Coach Pete D’Arruda and Phil Graham discuss why a will does not necessarily decide who receives every account. They explore beneficiary designations, payable-on-death and transfer-on-death arrangements, life insurance, and the problems that can follow outdated paperwork. Hear the questions they suggest asking when reviewing who is named on your accounts and how those choices fit your family’s legacy plan. Part two of the Financial Safari interview.

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Transcript

Automatically transcribed from this episode; timestamps are approximate.

00:00 Welcome back into the Financial Safari. Having a wonderful show today. I'm Thomas Lipscomb here in studio with bestselling author, Coach Pete D’Arruda. We also have Phil Graham on the line, a friend of the show, who has been a financial strategist for going on 30 years. Coach, you have such great friends. Well, yeah, I keep good friends around. If they're very nice people, then I get along good with them. They're not trying to jump off a bridge, right? No, we don't want any of that. You know, we talked, I teased people before we left. I said six accounts that never read your will. And that's a strange way to look at it, but what does that mean? Well, you spend a lot of money on a will or even a trust, and some accounts that don't depend on that or don't even look at it, or you can bypass that. And so people spend real money on a will and then assume it governs everything they own. For a great many households, it governs almost none of it.

00:48 In other words, it doesn't really handle much at all. So the largest accounts pass from a form somebody filled out years ago. It's a form you fill out when you get in certain things. We're going to talk about that. And the will never gets a vote. In other words, there's some ways to bypass that will or trust. This is not a loophole, and it's not a mistake in the law. It's just how these accounts were designed to work quickly, privately, and outside of court. That's a good thing, by the way. The trouble is that the form is usually signed on the first day of employment, filed away, and never looked at again through a marriage, a divorce, a death, and 30 years of life. So, Phil, in other words, the 20-year-old Coach Pete has nothing to do with the 60-year-old Coach Pete. Right? A whole different thing. What if I had filled out a form when I was 23 and I started a 401K with a company, and now I'm 60?

01:36 I don't remember filling that form out. I don't remember what I did yesterday these days sometimes. What I had for dinner, that kind of thing. So there's six accounts, though, that you can buy. This is a good thing. I set it up to make it sound like it was maybe mysterious or not good. These are good things to bypass the court, bypassing probate and bypassing even trust a lot of times. You have to know what forms. A lot of people write all the language in the will or trust, but no one will ever read that because they filled out a form that bypasses it. So, Phil, do you want to give one of the six that don't depend on the trust or will? I would say probably 401K because it has a beneficiary. Exactly. But the real question is, do you know who the beneficiary is you have on your 401K? Could be an ex-spouse.

02:22 Is it your ex-wife? Yeah. So you never know. That's why we encourage people to review your beneficiary forms. And a lot of people don't even remember filling it out. But once a year, if you can, at least every five years. And when we get closer to retirement or in retirement, maybe every year because things speed up. That's right. I mean, years seem to go faster. So 401Ks, 403Bs, and TSPs. Now, TSPs are the Thrift Savings Plan. We've got a brand new book out called Thrift or Thrive. And if you're a federal employee, you really need to get your hands on this. And by the way, I love federal employees, Thomas. That's our mail people, and they do a great job. Anyone who works for FBI people. I love my FBI people. Don't want to get mad at me. But, you know, federal employees, you spend all your time. I mean, think about the mailmen and women. They're working seven days a week now, it seems like.

03:07 I'm getting mail all the time. So I really appreciate them. So I want to donate to them my appreciation. I've got the book, Thrift or Thrive. If you are a federal employee, all you have to do is call now, and I will send you a copy of this book. It's over 100 pages of very helpful tips and techniques to make sure you can maximize and truly benefit from your retirement plan and make sure you're doing the right things. So, Thomas, federal employees, the next 20 right now. All right, folks, just call 800-661-7383, 800-661-7383, or you can text keyword free to 600-700. That is keyword free to 600-700 because, Coach, great gift here. Yeah. Phil, this is just a fun topic to me because this is talking about bypassing probate. We've heard that phrase before. I just rephrased it a little bit. But bypassing probate. So we've got the 401Ks, 403Bs, and TSPs.

03:53 We count that as just one group. So there's five more places that you can make sure to fill out correctly and bypass that trust or will. Do you want to give another one or do you want me to? Well, one that I talk about a lot because there's certain accounts that don't naturally have beneficiaries. Sure. Bank accounts or certain investment accounts don't naturally have beneficiaries. So you have to add a TOD or POD, a specific form to specific people to transfer that money on death or pay that money on death, which does avoid probate to allow those accounts to go around them too. I've been amazed over 34 years of talking to folks in the financial arena that most people have never heard of this and many times didn't fill it out, especially when you open a bank account.

04:40 POD. Phil, basically you gave me two answers, too. You gave me two of the six right there. That's right. I'm an overachiever, Coach. But POD is payable on death, and you fill that out ahead of time. And that means when you pass away, as long as the death certificate is supplied, that money goes right to the beneficiary. You don't have to go through probate. That's the POD with the bank account. Your CDs, anything you signed up with the bank. Call your banker if you don't have that or don't see it or can't find it or don't remember it. Or bring in what you have here. We can call the bank for you, with you. And then we talked about brokerage accounts. That's where you have signed up, you know, online, maybe the E-Trades or wherever you have a brokerage account at. You probably either did or don't remember or maybe didn't do a TOD form. That means transfer on death. Phil, big question to you. Why do they just name them both the same thing?

05:26 I mean, they both do the same thing. They just want to be different, I guess. TOD for brokerage accounts and POD for bank accounts. Is there a reason? My understanding is the transfer on death transfers ownership, so that way you don't have to liquidate those investment holdings to pay it out. Whereas at the bank, it's just cash. You know, you're not worried about is the stock market up or down. Now, tell folks a very important thing about when we die, the money in our stock accounts, when the money passes on or transfers on to the next of kin. What kind of taxes are owed on that stock? Let's say granny bought UPS at, let's say, $5 a share. And that's $500 a share when she passed away. That's a $495 per share capital gain. What did the beneficiaries owe that day they inherited that money on granny buying that five, and now it's worth $500.

06:14 What do you owe capital gains-wise? If it's set up correctly, you can get a stepped-up basis. So what does that mean? It means you don't have to pay any tax, and me as the person inheriting the money, my new cost basis, what my future tax is going to be based on is that higher value, which is what a lot of wealthy people do, is they borrow from their brokerage accounts versus actually liquidating so they avoid the capital gains or at least defer it almost in perpetuity. Now, that's great. If you can afford that and don't need the money, then that's the best way to pass it on. Unfortunately, a lot of people have most of their money tied to the stock market, and they need to fund their retirement plan. And I've heard this phrase now three times from my advisors in the last couple weeks where people have said, I've got too much of a gain. I don't want to liquidate my stock right now, but they need the money to live on.

07:02 But they're worried about paying taxes. And my phrase, and I've used this phrase, well, I'd rather pay tax on a gain than have a write-off on a loss. And let me ask you this question, Phil. Do you think we are in, historically, are we in a good or bad tax environment for capital gains tax? We are in some of the greatest tax rates in history. So they're on sale right now. And with our debt going up every day, with more people needing Medicare, more people needing Social Security, and fewer people actually paying taxes, I think tax rates have – mathematically, they have to go up. Yeah, and whoever's paying taxes is going to be left footing the bill.

07:48 And now they're starting to go after your retirement income heavily from a tax perspective because that's where the bulk of the income is coming from. Yeah, well, we had David Walker on, former U.S. Comptroller General under Clinton and Bush. So he's on both sides. And he said, Coach, I had to resign because I got tired of signing checks and we're going to bounce. And he is agreeing where tax rates are going to go up like crazy. And so if you're delaying liquidating a gain now because you want to somehow hope for some imaginary tax deduction, I don't think those days are coming. And if you need that money, you're torturing yourself right now by not paying those taxes. And you're going to torture yourself in the future when you could have paid tax rates at what it is today. And what if we do this wealth tax they're talking about where they're going to tax you on all your gains anyway?

08:35 Or all the money you have in your accounts, by the way, not just gains. It doesn't make any sense. And taxes have been as high as 99%. Ronald Reagan, when he was an actor, it was the reason he got into politics is because any dollar he made over $100,000, they taxed at 99%. So he only did two films a year at $50,000 each because he goes, why would I work for a penny on the dollar? Yeah. So if you're in this situation, and a lot of you are, where you need money, but you're going without now because you don't want to pay capital gains tax, but you've got plenty of money sitting there captive in the market. And the only reason it's captive is because in your mind, you don't want to pay taxes. Folks, I don't either. I hate taxes. But you're going to have to pay some. But pay it now and get it moved before, number one, let's say that gain turns into a loss.

09:21 Well, now you're going to kick yourself if you didn't maximize your gain. And if you sell way up here, even if you pay taxes, you're going to have more than if you wait for it to go down and then sell at a loss. Amen. So call right now. We can go through with you all the different options you have, and there are more than you think. So Thomas, give our number out. The next 10 people call. We'll do a full review for you. And we'll also do that financial termite inspection report. You really need to know how much money is coming out that doesn't need to be. And it's hidden a lot of times. We have special tools and techniques. You can identify that. Call it a financial termite inspection report. It's included in my recipe for success. So call right now. We'll do it at no cost or obligation. And you'll leave with three books when you come in. And that number is 800-661-7383. 800-661-7383. Or text keyword plan to 600-700.

10:08 Keyword plan to 600-700. All right, Phil. That's six places that you could bypass basically probate. We looked at 401Ks, 403Bs, and TSPs. That counted as one. We looked at bank accounts with a POD form that's payable on death. We looked at brokerage accounts with a TOD form that's transfer on death. So that's three of the six. What's number four? I would have to say life insurance. I don't think we've said that yet. No, we haven't. Very good one, too, isn't it? And that's the one I think most people think of first is life insurance. Yeah. Well, the only thing that's required then is, number one, you have a policy. Well, true. And number two, you answered the questions truthfully on the life insurance app. Phil, we see with any kind of insurance that you have to be honest.

10:54 And so if you were a smoker and didn't say you were a smoker and you died, they're going to deny that claim when they figure out you were a smoker. They're going to give your beneficiary the premiums you paid back, but they're not going to give you the death benefit. So make sure you're honest on the life insurance contract. We talked about Ronald Reagan. We talked about Abe Lincoln. Honest Abe. Be honest Abe when you're filling out a life insurance app. There you go. Because they have a whole FBI-type staff there to make sure you're telling the truth. But all that's really required for life insurance is a death certificate. And number one is your beneficiaries, your folks that you're leaving the money to, they need to know you have that. And so we have the little green book of life I wrote a couple years ago. And it's 100 pages, interactive pages, which you fill out yourself. And it asks you all these questions. And you fill it out with policy numbers and phone numbers so that when you pass away, your next of kin doesn't have to waste years, if not even not finding things,

11:45 not knowing where you put stuff. So this is your treasure map for the grave. And so I'm going to give this out, Thomas, to the next 20 people who call and come in for their no-cost total retirement plan. Folks, this is invaluable. It puts you ahead of the financial world and tell folks how they can do that, get that. And we also leave with my book, the Total Retirement Plan. That's 22 steps. It's $99 on Amazon, but it's free if you call right now. And that number is 800-661-7383. 800-661-7383. Or text keyword plan to the number 600-700. That is keyword plan to the number 600-700. And we're going to cover the rest of the list when we come right back.