they're all available for free
00:01:29.800 | at the Bogle Center website.
00:01:31.780 | Second, the 2025 conference will be in San Antonio, Texas,
00:01:36.780 | the weekend of October 17th through the 19th.
00:01:42.080 | It's in a wonderful location
00:01:43.540 | and it's gonna be a fabulous conference.
00:01:45.840 | I'll provide more information on future podcasts
00:01:48.720 | when it becomes available.
00:01:49.960 | Today, a special repeat guest is Mike Piper.
00:01:53.000 | Mike is a CPA, the author of many books on finance,
00:01:57.760 | taxation, and estate planning.
00:01:59.960 | He is also the creator of the Oblivious Investor blog
00:02:04.640 | and the creator of opensocialsecurity.com,
00:02:09.640 | a free website for calculating
00:02:12.480 | your maximum social security benefits.
00:02:15.480 | Today, we're gonna be talking with Mike
00:02:17.280 | about estate planning and particularly what to do
00:02:22.160 | if you find yourself as the executor of an estate,
00:02:25.440 | especially if you're a surviving spouse.
00:02:28.760 | Mike recently wrote a book titled
00:02:30.960 | "After the Death of a Spouse,
00:02:32.520 | "Next Financial Steps for Surviving Spouses."
00:02:36.000 | With no further ado, let's welcome back Mike Piper.
00:02:39.760 | - Thank you, I'm happy to be here.
00:02:41.440 | - Well, it's great to have you.
00:02:42.920 | On this podcast, we're gonna talk about something
00:02:46.320 | a lot of people don't like to talk about.
00:02:48.440 | In fact, they avoid talking about it
00:02:51.280 | and that is what happens in the event
00:02:54.680 | of the death of a spouse or a loved one,
00:02:57.720 | could be your parent, someone else,
00:03:00.240 | where you are responsible for doing the estate.
00:03:05.240 | You wrote a book, "After the Death of Your Spouse,
00:03:08.680 | "Next Financial Steps for Surviving Spouses."
00:03:11.240 | I have this book in my estate planning documents.
00:03:13.960 | As soon as you open up my notebook
00:03:16.240 | that I have put together for estate planning,
00:03:17.840 | this is the first thing my wife would find
00:03:20.640 | or if it's unfortunately if my wife died before me,
00:03:23.560 | this is the first thing I would go to
00:03:25.000 | because you've done a great job with this book
00:03:28.040 | and it really points out a lot of things we need to know
00:03:32.520 | but have a tendency to avoid learning about
00:03:36.160 | because it's not a really pleasant subject.
00:03:39.040 | Great book, not very long, easy to read
00:03:41.600 | as all Mike Piper books are.
00:03:43.320 | So we're gonna dive into this touchy topic
00:03:46.960 | but one that's necessary.
00:03:49.000 | Mike, why did you decide to write the book?
00:03:52.400 | Like you said, it's a topic
00:03:54.120 | that many people don't like to think about.
00:03:56.600 | People avoid it.
00:03:57.920 | And so many people don't take the time to read about it.
00:04:01.800 | And so writing a short book,
00:04:04.000 | it was my way of hopefully getting people
00:04:05.400 | to take the time to read a little bit about it.
00:04:07.800 | The other relevant point there is that people who avoid it
00:04:11.800 | includes financial writers, right?
00:04:14.200 | There aren't that many books about this topic
00:04:17.640 | whereas there are a million books
00:04:20.440 | about just how to create a portfolio.
00:04:22.680 | There's just a lot less writing about this topic.
00:04:26.400 | Let's go ahead and dig into the book.
00:04:28.280 | But again, we're gonna broaden it to not just spouses
00:04:31.000 | but anyone who becomes a personal representative
00:04:35.440 | for someone else who dies.
00:04:36.560 | So if somebody's single,
00:04:37.960 | obviously they're not gonna have a spouse.
00:04:39.600 | Somebody else will step in.
00:04:42.160 | So I'm gonna start out by going to the end of the book
00:04:44.320 | and reading what you wrote in the conclusion
00:04:47.520 | which is in addition to the burden of grief,
00:04:52.280 | the death of your spouse or a loved one
00:04:55.520 | imposes a surprisingly large
00:04:57.520 | administrative burden upon you.
00:05:00.520 | There's a lot to do.
00:05:02.280 | Notifying a bunch of different entities
00:05:04.440 | that your spouse or a loved one has passed away,
00:05:07.200 | handling the estate administration,
00:05:09.560 | filing tax forms, social security changes,
00:05:14.160 | taking a step back
00:05:15.120 | and looking at your new financial situation,
00:05:17.920 | updating your own estate
00:05:20.640 | and seeing what changes to be made.
00:05:21.920 | I mean, there's just so much to do.
00:05:24.520 | And I thought that was the end of the book.
00:05:26.320 | The conclusion that you came to
00:05:27.400 | was a good way to begin this conversation.
00:05:29.960 | - There's an enormous amount of to-do items
00:05:32.680 | that suddenly land in your lap.
00:05:34.480 | And unfortunately, this may be the time in a person's life
00:05:38.520 | when they would have the hardest time
00:05:40.160 | dealing with those to-do items, right?
00:05:41.960 | Just because what they're going through emotionally
00:05:43.640 | just makes it that much harder.
00:05:45.240 | So it's helpful to have a guide
00:05:47.360 | to help walk you through it.
00:05:48.960 | - And you divide the to-do list
00:05:52.160 | between immediate steps and intermediate steps.
00:05:57.160 | - Yeah, there are some things
00:06:01.280 | that really do need to happen pretty darn quickly.
00:06:04.960 | However, there's also another long list of things
00:06:07.840 | that do need to happen,
00:06:09.520 | but which don't need to happen immediately.
00:06:11.320 | So they are important, but not urgent.
00:06:14.280 | And the reality is that many, many people
00:06:18.760 | report this experience,
00:06:19.840 | not every single surviving spouse, but many,
00:06:22.940 | is that in the days and weeks and even months
00:06:27.120 | after your spouse's death,
00:06:29.320 | there are various problems like memory challenges
00:06:32.520 | and just difficulty making decisions
00:06:34.560 | where this person is not someone
00:06:36.760 | who would normally have a difficult time making decisions.
00:06:39.600 | And so in many cases,
00:06:42.480 | some of these very important decisions,
00:06:44.640 | it is actually a good idea
00:06:46.640 | not to try to tackle them immediately,
00:06:49.140 | to try to just put it off for a little bit.
00:06:51.680 | We're not talking years,
00:06:53.720 | but even several weeks or a few months.
00:06:56.440 | Yes, take care of the immediate things,
00:06:58.360 | but also just work on the grieving
00:06:59.880 | that you need to be doing and then tackle them.
00:07:03.240 | - Before we get into the nuts and bolts
00:07:06.360 | of what those things are,
00:07:08.280 | we do need to go over some terminology,
00:07:10.880 | which can be confusing.
00:07:12.520 | So I'm just gonna throw the word out
00:07:14.520 | and you tell me what the definition is, okay?
00:07:17.560 | - Great.
00:07:18.400 | - First of all, we all talk about settling your estate.
00:07:22.440 | What does estate mean?
00:07:25.280 | - An estate is a legal entity
00:07:29.280 | that comes into being when a person dies.
00:07:33.020 | So it did not exist, and then when the person dies,
00:07:35.840 | now it does suddenly exist.
00:07:38.120 | And the estate's purpose is to be the entity
00:07:42.440 | that essentially collects that person's assets
00:07:47.440 | and then ultimately distributes that person's assets
00:07:52.700 | to the appropriate beneficiaries and creditors.
00:07:56.160 | That's the purpose of an estate.
00:07:58.600 | - Do states treat estates differently?
00:08:02.240 | Is it done differently in California
00:08:03.980 | than in Texas or New York?
00:08:07.520 | - Yes, that's the thing that's actually an important point
00:08:11.320 | and relevant to many of the things we'll talk about today.
00:08:14.760 | It varies by state,
00:08:15.840 | and in some cases it even varies by county.
00:08:18.680 | So it's really important to learn the specific rules
00:08:23.680 | where you live or where the estate
00:08:26.780 | is actually being administered,
00:08:28.120 | which is not necessarily where you live.
00:08:29.600 | But a lot of times we say, "Talk to an attorney."
00:08:32.380 | That's sort of this disclaimer
00:08:33.920 | that will be at the end of podcast episodes or what have you
00:08:36.400 | and people treat it as legalese and they kind of ignore it.
00:08:40.360 | Here, when I say, "Talk to an attorney,"
00:08:43.600 | please understand that I really, really mean it.
00:08:46.000 | It's very valuable to speak with an attorney
00:08:49.160 | who has expertise in this topic
00:08:54.040 | in the appropriate jurisdiction.
00:08:55.760 | - Good point.
00:08:56.600 | Okay, the person who will administer this estate
00:09:01.460 | is called the executor.
00:09:03.760 | The executor is a person named in the will
00:09:06.560 | to administer the estate.
00:09:08.000 | In some cases, if a person dies without a will,
00:09:10.480 | or if somehow they managed to create a will
00:09:13.000 | without naming an executor,
00:09:14.820 | the court would appoint somebody
00:09:16.160 | and then we call that person an administrator.
00:09:19.060 | But collectively, these people,
00:09:20.800 | whether it's an executor or an administrator,
00:09:23.560 | collectively we generally refer to them
00:09:25.300 | as the personal representative of the estate,
00:09:27.800 | meaning it's the personal representative
00:09:29.560 | whose job it is to administer the estate.
00:09:32.840 | - When a spouse becomes the executor,
00:09:35.440 | are they referred to as the personal representative
00:09:38.160 | or are they referred to as something else?
00:09:40.640 | - They would be an executor.
00:09:41.640 | They would also generally be referred to
00:09:43.040 | as a personal representative of the estate.
00:09:45.160 | It's a catch-all phrase, basically.
00:09:46.600 | - Okay, very good.
00:09:47.560 | I'm gonna jump ahead a little bit here.
00:09:49.560 | You discuss you have to apply to become appointed
00:09:54.560 | as a personal representative.
00:09:56.080 | Explain that.
00:09:57.240 | - So the will, assuming there is one,
00:09:59.640 | if it has named you as an executor,
00:10:02.400 | the court still needs to essentially agree
00:10:05.680 | that yes, you could be the executor.
00:10:07.400 | You could be the personal representative of the estate.
00:10:09.740 | Because something that happens
00:10:10.960 | is sometimes maybe multiple people are named as executor
00:10:14.040 | and one person chooses not to serve as the executor,
00:10:17.320 | or maybe one person is named as the executor,
00:10:19.200 | but then that person chooses not to serve
00:10:21.520 | and so the court needs to pick somebody else.
00:10:23.020 | So ultimately, a court needs to be the party that says,
00:10:27.280 | okay, now this person or this entity,
00:10:29.680 | or in some cases, these multiple people,
00:10:32.880 | are going to be the personal representatives of the estate.
00:10:36.960 | And so until you get that official documentation
00:10:40.480 | that you are the personal representative,
00:10:42.720 | you don't wanna actually go and do anything
00:10:44.440 | on behalf of the estate until you've been officially told
00:10:46.640 | that yes, you have the right to do that.
00:10:48.920 | - So how long does it take?
00:10:49.980 | Because you have these immediate things
00:10:52.120 | that have to be done.
00:10:53.480 | And how long does it take for the court
00:10:56.120 | to look at the will and say, you're the executor,
00:10:59.280 | or appoint someone as the personal representative?
00:11:02.800 | - Generally, it's a very fast thing
00:11:05.760 | because in most cases,
00:11:07.840 | this is not something that's very controversial.
00:11:11.440 | The surviving spouse or one of the decedent's children
00:11:14.360 | is named in the will as the executor
00:11:16.160 | and that person is willing to do it
00:11:17.640 | and nobody voices any objections.
00:11:20.040 | The court isn't going to jump in and say,
00:11:22.800 | oh, I don't think this person should be the executor,
00:11:24.880 | it should be this other completely different person.
00:11:26.920 | So generally, it's a pretty quick process.
00:11:30.480 | - Let's back up.
00:11:31.320 | How do you get in front of the judge?
00:11:32.840 | - So it's not necessarily an in-person thing.
00:11:34.880 | In many, many cases,
00:11:35.720 | you're not standing in front of a judge.
00:11:37.760 | This is a paperwork process.
00:11:40.120 | - Okay.
00:11:40.960 | - The actual specific details though,
00:11:42.320 | this is another thing where it's going to vary.
00:11:44.800 | Are you filling out a form on a website?
00:11:47.680 | Are you submitting this particular documentation
00:11:50.880 | to this particular state or county entity?
00:11:53.360 | It's going to vary by state exactly
00:11:55.840 | what you need to give to whom
00:11:58.720 | in order to kick off that process.
00:12:01.040 | - And of course, whoever is named
00:12:02.960 | as the personal representative,
00:12:05.800 | spouse, nephew, niece, uncle, friend,
00:12:10.800 | brother, sister, parent,
00:12:13.480 | has a certain fiduciary duty to whom?
00:12:17.640 | - The personal representative of the estate
00:12:20.720 | has a fiduciary duty to all of the estate's beneficiaries,
00:12:25.480 | meaning the personal representative
00:12:27.480 | has to put the interests of the beneficiaries
00:12:32.080 | ahead of their own interests,
00:12:33.320 | other than to the extent that they themselves
00:12:34.960 | are a beneficiary of the estate.
00:12:37.360 | - Now, some assets don't need to go through probate
00:12:41.600 | because of the way that they're titled
00:12:44.120 | or have a beneficiary attached to them.
00:12:47.880 | So can they immediately move
00:12:51.120 | or does it take the executor to do it?
00:12:54.920 | First of all, explain what these assets are
00:12:58.480 | and then how they actually move.
00:13:01.760 | - Sure, so a very common one would be an IRA.
00:13:06.480 | When you open an IRA somewhere,
00:13:08.480 | the brokerage firm is generally going to ask you
00:13:10.400 | to fill out a beneficiary designation form.
00:13:13.360 | And so you say that it's my spouse or my kids
00:13:15.920 | or my niece and nephews or whoever it is
00:13:17.560 | that gets these different percentages of the account.
00:13:20.640 | So assets like that, so an IRA or a 401(k)
00:13:23.720 | that similarly is gonna have a beneficiary designation form
00:13:27.200 | or an annuity or a life insurance policy
00:13:30.120 | with a death benefit.
00:13:30.960 | Again, it's gonna have a named beneficiary.
00:13:32.800 | So any of these things that have named beneficiaries,
00:13:35.640 | as well as if, for instance, you have a bank account
00:13:39.840 | that's titled with the payable on death
00:13:42.040 | beneficiary designated.
00:13:43.600 | So any of those things, they don't go through probate.
00:13:47.320 | They basically just go directly to the named beneficiary
00:13:50.520 | or beneficiaries without needing to go through probate.
00:13:54.160 | In theory, the executor or personal representative
00:13:58.520 | is not responsible for that process
00:14:01.520 | because their job is to handle the probate estate.
00:14:05.960 | But as a practical matter, in many cases,
00:14:09.680 | that person may also be the beneficiary.
00:14:12.880 | And so they're the one contacting the brokerage firm
00:14:16.000 | that has the IRA to notify them of the death.
00:14:18.640 | So in many cases, the executor is the one
00:14:20.720 | who is contacting all the relevant parties
00:14:22.600 | to kick off the transfer process.
00:14:25.840 | - One of the things you talked about was payable on death,
00:14:28.680 | which is a beneficiary on a bank account.
00:14:32.120 | And there's also transfer on death,
00:14:34.120 | which would be something you could put
00:14:36.160 | on a brokerage account if it's not in a trust,
00:14:39.560 | or you could put it on real estate in many states,
00:14:42.800 | not all states, but many states.
00:14:44.280 | You could have a transfer on death deed
00:14:47.440 | and go directly to that person.
00:14:51.240 | And real quick here, what if that person is a minor?
00:14:54.120 | - Yes, then we have a situation.
00:14:56.640 | In many cases, you don't want to do that to begin with,
00:14:59.600 | generally speaking.
00:15:00.760 | It would be preferable to designate a trust
00:15:04.360 | as the beneficiary and then designate the minor
00:15:07.880 | as the beneficiary of the trust.
00:15:10.560 | But in general, if assets are left to a minor,
00:15:14.520 | then there's going to be a guardian
00:15:16.200 | whose job it is to administer those assets
00:15:19.160 | for the benefit of the minor.
00:15:20.920 | - But I do want to get into trusts a little bit more,
00:15:24.480 | because trusts are kind of special entities.
00:15:27.800 | - And many people have questions
00:15:29.040 | about whether they should have a trust,
00:15:30.840 | should not have a trust.
00:15:32.360 | - Talk about the three parties to a trust
00:15:35.960 | and then using them for avoiding probate.
00:15:40.360 | - Yeah, so a trust is a legal entity
00:15:43.960 | that can own assets, is basically what a trust is.
00:15:48.160 | And anybody who wants to can create a trust.
00:15:51.760 | And there are three parties to a trust.
00:15:57.760 | There's the grantor, who is the person who creates it
00:16:01.040 | and contributes assets to fund the trust.
00:16:03.440 | There is the trustee, who is the person whose job it is
00:16:08.840 | to manage the assets of the trust.
00:16:12.120 | And they have to do that for the benefit of the beneficiary.
00:16:15.680 | And that's the third party to the trust,
00:16:17.400 | is the beneficiary.
00:16:18.640 | And that is the person for whose benefit
00:16:22.000 | the assets in the trust are being managed.
00:16:25.240 | There's a couple interesting points about this,
00:16:27.080 | is that for those three parties,
00:16:28.840 | the grantor, the trustee, and the beneficiary,
00:16:33.040 | they don't have to be different parties.
00:16:34.720 | So a very frequent thing for a person who creates a trust
00:16:38.720 | is they set it up, they are the grantor.
00:16:40.840 | They make themselves the initial trustee,
00:16:43.160 | so they still have the power over all of the assets
00:16:45.720 | to decide what investment decisions
00:16:47.520 | and how the money gets spent and so on.
00:16:49.480 | And they are the beneficiary.
00:16:51.160 | So the assets are in the trust
00:16:53.000 | for the benefit of themselves.
00:16:54.840 | So when that's the case, it's not all that different
00:16:56.960 | than just having owned the assets in the first place.
00:16:59.920 | But then the point is, you would then also have
00:17:03.440 | a successor trustee in place.
00:17:06.200 | And so that would be the person who will take over
00:17:08.360 | managing the assets when you no longer can,
00:17:11.280 | either because you have died or you've become incapacitated.
00:17:14.240 | And then you would have successor beneficiaries.
00:17:17.560 | And those are the people for whose benefit
00:17:20.200 | the assets would be managed after your death.
00:17:23.040 | And so often that would be your kids or your grandkids,
00:17:25.040 | or it could be a nonprofit organization or what have you.
00:17:28.080 | And so the general idea of a trust
00:17:32.400 | is to exert some sort of control over the assets
00:17:37.400 | after your death or incapacitation in some way
00:17:42.920 | and for some reason.
00:17:44.360 | And the list of reasons is long and varied,
00:17:47.640 | but that's the general idea is that you're putting this,
00:17:52.360 | creating this entity that can own assets,
00:17:55.200 | and then we can assign these different powers
00:17:57.560 | and rights to different people.
00:17:59.960 | - By the way, there are different trusts that avoid probate
00:18:03.600 | and there are trusts that do not avoid probate.
00:18:06.040 | It's very interesting.
00:18:06.880 | I do wanna get into this right now
00:18:08.120 | because if you open a trust while you're alive
00:18:10.600 | and you fund it and then you die,
00:18:14.440 | that does not go through probate, correct?
00:18:16.440 | - Correct.
00:18:17.280 | If you have assets in a trust
00:18:19.560 | and there's a named beneficiary of the trust,
00:18:22.600 | then the assets will just go to that beneficiary
00:18:25.520 | completely outside of probate.
00:18:27.560 | - But the assets have to be in the trust.
00:18:29.880 | I mean, you could create a trust.
00:18:31.360 | I could create the Rick Ferry Trust
00:18:33.360 | and I have a brokerage account with my name on it,
00:18:37.360 | individual brokerage account,
00:18:39.600 | that in my will, I say, okay, when I die,
00:18:43.480 | I want the assets of this brokerage account
00:18:45.840 | to go into my personal trust.
00:18:48.120 | But the only way those assets are gonna get into the trust
00:18:53.120 | is if it goes through probate, correct?
00:18:55.400 | - Yes.
00:18:56.240 | You've named the trust as the beneficiary
00:18:59.520 | of the account in your will.
00:19:01.080 | So probate is the process
00:19:03.480 | through which the terms of the will
00:19:06.880 | actually are implemented.
00:19:09.000 | So if the will says the assets
00:19:10.840 | are going from this account into the trust,
00:19:13.160 | then yes, it has to go through probate
00:19:14.800 | in order for that to occur.
00:19:16.800 | - And it kind of defeats the purpose.
00:19:18.120 | I always thought that why would you wanna do that?
00:19:20.480 | Why not fund the trust now?
00:19:23.000 | You put your house in the trust, your real estate,
00:19:25.160 | your brokerage account,
00:19:26.200 | put that in the trust now while you're alive,
00:19:28.960 | rather than waiting till you die.
00:19:30.880 | If the purpose is to avoid probate.
00:19:33.400 | - If the purpose of the trust is to avoid probate,
00:19:35.400 | then absolutely, we want to fund the trust
00:19:38.000 | with the assets prior to death.
00:19:40.200 | No question about it.
00:19:41.760 | - I have to say, after so many clients, Mike,
00:19:44.480 | that I work with,
00:19:46.320 | their attorneys didn't set it up that way.
00:19:49.280 | They wrote the will so that the will creates the trust,
00:19:54.760 | and then the will funds the trust.
00:19:56.880 | And this has a term.
00:19:57.800 | What's the term of this?
00:19:59.000 | - So there's a testamentary trust,
00:20:00.600 | which is where the will creates the trust,
00:20:03.720 | just like you said.
00:20:04.560 | So we have to probate the will
00:20:06.280 | in order for the trust to be created in the first place.
00:20:09.280 | And then the will also says,
00:20:10.840 | and now these assets go to the trust.
00:20:13.480 | - And there are so many people I talk with
00:20:15.760 | who have this as part of their estate plan.
00:20:18.080 | And I say, why are you doing it that way?
00:20:20.440 | Why did your attorney set it up that way?
00:20:22.400 | The whole idea is to avoid probate with these assets.
00:20:26.880 | And I finally asked my own estate planning attorney,
00:20:29.720 | and he goes, oh, well,
00:20:30.560 | that's the Trust Attorney Job Security Act.
00:20:34.200 | That leads to more billable hours.
00:20:36.240 | - I guess I'd back up a step and say
00:20:37.440 | that there are various very good reasons to have a trust,
00:20:41.160 | other than just avoiding probate.
00:20:42.720 | There could be reasons where, you know,
00:20:44.400 | we simply don't have a need for the trust until that point.
00:20:47.320 | Still, it might, even in some of those cases,
00:20:49.480 | it might have made sense
00:20:50.320 | to go ahead and create the trust now,
00:20:51.440 | especially if it's a revocable trust.
00:20:52.960 | So it's not like we're, you know,
00:20:54.560 | losing any flexibility here.
00:20:56.880 | But there are a whole lot of different reasons
00:20:58.440 | why a person might want to have a trust.
00:21:02.280 | And given how varied the number of reasons are,
00:21:06.600 | the appropriate setups are similarly varied.
00:21:10.360 | - Funny, I asked the clients,
00:21:11.320 | well, how come it's set up this way?
00:21:12.400 | How come you're not funding the trust now?
00:21:13.800 | And they said, well, I don't know.
00:21:15.000 | I don't know why.
00:21:15.840 | It's my way, my attorney said to do it.
00:21:17.640 | Have the will set up the trust
00:21:19.040 | and then fund the trust later when we die.
00:21:21.480 | And I said, well, then it goes through probate.
00:21:22.880 | They go, yeah, you know,
00:21:23.720 | we don't want the assets to go through probate.
00:21:25.280 | I said, well, you're not doing it right.
00:21:27.880 | - Another thing I'll back up and say though,
00:21:29.520 | is that it's very, very frequently,
00:21:31.160 | the attorney create the trust now.
00:21:33.120 | It's not a testamentary trust,
00:21:34.960 | but the client then forgets to fund it.
00:21:38.360 | They just never get around
00:21:39.400 | to moving the assets into the trust.
00:21:40.800 | That happens all the time.
00:21:42.040 | And so that's just a mistake.
00:21:44.200 | - No, I see that all the time.
00:21:45.560 | You're absolutely right.
00:21:47.040 | We're gonna go back to the beginning again.
00:21:48.200 | I know we get off on a tangent.
00:21:49.240 | That's just the way these things are gonna go today
00:21:51.640 | with this podcast.
00:21:53.320 | So the executor.
00:21:54.640 | You think you're the executor of an estate,
00:21:57.640 | but maybe you don't know.
00:21:59.440 | If you're a spouse, you probably are,
00:22:01.480 | but you have to find out
00:22:02.720 | who the executor of the estate is.
00:22:04.280 | And for that, you would need to find the estate documents.
00:22:09.280 | Talk about where to keep estate documents
00:22:13.160 | and who to give access to.
00:22:15.600 | I'm sure there's a lot of estate documents
00:22:17.320 | that are never found.
00:22:18.400 | - Yes, so your will and other estate documents,
00:22:21.160 | you want the attorney who helped you prepare them
00:22:23.240 | to have a copy.
00:22:24.640 | And you want to keep a copy for yourself,
00:22:27.840 | ideally in somewhere that is reasonably easy
00:22:30.600 | for some appropriate party to find if they need to.
00:22:33.280 | But also, frankly, I would say,
00:22:35.000 | go ahead and give a copy in advance
00:22:37.840 | to whoever you're naming as the executor.
00:22:40.600 | And certainly if you're giving anybody
00:22:42.760 | power of attorney or something like that,
00:22:44.600 | give them that document.
00:22:46.200 | Don't rely on them finding it somewhere on your hard drive.
00:22:50.320 | - What I did is I opened up a Dropbox folder
00:22:53.760 | and I put all my documents in a Dropbox folder
00:22:56.360 | and then I gave the link to my children.
00:22:57.840 | So the documents are available.
00:22:59.560 | But my question is, they're not the signed documents?
00:23:01.600 | They're just a PDF, is that okay?
00:23:04.120 | - That's going to vary what one entity wants to see
00:23:08.600 | as opposed to another one.
00:23:09.760 | In many cases, they will want the actual hard copy document,
00:23:13.200 | but it's going to vary from one entity to another,
00:23:15.880 | what documentation they feel like they need.
00:23:18.120 | - Okay, well, they know how to get that too.
00:23:21.720 | Okay, so here you are.
00:23:23.600 | You are now the executor of an estate
00:23:26.680 | or personal representative,
00:23:28.880 | and you got to get organized.
00:23:31.040 | So what do you do?
00:23:32.880 | - I think, personally, step number one
00:23:34.760 | is just create a filing system,
00:23:38.440 | both on your computer for all the various PDFs
00:23:41.360 | that you're going to have, and there's going to be a million,
00:23:43.400 | and then also a physical filing system
00:23:45.120 | for the paperwork that you're going to have,
00:23:47.520 | and there's going to be some of that as well.
00:23:49.920 | And so you've got retirement accounts, bank accounts,
00:23:53.080 | insurance policies, all the different categories of things.
00:23:56.520 | Create that filing system.
00:23:58.040 | In addition, take notes.
00:23:59.920 | This is the time to start taking notes,
00:24:01.400 | and I would encourage you to take notes on everything,
00:24:05.200 | literally everything.
00:24:06.200 | Every time you talk to anyone about anything
00:24:08.640 | or make any significant decision, take notes about it.
00:24:12.200 | Take dated notes.
00:24:13.840 | There's two reasons for that.
00:24:15.120 | Number one is, of course, there's the liability.
00:24:17.320 | You always want to be able to say,
00:24:18.520 | this is what I did and why.
00:24:20.640 | But the other reason is just more basic,
00:24:22.400 | and it is that through this process,
00:24:25.280 | you are going to be interacting with bureaucracy
00:24:29.560 | and a whole bunch of different bureaucracies, frankly.
00:24:33.440 | You've got the federal government, state government,
00:24:35.160 | potentially county government.
00:24:36.280 | You've got this bank and that bank
00:24:38.080 | and this brokerage firm and that insurance company,
00:24:40.720 | and they all want this different documentation.
00:24:42.640 | They all need you to jump through the different hoops,
00:24:44.640 | and it's really, really easy.
00:24:47.160 | Even if you weren't going through a period of grief
00:24:49.280 | and the difficult challenges that that imposes on you,
00:24:53.240 | it's still very easy, if you aren't taking notes,
00:24:56.920 | to lose track, to just drop the ball
00:24:59.880 | on one of those processes.
00:25:01.320 | Forget that, oh, this company needed that,
00:25:03.320 | or which of these two companies was it
00:25:05.480 | that was still asking me for this particular documentation
00:25:08.240 | or whatever it is?
00:25:09.760 | So just take notes so that you know exactly where you stand
00:25:14.320 | with the appropriate process
00:25:16.000 | for your state's Department of Revenue
00:25:18.640 | and for the Bank of America account
00:25:21.520 | that you're trying to have transferred,
00:25:22.600 | and all the different things.
00:25:24.240 | You want to know exactly where you stand
00:25:25.760 | for each of the processes
00:25:27.360 | and exactly what the next step is.
00:25:29.320 | - Okay, we've started to take notes.
00:25:32.520 | We've created the filing system.
00:25:34.400 | We have a plan.
00:25:35.480 | - What documents should we be getting together?
00:25:38.360 | - Right, so as we're first going through everything,
00:25:41.080 | obviously, we need to find the will
00:25:43.360 | is the first number one thing
00:25:44.840 | that we really, really want to find.
00:25:46.120 | Track that down.
00:25:47.360 | While you're going through that process,
00:25:49.680 | you're probably going to encounter
00:25:50.760 | a whole bunch of other stuff, too.
00:25:52.240 | You're gonna start to see brokerage statements,
00:25:53.920 | insurance policies, insurance statements,
00:25:56.080 | whatever financial statements you find, keep them.
00:25:59.960 | Whatever you're looking for one document,
00:26:03.360 | whatever other documents you find,
00:26:05.320 | go ahead and file them now.
00:26:06.680 | Don't just ignore them,
00:26:07.880 | because there's gonna be some point later
00:26:09.720 | we are going to be looking for that document.
00:26:11.840 | And if you just go ahead and file it now,
00:26:13.600 | you've made your life easier in the future.
00:26:15.760 | - Well, I would imagine one of the first documents
00:26:18.560 | you want to get is a death certificate, correct?
00:26:20.960 | - Yes, so the funeral home, in many cases,
00:26:25.840 | or if the person, the decedent, is being cremated,
00:26:29.680 | then the entity that is in charge of their remains
00:26:33.160 | is generally going to prepare the necessary documentation
00:26:37.240 | so that the death certificates will be created.
00:26:40.000 | And they will often ask you
00:26:41.800 | how many copies of those you want.
00:26:43.480 | Alternatively, you can go ahead and get them
00:26:45.160 | from your state or county's applicable government entity.
00:26:49.080 | Go ahead and look, by the way, what the fees are,
00:26:51.120 | 'cause they're often different from one entity to another.
00:26:53.840 | You've got, you know, and you're getting the same document.
00:26:56.120 | So go ahead and look at that.
00:26:57.120 | Go ahead and look at what the wait time is.
00:27:00.080 | Sometimes one entity can get it to you
00:27:01.760 | faster than the other one.
00:27:03.040 | And they're going to ask you how many copies you want.
00:27:05.320 | - And how many do we want?
00:27:06.360 | - Right, that's an interesting question
00:27:07.680 | because in the book, I said, "Ask for a lot, 20 to 30."
00:27:12.680 | And then the feedback I've gotten is hilarious.
00:27:15.280 | You've got several people who said,
00:27:18.000 | "Oh my goodness, that's ridiculous.
00:27:19.680 | "I only needed three or something."
00:27:21.880 | And then a whole bunch of people who said,
00:27:23.120 | "Yes, absolutely, make sure to ask for a ton."
00:27:26.360 | And it's just because it's going to vary.
00:27:28.520 | Because again, some entities will want the actual,
00:27:32.360 | you know, certified death certificate.
00:27:34.920 | Other entities are perfectly fine
00:27:36.160 | with you emailing them a PDF.
00:27:37.840 | It's just going to vary in a way
00:27:39.120 | that's not necessarily super predictable.
00:27:40.880 | Also, there's generally going to be a fee per copy.
00:27:44.520 | However, it's in most cases, not going to be exorbitant.
00:27:48.360 | Here in Missouri, it's $11 per copy.
00:27:51.280 | Getting another handful, you know,
00:27:52.800 | several more than you might expect to need
00:27:55.840 | costs a little bit, but it's not too big of a deal.
00:27:59.320 | And if it saves you weeks of waiting down the line
00:28:02.400 | when some entity needs it and you don't have any more,
00:28:05.840 | it's usually going to be worth it
00:28:06.920 | to just ask for somewhat more than you expect to need.
00:28:09.920 | - So I'm just going to go through a laundry list here
00:28:12.680 | of documents to acquire or look for.
00:28:15.520 | We need the death certificate.
00:28:17.000 | We need the will and the other estate planning documents.
00:28:20.160 | We need whatever information you can find about pensions,
00:28:22.680 | social securities, insurance, birth certificates,
00:28:26.720 | income tax, state income tax, deeds on your home,
00:28:31.360 | other property, vehicles.
00:28:32.960 | I mean, you're just in this information gathering mode.
00:28:37.280 | - Exactly.
00:28:38.120 | So if you are the personal representative of the estate,
00:28:42.080 | one of your primary jobs is to take an inventory
00:28:47.080 | of the estate's assets.
00:28:50.240 | And so a part of that process is just collecting,
00:28:54.720 | exactly like you said,
00:28:55.840 | it's an information gathering process.
00:28:58.680 | We need to find all of the accounts that there are.
00:29:01.640 | And maybe, hopefully, you know offhand
00:29:04.560 | what all of those accounts are.
00:29:05.560 | But in many cases,
00:29:06.400 | especially when the personal representative
00:29:09.000 | is not a spouse, they're a child,
00:29:11.560 | you don't necessarily know where mom and dad
00:29:14.120 | had all of their different financial accounts.
00:29:16.720 | - Right.
00:29:17.560 | - It's a bit of a treasure hunt.
00:29:19.240 | Whatever we can look through, basically.
00:29:21.120 | If we get access to their email, we're going through that.
00:29:23.360 | We're looking through their hard drive,
00:29:24.520 | we're looking through their mail, whatever it is,
00:29:27.140 | to try to find whatever evidence there is of accounts.
00:29:31.920 | - You know, I don't know how many times
00:29:33.360 | I have conversations with people
00:29:35.080 | about simplifying their investment.
00:29:39.200 | You know, you've got four different IRA accounts
00:29:41.600 | or three different old 401(k)s.
00:29:44.720 | And the 401(k) you're currently in is perfectly fine.
00:29:47.960 | You have the low-cost target date index funds.
00:29:50.120 | I mean, they're really great investment options.
00:29:52.800 | And you've got these IRAs out there, rollover IRAs,
00:29:56.080 | and old 401(k)s, 403(b)s.
00:29:58.240 | And I'm saying, just get all this stuff in one spot.
00:30:02.380 | Reduce the number of custodians you have.
00:30:05.000 | Reduce the number of redundant accounts that you have.
00:30:09.100 | And even the securities, you know,
00:30:10.320 | reduce redundancy of securities within those accounts.
00:30:13.880 | Simplifying your investment portfolio,
00:30:17.600 | not just for your sake,
00:30:19.420 | but for whoever's gonna take over this,
00:30:21.840 | makes it so much easier.
00:30:23.640 | - Absolutely agree.
00:30:24.760 | Simplification is a big favor to your surviving spouse,
00:30:28.960 | your kids, whoever it is,
00:30:30.440 | who's going to ultimately be handling this.
00:30:33.320 | - Okay, let's go ahead and go to the next thing.
00:30:35.720 | So we're getting all this information.
00:30:37.780 | Now we have to start talking with people.
00:30:39.860 | The social security checks may still be coming in,
00:30:42.000 | or pension, or something's going on.
00:30:44.280 | You want to try to get the insurance money.
00:30:46.760 | So you've got to start notifying people.
00:30:48.560 | - First step, make a list of the different entities
00:30:51.680 | that you think you'll need to notify.
00:30:53.940 | And just like you said, social security administration,
00:30:57.120 | anybody else paying benefits,
00:30:58.840 | you know, if the decedent had a pension, for instance,
00:31:01.960 | or a lifetime annuity,
00:31:04.280 | any place that the decedent had a financial account,
00:31:08.680 | there's a long list.
00:31:10.360 | And so that's step number one,
00:31:12.000 | is just in your records,
00:31:14.800 | decide these are the people who I will need to notify.
00:31:17.960 | And then really in most cases,
00:31:20.000 | it's just the phone call is where we start.
00:31:23.440 | - Oh, really, they won't need a death certificate
00:31:26.180 | to, let's say, take the name off something?
00:31:29.260 | When do you need it?
00:31:30.100 | When don't you need it?
00:31:30.920 | - Sorry, they generally will need a death certificate.
00:31:33.140 | The way we start the process is with a phone call.
00:31:36.200 | - Oh. - Talk to a human being
00:31:37.220 | and ask them what it is that they need to see,
00:31:39.420 | what they need you to do,
00:31:40.540 | and then just go from there,
00:31:41.620 | is generally how I would suggest doing it.
00:31:44.560 | But yes, in most cases,
00:31:46.180 | they are going to need to see a death certificate.
00:31:48.780 | In some cases, they're happy with an emailed PDF.
00:31:51.980 | In other cases, they will want a physical copy.
00:31:55.220 | And so that's the reason to begin with
00:31:57.020 | why we ask for multiple copies
00:31:58.400 | of the certified death certificate.
00:32:00.420 | - Let me ask a technical question here.
00:32:02.020 | Let's say that you're settling the estate
00:32:03.740 | for your uncle or your aunt.
00:32:06.580 | And they have a house,
00:32:07.880 | and they need to pay taxes, they need to pay bills,
00:32:11.020 | need to pay utilities,
00:32:12.020 | 'cause the house will eventually be sold,
00:32:13.900 | but it's gonna take a while for the house to sell.
00:32:16.620 | So you need to contact the utility companies and say,
00:32:19.700 | this person has passed away.
00:32:21.860 | If you try to automatically bill their account or whatever,
00:32:24.940 | it's not gonna work anymore
00:32:25.980 | because they're not alive anymore.
00:32:29.120 | How does it get paid?
00:32:30.220 | Who do they bill?
00:32:31.180 | - Yeah, what a lot of people do
00:32:33.980 | is give them an alternative credit card
00:32:37.060 | or an alternative bank account.
00:32:38.980 | A challenge here, though,
00:32:40.640 | is that if we have an estate, for instance,
00:32:43.380 | it's going to be split up among several different people.
00:32:45.840 | And now if you give them your personal credit card
00:32:48.300 | or something like that,
00:32:49.600 | then we have an equity issue, right?
00:32:51.820 | Where one person's paying the costs
00:32:54.020 | when really it should be borne appropriately
00:32:56.520 | across the estate.
00:32:57.800 | Generally, once you've been named
00:32:59.820 | as the personal representative of the estate,
00:33:02.920 | you will want to get a bank account for the estate.
00:33:06.060 | Of course, that process can take some time,
00:33:09.180 | but generally that's what you wanna do.
00:33:11.280 | - And a checking? - Exactly.
00:33:12.120 | A checking account for the estate.
00:33:13.660 | - Debit card. - Exactly.
00:33:15.140 | So that way we can have the assets moved into that account,
00:33:18.700 | and then we can actually use that account
00:33:21.200 | to pay these bills.
00:33:22.900 | - That does take a little bit of time,
00:33:24.200 | and in the meantime, you may be paying it yourself,
00:33:27.140 | and then I guess you have to get reimbursed
00:33:28.660 | from that account eventually.
00:33:29.500 | - Yeah, there may be a gap period in the middle
00:33:32.340 | where we are getting things set up,
00:33:34.280 | where we need to come up with some other solution.
00:33:36.360 | But yes, we want to get a checking account for the estate
00:33:40.300 | so that we can pay the estate's bills out of that account.
00:33:43.580 | - So with this bank account
00:33:45.100 | that we're supposed to be opening,
00:33:46.980 | whose social security number did we put it on?
00:33:49.100 | I mean, the person died, so what do we do?
00:33:53.260 | - Right, the estate, we want to get a tax ID,
00:33:57.460 | also known as an EIN, Employer Identification Number.
00:34:01.100 | And the IRS website just has a form
00:34:03.600 | that you can fill out to do that.
00:34:05.140 | It's easy, it's free, only takes a few minutes.
00:34:09.060 | So that's a step that we'll want to do.
00:34:11.660 | If you are the personal representative of the estate,
00:34:14.680 | you will want to get an employer identification number
00:34:17.740 | for the estate.
00:34:18.740 | It's essentially, you could think of it
00:34:20.060 | as a social security number for the estate.
00:34:23.260 | - And then this is the number.
00:34:26.100 | And then when I go to the bank to get the bank account,
00:34:30.300 | is the title of it, you know, the estate of Jane Smith?
00:34:34.420 | Or is that how you title the account?
00:34:36.740 | - Something to that effect.
00:34:38.220 | Different banks or different brokerage firms or whatever
00:34:40.460 | are going to have different rules
00:34:42.060 | for exactly how they title it.
00:34:43.460 | But yes, it's going to be something to that effect.
00:34:46.220 | And then they will use the estate's tax ID
00:34:49.780 | in place of a social security number.
00:34:52.020 | - This seems to be like one of the most important things
00:34:53.780 | to do, right, is to get this bank account set up
00:34:56.860 | so that you could pay bills, have money that is owed
00:35:00.380 | to the person who died come into this account
00:35:03.420 | because it can't go into their personal account anymore.
00:35:05.500 | It has to go somewhere else.
00:35:06.940 | - Right, any income that otherwise would have been
00:35:10.180 | the decedent's income is now the estate's income.
00:35:13.500 | So it should be being paid into a bank account
00:35:17.620 | for the estate.
00:35:18.900 | And similarly, any of the estate's expenses,
00:35:22.260 | we really want them to be paid out of the estate's assets
00:35:25.100 | rather than somebody else's assets.
00:35:27.180 | It's much clearer record keeping,
00:35:30.580 | prevents any number of different potential problems
00:35:33.460 | down the line.
00:35:34.300 | - How does it work with social security?
00:35:38.820 | So spouse dies and you need to stop social security
00:35:43.820 | for that spouse.
00:35:45.660 | Now, you might be taking that spouse's benefit
00:35:50.060 | because it's higher than your benefit.
00:35:52.100 | How does it work through the social security office
00:35:54.380 | to set that up?
00:35:55.420 | - Yeah, so you need to call them.
00:35:57.580 | We need to let them know that this person has died.
00:36:00.460 | And they are going to stop payment of benefits,
00:36:03.940 | obviously, if that person was receiving benefits.
00:36:06.620 | And the month in which the person died,
00:36:11.060 | that payment, if it has already been made,
00:36:14.580 | will have to be retracted, basically.
00:36:17.100 | So if a person died in February,
00:36:20.860 | the benefit for February will ultimately need
00:36:23.620 | to go back to the SSA.
00:36:25.060 | And that means because there's a one-month lag,
00:36:27.620 | so the benefit for February is the benefit
00:36:29.620 | that's paid in March.
00:36:31.300 | That benefit that is paid in March
00:36:33.740 | has to go back to the SSA.
00:36:35.700 | - And it doesn't matter if you died on February 1st
00:36:38.060 | or February 28th.
00:36:39.020 | - Correct.
00:36:39.860 | So that's step number one.
00:36:40.780 | We need to let them know
00:36:41.620 | so they can stop payment of benefits.
00:36:43.780 | Then there's also the question of,
00:36:45.860 | okay, well, now do we need to file
00:36:47.300 | for any other types of benefits?
00:36:49.860 | If the decedent had a minor child
00:36:52.660 | or an adult disabled child,
00:36:54.700 | then that person is likely going to be able
00:36:56.940 | to receive a benefit on the deceased person's work record.
00:36:59.660 | And in most cases, we wanna go ahead
00:37:01.140 | and file for that benefit immediately.
00:37:03.500 | If the surviving spouse has a child in their care
00:37:08.340 | who is receiving child benefits
00:37:09.980 | on the decedent's work record,
00:37:11.680 | then that surviving spouse is likely going to want to file
00:37:14.980 | for what we call mother/father benefits.
00:37:18.040 | If there are no children,
00:37:19.580 | no minor children or adult disabled children,
00:37:22.460 | then the only type of benefit
00:37:24.760 | that we're now really concerned with
00:37:26.120 | is a surviving spouse benefit.
00:37:28.300 | And that, you have to be at least age 60
00:37:31.100 | or age 50 if you're disabled.
00:37:33.140 | And the most important thing to know
00:37:35.340 | about surviving spouse benefits
00:37:37.340 | is that if you're eligible for that
00:37:39.900 | and you are eligible or will be eligible
00:37:42.300 | for your own retirement benefit,
00:37:45.100 | you can file for one or the other
00:37:48.180 | and then let the one that you did not file for
00:37:51.080 | continue to grow.
00:37:52.660 | Several years ago, there was a similar strategy available
00:37:55.820 | for spousal benefits and that went away.
00:37:58.780 | Congress changed the rules,
00:38:00.260 | but they did not change the rules for surviving spouses.
00:38:04.140 | - Let me understand.
00:38:04.980 | So I worked for 40 quarters.
00:38:07.980 | I'm going to get my own benefit,
00:38:09.740 | but I haven't filed yet.
00:38:11.140 | My spouse dies.
00:38:13.940 | I can file for the surviving spouse benefit
00:38:17.700 | and get that now,
00:38:20.220 | but not file for my own.
00:38:22.940 | I can wait for my own to grow till age 70
00:38:25.660 | and then I can get more.
00:38:27.300 | Is that what you're saying?
00:38:28.420 | - That's exactly what I'm saying.
00:38:29.860 | If in that example, we assume you're at least age 60
00:38:32.260 | so that you're eligible for that survivor benefit.
00:38:34.940 | - And it is age 60, it's not 62 for a surviving spouse.
00:38:38.540 | - Correct.
00:38:39.380 | It's 62 for a person's own retirement benefit,
00:38:41.180 | as well as a spousal benefit
00:38:42.900 | when both people are still alive,
00:38:44.740 | but for a surviving spouse benefit, it's age 60.
00:38:47.780 | - So from here, I want to get into taxes.
00:38:51.700 | Many different filings that need to take place.
00:38:55.660 | First of all, you've got a person who died
00:38:58.540 | and you need to file a tax return
00:39:00.940 | up until the date of death, correct?
00:39:03.220 | - Yes.
00:39:04.060 | It's a little bit different if they were married.
00:39:06.820 | - Okay.
00:39:07.660 | - If you have a married couple,
00:39:09.060 | then they're still going to file,
00:39:11.780 | or at least they can file a joint return for that full year.
00:39:15.780 | So if you have husband and wife,
00:39:17.460 | let's say the husband dies on June 27th,
00:39:21.380 | then it's going to be a return
00:39:24.020 | that includes all of the wife's income for the year
00:39:26.980 | and the husband's income up until the date of death.
00:39:30.060 | So that's what's going to go
00:39:31.060 | on their joint return for that year.
00:39:33.340 | And then separately,
00:39:36.180 | the personal representative of the estate
00:39:38.540 | is going to have to file an income tax return.
00:39:40.780 | Now this is Form 1041, as opposed to Form 1040.
00:39:45.300 | They're going to file an income tax return
00:39:47.460 | for all of the estate's income for the year.
00:39:50.140 | So that would basically be beginning
00:39:52.020 | immediately after the death.
00:39:53.980 | - But just money that goes to that person
00:39:56.540 | who passed.
00:39:57.980 | - Right, it's the estate's income.
00:39:59.940 | So that could be income that would have been
00:40:02.700 | the decedent's income that is now paid to the estate.
00:40:05.260 | It's also, you know, interest and dividends
00:40:07.300 | on taxable assets or so on.
00:40:09.940 | - Personal brokerage account of some sort.
00:40:11.740 | - Right, exactly.
00:40:12.580 | There's the tax return for the individual or the couple,
00:40:17.580 | and then there's the income tax return for the estate.
00:40:20.780 | And then finally, the third thing is the estate tax return.
00:40:25.060 | And you don't necessarily have to file this
00:40:29.020 | because most estates are well below
00:40:33.620 | the federal estate tax threshold.
00:40:37.020 | However, even if the estate is well below that threshold,
00:40:40.540 | it is often a good idea anyway to file it
00:40:44.420 | because what that lets you do is it lets the surviving spouse
00:40:49.420 | use any portion of the estate tax exemption
00:40:54.340 | that was not used.
00:40:56.300 | It lets the surviving spouse use it later, essentially.
00:40:58.860 | So that is a pretty compelling reason to file Form 706,
00:41:02.940 | which is the estate tax return,
00:41:04.700 | even if the decedent's estate was well below
00:41:08.540 | the applicable threshold for that year.
00:41:10.660 | - The deceased's tax return has to be filed what date?
00:41:15.660 | - That's, it's just the regular income tax filing.
00:41:19.540 | - April 15th?
00:41:20.380 | - Right, yeah, plus extensions if applicable.
00:41:23.220 | - What about the estate tax return?
00:41:26.620 | They died June 27th.
00:41:28.740 | That also needs to be filed by April 15th?
00:41:33.020 | - That depends because you can have a taxable year
00:41:37.300 | for the estate that is different than the calendar year
00:41:40.380 | in some cases.
00:41:42.460 | You can keep it simple, make it the calendar year,
00:41:44.820 | in which case then it is April 15.
00:41:46.900 | But if you elect for a different taxable year,
00:41:50.140 | then the due date would be shifted accordingly.
00:41:53.780 | - And the estate tax filing,
00:41:56.980 | which is different than these other two,
00:41:59.940 | when should you do that?
00:42:01.540 | So let's give an example.
00:42:02.500 | So your estate is worth $18 million, all total.
00:42:07.420 | And so right now the threshold for each individual
00:42:10.420 | is 14 million, roughly.
00:42:12.740 | So you die, you're going to use your portion.
00:42:17.820 | Whatever you don't use goes over to your spouse.
00:42:20.180 | But in order for that to happen,
00:42:21.420 | you have to file this other tax form.
00:42:23.860 | - Right, form 706.
00:42:25.620 | And the deadline for that one
00:42:28.260 | is nine months from the date of death.
00:42:31.340 | There's also a six-month extension if you request that.
00:42:34.700 | - Wow.
00:42:36.440 | For somebody who doesn't do the tax returns at home,
00:42:41.780 | you have one spouse who's sort of the financial person
00:42:44.140 | and the other ones who are the disinterested person,
00:42:46.580 | we tend to say.
00:42:48.180 | This is huge burden of an incredible amount of stuff.
00:42:52.420 | They gotta have help.
00:42:53.820 | - Yes.
00:42:54.660 | - Gotta have help here.
00:42:55.580 | - Especially in vocal heads, we tend towards DIYers, right?
00:43:00.140 | People who like to do it yourself,
00:43:02.100 | shun professional assistants to an extent.
00:43:04.620 | But really, especially if the surviving spouse,
00:43:07.860 | like you said, was the one who was not the financial manager
00:43:11.260 | of the household, really it's a good idea
00:43:14.140 | to get help with this.
00:43:15.540 | Enlisting a CPA or enrolled agent or tax attorney
00:43:18.220 | to handle the actual preparation
00:43:19.940 | and filing of the tax returns is a great idea.
00:43:23.260 | Having an estate attorney to help with probate
00:43:25.820 | is generally a great idea as well.
00:43:28.860 | And then potentially, depending on circumstances,
00:43:31.860 | engaging a financial planner
00:43:33.140 | to date that person's financial plan as needed
00:43:36.260 | based on the new circumstances
00:43:37.500 | can be a good idea as well in some cases.
00:43:40.340 | - I wanna get into an area of succession planning,
00:43:45.140 | getting back to my point
00:43:46.940 | that there's often a financial person in the family
00:43:50.860 | and then there's a disinterested person,
00:43:53.460 | someone who doesn't wanna do it.
00:43:55.780 | My wife, for example, she won't listen to this podcast.
00:43:59.500 | Somebody's going to have to help her manage
00:44:03.260 | all of this money and believe me,
00:44:05.180 | I've kept my stuff very, very simple.
00:44:07.780 | Try to consolidate accounts, consolidate custodians,
00:44:12.060 | simple investments, try to keep it simple.
00:44:16.420 | Which has worked wonders, by the way,
00:44:17.900 | as far as a rate of return.
00:44:18.940 | I mean, I've done really well.
00:44:20.420 | I've gotten my fair share.
00:44:21.860 | But she'll need somebody to help her with the portfolio.
00:44:25.740 | Now, I've already identified somebody to help her.
00:44:29.060 | She knows who to go to.
00:44:30.780 | But a lot of people don't.
00:44:32.380 | And I heard so many horror stories
00:44:35.460 | about do-it-yourself investors who are bogleheads.
00:44:38.940 | And when the person who is the do-it-yourselfer passes,
00:44:43.940 | some person who is very friendly to the spouse
00:44:49.780 | sits down and, "How's it going?"
00:44:52.900 | And often the spouse would say, "It's not going well.
00:44:55.540 | "I've got all this stuff.
00:44:56.380 | "I've got all these accounts."
00:44:57.780 | Oh, let me introduce you to my person.
00:45:01.500 | They're really, really good.
00:45:03.380 | They work for XYZ brokerage firm or whatever.
00:45:06.860 | And they're excellent.
00:45:07.900 | And the next thing you know,
00:45:09.980 | the do-it-yourself boglehead is rolling over
00:45:14.020 | in his or her grave
00:45:15.220 | because the spouse is going to the exact people
00:45:18.980 | they've been telling them their whole life to avoid.
00:45:22.220 | What are your suggestions on that?
00:45:24.620 | - If you are seeking financial planning assistance,
00:45:29.180 | my general guidance is firstly,
00:45:32.660 | decide what services do you want.
00:45:36.980 | And broadly, I divide this into two categories.
00:45:39.500 | There's investment management, right?
00:45:43.060 | The person who's actually going to be placing the trades,
00:45:45.180 | rebalancing the portfolio and so on.
00:45:47.220 | And then separately, there is financial planning,
00:45:50.180 | which is all of the advice.
00:45:52.220 | And maybe you want both of those,
00:45:55.340 | or maybe you just want investment management,
00:45:57.260 | or maybe you just want the financial planning.
00:45:59.740 | Any of the above is fine,
00:46:00.980 | but first decide what it is that you want
00:46:03.500 | because some providers do only one,
00:46:07.300 | some do just the other, and some do both.
00:46:09.100 | And as an example, Vanguard Personal Advisor Services.
00:46:14.100 | Obviously, as bogleheads, many of us use Vanguard,
00:46:19.220 | and so that might be a first place someone would look.
00:46:21.780 | They provide investment management
00:46:23.140 | for a fee that is much lower than many other places.
00:46:26.460 | The financial planning that's included is pretty limited.
00:46:31.860 | It's mostly investment management.
00:46:34.220 | There's some advice, but it's not super duper in-depth.
00:46:38.100 | And so that could be a great place
00:46:40.300 | if you're looking for just the investment management.
00:46:43.300 | Conversely, if you're looking for just the advice,
00:46:46.820 | then the new term for that is advice only.
00:46:50.060 | You would look for an advice only financial planner.
00:46:52.980 | And then conversely, if you want both,
00:46:55.780 | then there isn't exactly a term for that,
00:46:59.140 | but frankly, that's what most
00:47:01.460 | smaller financial planning firms,
00:47:04.820 | that is what they provide.
00:47:05.860 | In most cases, they're gonna be doing
00:47:07.460 | the investment management and financial planning.
00:47:10.660 | So that's step number one is just figure out
00:47:12.780 | what do you want.
00:47:14.340 | Step number two is what areas of expertise are you seeking?
00:47:19.340 | A surviving spouse in your 70s, for instance,
00:47:23.660 | the areas of expertise, you want somebody
00:47:25.500 | who's skilled with retirement tax planning
00:47:28.060 | and managing a retirement portfolio.
00:47:30.100 | Whereas if you're a surviving spouse at age 33
00:47:31.980 | with young kids, it's a completely different list of topics.
00:47:35.100 | And so you want somebody who's got the right expertise.
00:47:37.420 | And then lastly is just how do you wanna pay for it?
00:47:40.020 | There's a lot of choices here, right?
00:47:41.820 | There's the old school commission method
00:47:46.300 | through a broker dealer, and mostly as bogleheads,
00:47:50.220 | that's what we try to avoid.
00:47:52.100 | There's assets under management fees.
00:47:54.700 | There's flat fees.
00:47:55.940 | There's hourly fees.
00:47:56.820 | There's all these different choices.
00:47:58.740 | They come with various conflicts of interest,
00:48:00.380 | frankly, in most cases,
00:48:01.780 | but separate from the conflicts of interest,
00:48:03.700 | you just wanna take the time to do the math.
00:48:05.820 | If you're considering an assets under management base fee,
00:48:08.860 | how much is that in dollars for your portfolio?
00:48:11.740 | It might be less than a flat fee.
00:48:14.220 | It might be a lot more.
00:48:15.300 | Just do the math.
00:48:16.580 | And so those are the broad pieces of advice
00:48:18.980 | that I would give for somebody looking for financial advice.
00:48:25.060 | I have to throw this in there.
00:48:26.420 | People who have listened to my podcast have heard it before.
00:48:29.540 | I've been in the business now for 36 years.
00:48:33.300 | And I used to say,
00:48:35.500 | I have been told many, many times by many people,
00:48:38.340 | "Rick, I'm a do-it-yourself investor,
00:48:41.940 | "but I've told my spouse that when I die,
00:48:46.460 | "they're gonna contact you."
00:48:49.940 | And I say to them, "Well, that's great,
00:48:51.620 | "but unless I have a conversation with them
00:48:54.500 | "before you die and you make the introduction,
00:48:58.060 | "it isn't gonna happen."
00:48:59.140 | Because in the 30 some odd years that I have been doing this,
00:49:02.700 | I have never once received a phone call, ever.
00:49:06.020 | Not once received a phone call from a surviving spouse
00:49:10.180 | that I didn't know personally
00:49:11.980 | and that I hadn't had a conversation with.
00:49:13.940 | Until last year.
00:49:16.820 | And I actually got a phone call from a surviving spouse.
00:49:21.300 | My first one.
00:49:22.980 | At 36 years in the business, first one who said,
00:49:26.460 | "My husband said that I should contact you
00:49:29.940 | "if something happened.
00:49:31.540 | "And so here I am."
00:49:32.860 | For the do-it-yourself people,
00:49:35.420 | if you really want your spouse to go to Vanguard,
00:49:40.420 | as an example, there are others out there,
00:49:42.220 | but just as an example, to manage the money.
00:49:44.660 | You have to have that relationship established
00:49:46.700 | before you die.
00:49:47.940 | Before you die.
00:49:50.140 | Your spouse has to be familiar with it.
00:49:51.980 | They have to understand it.
00:49:53.940 | They have to have talked to the people.
00:49:55.700 | They have to be comfortable with it
00:49:57.020 | so that when they're sitting down with their friend,
00:49:59.340 | having a general discussion about how things are going
00:50:02.100 | and this comes up, or maybe it won't even come up
00:50:06.020 | because it's been taken care of.
00:50:08.340 | And so your spouse won't end up in that very place
00:50:10.340 | where you did not want them to go.
00:50:12.540 | - Yeah, absolutely agree.
00:50:13.820 | Establish the relationship beforehand.
00:50:16.460 | - A couple more things I wanna talk about before we end,
00:50:18.460 | and these are kind of one-off topics,
00:50:19.820 | but this is very confusing.
00:50:22.500 | Inheriting IRAs for spouses,
00:50:26.180 | inheriting IRAs for non-spouses.
00:50:30.940 | It just seems like the IRS is just making this thing
00:50:32.940 | all so complicated.
00:50:33.900 | Could you just go through it for us a little bit?
00:50:35.860 | - Yes, this topic was complicated
00:50:39.300 | when I started working in this field,
00:50:41.340 | and then it got more complicated with the Secure Act,
00:50:44.700 | and then it has become even more complicated
00:50:46.980 | with various IRS regulations.
00:50:49.020 | So I will say, frankly, I think this is an important message
00:50:54.020 | that most tax professionals I know, including myself,
00:50:58.020 | don't even try to memorize all of the rules.
00:51:01.860 | We have sources that we know to go to
00:51:04.300 | to look up the appropriate rules
00:51:06.020 | in a given set of circumstances.
00:51:08.140 | The general idea in today's world
00:51:11.700 | is if you inherit an IRA as a spouse,
00:51:16.860 | you have choice number one,
00:51:19.300 | and this is a choice that only surviving spouses have,
00:51:23.340 | is that you can just roll the IRA into your own IRA,
00:51:27.980 | and then it's as if it had been your IRA to begin with.
00:51:30.860 | The fact that it's inherited is no longer relevant at all.
00:51:33.540 | And, again, you can only do that
00:51:35.540 | if you're inheriting it as a surviving spouse.
00:51:38.140 | If you're inheriting an IRA from your parent,
00:51:39.900 | or grandparent, or aunt, or uncle, or whoever,
00:51:41.940 | you don't have that choice.
00:51:43.300 | The second option that you have as a surviving spouse
00:51:46.540 | is to just leave the account as an inherited IRA.
00:51:51.540 | And the rules for inherited IRAs
00:51:54.620 | in terms of the distributions
00:51:57.220 | and how much you have to take as an RMD every year
00:52:00.460 | depend on a lot of factors.
00:52:03.660 | The first factor is, is the beneficiary,
00:52:08.660 | so are you, if you're the person who inherited this IRA,
00:52:12.100 | are you an eligible designated beneficiary?
00:52:16.540 | And that includes surviving spouses,
00:52:19.380 | people who are disabled,
00:52:21.660 | anyone who is less than 10 years younger
00:52:25.940 | than the original owner,
00:52:26.780 | so that also includes anybody
00:52:27.940 | who is older than the original owner.
00:52:29.860 | So if, for instance, you inherit an IRA
00:52:33.060 | from your younger sibling,
00:52:35.220 | you're an eligible designated beneficiary.
00:52:39.020 | And so people in that category
00:52:41.220 | have kind of like the old rules,
00:52:44.420 | where it's a stretch over their life.
00:52:47.620 | We're taking distributions based on life expectancy.
00:52:51.460 | Anyone not in that category,
00:52:54.300 | which in most cases includes kids,
00:52:57.420 | if you inherit an IRA from your parents,
00:52:59.340 | most likely you're not in that category.
00:53:01.220 | You're a non-eligible designated beneficiary,
00:53:04.940 | most of the time.
00:53:05.780 | - Nieces, nephews.
00:53:06.780 | - Yes, yep, or grandkids or whoever.
00:53:09.580 | And in that case, we have a rule
00:53:12.300 | that says that the account has to be distributed
00:53:15.740 | within 10 years.
00:53:17.220 | Now, the thing that's newest here
00:53:21.660 | is there's now also a rule
00:53:23.700 | that if the original owner,
00:53:27.020 | the deceased original owner,
00:53:28.940 | had reached their required beginning date,
00:53:30.660 | so they already had to be taking RMDs,
00:53:32.820 | then in addition to needing to distribute the account
00:53:37.140 | over 10 years,
00:53:38.500 | you also need to take life expectancy-based distributions
00:53:43.500 | over those 10 years.
00:53:45.340 | You have to meet both of those requirements.
00:53:46.980 | And that's a new thing as a result of IRS regulations
00:53:49.660 | that only became effective in 2025.
00:53:51.620 | - But you don't have to use the deceased's age
00:53:54.500 | to take the required minimum distribution.
00:53:56.460 | You do have the choice of using your own age, correct?
00:53:59.940 | - In that last example, that's correct.
00:54:02.780 | There are some cases
00:54:03.660 | in which the deceased's person's age is still relevant.
00:54:08.540 | One of them, by the way, is in the year of death,
00:54:11.940 | if the deceased had to take an RMD
00:54:13.980 | and had not yet taken it,
00:54:15.540 | then the beneficiaries in some combination
00:54:18.540 | will have to take that RMD,
00:54:20.180 | calculated as if that person were still alive for that year.
00:54:23.300 | - And this RMD does not go into the deceased's estate.
00:54:28.300 | - Right.
00:54:29.580 | - It basically goes to the beneficiary, correct?
00:54:32.820 | - Yep.
00:54:33.660 | - So it's taxable to the beneficiary,
00:54:35.020 | not taxable to the estate if they didn't take it yet.
00:54:38.140 | - Right, there could be an exception
00:54:40.380 | if the estate itself is the beneficiary of the IRA.
00:54:44.300 | Sorry, there's always exceptions.
00:54:45.740 | - One more scenario and then we're gonna stop.
00:54:47.740 | You inherit an inherited IRA.
00:54:51.740 | The person who died had an inherited IRA
00:54:56.740 | from an uncle or an aunt or whatever.
00:54:58.940 | And now you inherit that inherited IRA.
00:55:03.220 | And how does that work?
00:55:04.380 | - In that case, you are known as a successor beneficiary.
00:55:09.540 | And the rules in that case are extremely complicated.
00:55:14.340 | - Okay.
00:55:15.180 | - We need to know, did the original owner die before
00:55:21.140 | or after the SECURE Act went into effect?
00:55:25.980 | And then we need to know, did the beneficiary,
00:55:30.500 | so 'cause now at least one beneficiary has died
00:55:33.060 | because you're a successor beneficiary.
00:55:34.700 | Did that person die before or after
00:55:38.180 | the SECURE Act went into effect?
00:55:40.420 | And then we need to know, was the beneficiary
00:55:44.180 | an eligible designated beneficiary or not?
00:55:47.320 | And then we also need to know, did the owner die before
00:55:51.180 | or after their required beginning date?
00:55:53.780 | So the point at which they needed to start taking RMDs.
00:55:57.380 | So it's essentially like a big flow chart.
00:55:59.500 | And depending on all of the answers to those questions,
00:56:01.700 | then we can determine the answer.
00:56:03.060 | And in some cases, we're going to have an answer
00:56:05.780 | in which the successor beneficiary is basically
00:56:09.200 | just finishing out the initial 10-year period.
00:56:13.100 | In other cases, it's going to be the 10-year rule
00:56:15.740 | kicks in for the first time.
00:56:17.740 | And so it's starting at that point.
00:56:20.140 | It's extremely complicated.
00:56:21.580 | So for sure, consult a tax professional.
00:56:25.660 | - Not easy stuff, not at all.
00:56:28.140 | Well, we've covered a lot of ground in this podcast.
00:56:31.660 | Do you have any parting words, Mike?
00:56:33.980 | - Just what we started with, I think,
00:56:36.020 | which is if you were a surviving spouse,
00:56:38.900 | there's a lot you're going to have to do,
00:56:41.340 | but you don't have to do all of it immediately.
00:56:44.180 | The things that you do need to start on immediately,
00:56:46.380 | sure, go ahead and get started.
00:56:47.940 | But the really big decisions, a lot of them,
00:56:50.920 | you don't need to rush them.
00:56:52.700 | And it's okay to get professional help
00:56:54.940 | as well as help from family members.
00:56:56.660 | - Well, Mike, thanks so much for being with us today
00:56:59.100 | for this complicated but vital information.
00:57:02.980 | - Thank you for having me back.
00:57:03.820 | It was a pleasure to be on the podcast again.
00:57:05.980 | - This concludes this episode of Bogleheads on Investing.
00:57:10.060 | Join us each month as we interview a new guest
00:57:12.820 | on a new topic.
00:57:13.860 | In the meantime, visit boglcenter.net, bogleheads.org,
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00:57:25.040 | Join one of your local Bogleheads chapters
00:57:27.940 | and get others to join.
00:57:29.300 | Thanks for listening.
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00:57:38.040 | you