Don't wait! Get excited now about how you want your estate handled and why you need to protect your assets.
If you already have a will, when should you review or make changes?
Royal Harbor Partners' Natalie Picha and her guest Marc Schneider of Waldron & Schneider Law Firm discuss why it is so import to plan ahead and make those hard decisions now before you leave it all for someone else.
Get to know us at: www.royalharborpartners.com
Hello, and welcome back to RHP Market Talk. I am Natalie Picha, Partner with Royal Harbor Partners and today I am joined by a special guest Mark Schneider, co-founder of the Waldron and Schneider Law Firm in Clear Lake Texas, here to discuss asset protection and estate planning. Areas that each of our clients should focus on for a strong financial plan. Good morning, Mark. Welcome to RHP Market Talk.Marc Schneider:
Good morning. Thank you, Natalie, for having me.Natalie Picha:
Mark, you're a graduate of Texas A&M with a law degree from University of Houston. And I like to say homegrown . Could you tell our listeners a little bit about founding Waldron and Schneider, and what led you to practice in the areas of asset protection and estate planning?Marc Schneider:
Sure. I've been licensed for about 35 years and I started off my career working for a firm in the downtown area. And one of the things we did is we did a lot of litigation, commercial litigation, a lot of type of collection work, where we would go after other businesses or we'd go after people who had made transfers to other businesses. We would sue for breach of fiduciary duty and we would get judgments . And then we would try to collect on those judgments . And so I had a lot of experience acquiring judgments and also collecting on those judgments and finding people's assets. Well in about 1990, a gentleman named Robbie Waldron was a client of ours and he was a bankruptcy trustee. And Robbie obviously had hired the firm and we went after a lot of different types of businesses because in a bankruptcy estate, you know, with the business, when in a bankruptcy or an individual in the bankruptcy, there could have been some fraudulent transfers or could have been transfers of assets or could have been hidden assets. So we would go after a lot of hidden assets. And in 1990, Robbie had asked if I would like to be his partner. And for some strange reason, I guess it was just a brave moment on my part. I said, yes. So it was Robbie and I, and a brave paralegal from downtown that worked with me. And we started Waldron and Schneider in June of 1990. And as Waldron and Schneider grew, and we have grown quite a bit since then, we've got eight to nine lawyers now. And as we grew over the years, we got very active in the community. And in the community, we met a lot of business clients. And for years, I still went to federal and state court to go after and collect on people's assets. And over time I started morphing my practice, more into helping people with their asset protection and their estate planning, versus going after their assets. Now, my firm still has litigators that go after people's assets. But my practice now for the last 15 years or so has been working with folks to set up the companies, to set up their personal assets into FLPs and to help them with their estate planning. So they could try not to pay tax again on monies they've already paid taxes on when they pass away.Natalie Picha:
Well, thank you. That, that was a great summation of why as financial advisors here at RHP , we think that this conversation is so important. We highly encourage all of our clients to work with an estate planning attorney for exactly those things you said. The tax liabilities, the asset protection, you know, and , and sometimes clients aren't always that excited about that process because it requires them to sometimes think through things they might not want to think through. That might be difficult, like family dynamics and the such. But we've seen it in our firm over and over and over again, when clients fail to do that planning what it means later after the fact. So, what are some of the biggest estate planning mistakes that you see in your practice?Marc Schneider:
Well, I think you just hit on it. People don't get excited about any type of estate planning or asset protection until they have to. And when they have to, then our options are very limited in what we can do, obviously. So if it's a state plan and they haven't done any and they've passed away, well, then we're obviously we have no options at that point in time. If it's asset protection and they have a claim pending against them, we have some options, but everything we do, if there's a claim pending against you, is subject to be questioned or maybe even set aside. So, I would like to see folks get a little bit more excited before those contingencies occur for the asset protection, as well as the estate planning, because they really go hand in hand. And then the other big mistake that I see is it's amazing how many folks that are successful or have their own business, they don't have a will. They don't have a basic will. And that's step one to any type of, even asset protection or estate planning.Natalie Picha:
So I'm just going to jump right into what some of the difficulties that we see and push back that we sometimes hear. I was going to ask you, should everyone have a will, but you just said, absolutely everyone should have a will. A lot of times we'll hear. Yeah. But you know what? Mine is simple. I'm going to be dead anyway. It goes all to my wife or to my husband. Goes all to my kids split equally. You know, can you speak a little bit to why that logic does not necessarily play out the way you think it will?Marc Schneider:
Well, yeah . So folks who think that way, who don't have a will, they don't realize that they actually do have a will. It's the State of Texas. It's law under Texas law. If you don't have a will, then it's the state of Texas that's going to determine where your assets are going to go. Not you. So why not take the opportunity, if you have the chance to determine where your assets are going to go, who's going to get those assets. And if you have minor children, children under the age of 18, who's going to be the guardian of those children. I mean, that's very important. And that's a basic, if you are someone who says, well, all my kids are just going to get everything. I'm going to have a basic will. That says everything to my wife. If my wife passes away, then it goes equally to my children. That's great. At least that's a start. But a lot of people don't realize that their estate may be such because the laws change all the time on the unified tax credit or the lifetime gift as we would call it, sometimes that they may be creating a huge taxable estate. If they don't do any type of basic planning. They may not take into consideration that maybe one of the children is in a bad marriage, or maybe one of the children has a special need, or maybe one of their children has a situation, a business situation that might go South. And so perhaps maybe a trust for that child until they reach a certain age would be a really good option to help protect not only your child, but the inheritance that you've built up, that you want to leave to that child or children.Natalie Picha:
So, let's say someone has done just, just some basic planning. They've got their will out there. How often do you think someone should review that will and consider what's going on in their life? As far as that will is concerned and I'll lump powers of attorney and medical powers of attorney into that question, because I know that HIPAA laws kind of come into play with that as well. So, how often do you recommend clients look at their documents?Marc Schneider:
Right ? Let's start with the wills. I tell folks that any major change. A life event is what I call it. That could be winning the lottery, or it could be a death. It could be a new, new child, a new grandchild, an adopted child, just some life event that may be a big change in your life. It's probably a good, good idea to take a look at your will. Five years, maybe, is generally a good time period, to just have somebody take a look at it and ask you some of these questions about where are you, what has changed in your life? What, what do you anticipate might change in the future? So that's what I would recommend to clients is, you know, five years or so seven years. Now, if there's a major change in the law, for instance, there may be a major change coming in the law as a result of the new administration that could have a significant effect on folks estates. So keep your eyes and ears open, ask questions of your financial planner. Of your CPA. Of your attorney and find out how that might affect you because that's another time, not just the standard five years or life event is if there's a major change in the tax code and that's coming. And I think that's a good time for people to look at their wills.Natalie Picha:
And then what about the Powers of Attorney?Marc Schneider:
Right? Powers of Attorney to me are one of those important documents that I do. And a simple four page Power of Attorney can save somebody a lot of money, because if you have somebody's Power of Attorney, you're able to make decisions on their behalf. And there's all different variations of Power of Attorney. But let's talk about what we call a general durable Power of Attorney. And what that is it's durable, it's not limited to a specific time. It's general in a sense that it gives powers to the person you're giving the Power of Attorney to that are general powers. So they can act on your behalf. If something happens to you. I see this come into play, not only with elderly folks, because if you have an elderly family member or friend, and you have their Power of Attorney, you can make decisions on their behalf if they can't make those decisions. If you have a Power of Attorney, if you don't have a Power of Attorney, which is a simple four-page document, it doesn't cost very much to have one done. You have to go for a guardianship to be able to make those decisions. That's a court proceeding. That's filing with the court. That's thousands of dollars versus a simple four page Power of Attorney or five page Power of Attorney or however many pages the attorney has. They're not very lengthy. The Power of Attorney is such an important document for young people also, because now you mentioned HIPAA. Now, if you're 18 or older and you're not married, who has the ability to act on your behalf, if you can't? Who has the ability to make medical decisions, if you can't? So I call this my "kiddie package" and I try to get my clients to put a Power of Attorney, medical Power of Attorney, HIPAA authorization, which is who has access to medical records. Because once your child turns 18, you don't have access to their medical records anymore. So it's a very important package. Not only for folks who may be elderly or for young, but just in general, for all of us to have a Power of Attorney, even if it's a husband and wife situation, it'd be a really good idea to give wife Power of Attorney and husband, Power of Attorney. Now, if for some reason you believe there should be some contingencies, we can work contingency as a Power of Attorney, but I typically don't advise that, because usually when you need to use a Power of Attorney, you need to use it quickly. And now. It's not only these things, well, I'm going to need it in two months. And if you have a contingency in there, whoever you bring that Power of Attorney to may ask you, prove up this contingency. Show me that the person doesn't have, or show me the two doctors, or their one doctor you put in the Power of Attorney that says that Natalie can't function as an adult on a day-to-day basis. That just stalls. It takes longer.Natalie Picha:
It's very difficult. And we've been involved in those sort of situations and it's very challenging. So I'll kind of tie that whole subject up and say, what we see on the financial advisory, side is clients that do go and do the estate planning. They go get their Powers of Attorney and things like that, but they don't bring it all back to us to communicate with us. So for example, they go create a trust, but they don't actually take the assets that we have here and move them into that trust. They leave them in their individual names. Same thing with powers of attorney. If you go and have outside powers of attorney done, it's much easier for us to act quickly in that situation. If we already have that Power of Attorney on file, and we actually have our own Power of Attorney paperwork that our custodian requires of us done and in place, then we can immediately act. So, one of the reasons that here at RHP , we stress to our clients. We want to know who is your estate attorney? Who is your CPA? We want to work very closely, as a team, with them because we need to make sure that the loop is closed, that everything that's happening outside is what's happening here. And we're making sure that we're all on the same page. You mentioned just briefly, the potential for some estate tax changes. Can you talk a little bit about kind of what you're seeing out there, what clients are thinking about, what you're thinking about and that lifetime gift exemption that you mentioned?Marc Schneider:
Yes. Right now, each individual has $11.7 million of a lifetime gift. Which is quite a bit. So you figure for a couple and it's over $23 million. So there's not a whole lot of us that have estates that are worth $23 million. Now there are some, you know, I have clients, you have clients those folks have clients. And the planning for those typically is some advanced planning in the sense that it's a family limited partnership or some other type of foundation or gifting that we can do to reduce the value of their estate. The problem that we have now, is that people since 2000, I guess it was, I've got a chart here in front of me, 2013 or 14 when it went up to that amount. So folks have gotten a little bit complacent. And now it's going to be a significant reduction, or at least it's proposed to be a significant reduction. From 11.7 million to maybe five and a half is what we're hearing in the marketplace. But we don't know. I mean, you know, financial institutions , CPAs, attorneys, we're all kind of guessing at this point. So five and a half from 11.7 million and maybe five and a half. That's a, that's a big jump. And a lot of folks say, well, you know, that might not affect me either. And I advise people, you'd be surprised, get online or get a financial statement, put on that financial statement, the property that you own, put on the financial statement and your accounts, but on the financial statement, what insurance policies, because a lot of people forget that they have insurance policies. And there's not a tax on a typically on the first pass. If you're leaving everything to a husband or a wife, all right, if you lead gifts to someone else and they're in excess of unified tax credit or your lifetime gift, and there could be a possible tax, but take a look at that. If you pass away, if your husband or wife and you're leaving everything to your spouse, what are the, what's the value of the assets then at that point in time. And you would be be surprised how quick that it adds up. And that's why I tell folks to take a look at.Natalie Picha:
I would also, as a financial advisor , stress that while it doesn't appear that you may have an estate tax issue now. What we find is that clients don't take into account, for example, maybe you lose a spouse at age 70 or 75, and you live another 15 to 20 years. Something we see very, very frequently. And that in that time period an estate that's already, maybe substantial enough, has a long time to grow. And we see those assets grow as well as tax changes in that time period. So we always tell clients, go ahead and just consider the fact that you may have this at some point in the future, because you don't know what the future holds and then plan for that.Marc Schneider:
Right? I mean, that's very good advice. And I would tell folks that even if you don't think you have a taxable estate, the law has changed several times over the years. And just 20 years ago, I had my little chart here in 1997 that estate tax exemption was $600,000.Natalie Picha:
That's a big difference between 22 million and 600,000Marc Schneider:
Right, in 20 years. So that pendulum has swung very, very far, you know, in a direction of $11.7 million and the tax. I remind folks in the nineties, anything over 600,000 was 55%.Natalie Picha:
Wow, wow. That's astounding.Marc Schneider:
Right? And the number changed every year and it has changed every single year since then. So, the laws are always in flux regarding this lifetime gift.Natalie Picha:
i think that's another really important point, if maybe this would get people excited, but let's get them excited about, you know, estate planning and asset protection , is these are assets that you have already paid taxes on and that estate tax at, potentially, as you mentioned before, 55%, right, what you're doing is you're really leaving your heirs to have to deal with that potential 55, 45 to 55% estate tax, Whatever that number is based on whatever the law is at that time. I have seen clients basically, have to go into a fire sale because per the IRS law, you have nine months at which you have to then pay that estate tax. And if you don't have the liquidity, available, you're selling assets, you're selling real estate and whatever else, you know, physical assets that clients may have. We have seen that happen as well.Marc Schneider:
Right? The IRS doesn't take, well, I don't have the cash in my bank, so I can't pay yet. They don't take that as an excuse. And I've seen folks have to sell assets, whether it's real estate or its stock pay the capital gains and then pay,, the estate tax. And so this is kind of one of my pet peeves since I actually lived that scenario when my parents passed away. So it's been one of my passion to help people not have to do that. And there's just some basic simple things in the estate planning and the will perhaps, or maybe even some other estate planning tools that we have, that would allow folks to avoid having to pay tax on money they've already paid tax on.Natalie Picha:
Well, Mark, I really appreciate this conversation and I know that you and I both , our teams, your firm, we have seen, we could probably talk all day long about a lot of these subjects. Just what we see with our own clients. And I just want to thank you today. And we may, we may have you on again, to talk about some of the things, like I said, we so much that we could talk about. I want to say thank you to our listeners and just want everyone to know that our passion here is to help you feel confident about your financial future. We're devoted to our relationships with multi-generational families, for the creation of successful legacies. Through our one-on-one conversations, we can help you discover a clear path forward for your personal wealth management and investment journey. How different would your life look with the right advice. Call us today, or visit our website, royalharborpartners .com to start your conversation.Disclosure:
Royal Harbor Partners is a registered investment advisor and the opinions expressed by Royal Harbor Partners on this show are their own. All statements and opinions expressed are based upon information considered reliable. Although it should not be relied upon as such any statements or opinions are subject to change without notice. Information presented is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities investment or investment strategies. Investments involve risk. And unless otherwise stated are not guaranteed. Information express does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual listeners are encouraged to seek advice from a qualified tax legal or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.