Love, Legacy & Liquidity: How to Protect Your Wealth and Your Relationships

0:01 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome, everybody. Thanks for being with us for another episode of Something More. I'm here with Russ Ball. We are both of the AMR team at Wealth Enhancement.

0:42 Glad to have you joining us. We thought we would take today's segment and talk about some recent lessons learned. We run into so many clients from one week to the next, clients or prospective clients, people come in for consultations. As an aside, if ever you need some help, we offer a complimentary consultation, so don't hesitate to reach out. In any event, we find that there are some lessons that we run across from time to time, and there might be some things we could share. Today, that's our focus. We've had some interesting conversations, and among them, we were talking with some people who are going through marriage later in life.

1:27 Sometimes it's a remarriage, sometimes with a second marriage, sometimes it's just found someone later in life or after a passing for one spouse, taking interest in having the possibility of another marriage. So how should we think about our structure in our portfolios or in our estate planning more specifically? Russ, I was thinking that's maybe where we'll start. The first thing that comes to my mind is when you have blended families.

2:09 We've seen numerous occasions when someone who had a family or has a family has a second marriage, and they might want, ultimately, their new spouse to be cared for with the resources of their wealth, while at the same time, ultimately, wanting some of their wealth to be assured to go to their children. Now, sometimes it's blended children, all the children. But how that is done, that can be largely handled through an estate plan. Yeah. And these situations, I think it's fair to say that they can become challenging when there's relationships, money, it's kind of oil and water sometimes.

3:04 But in my experience, so I'm part of a family dynamic like that. So my dad had had kids and then he remarried and my brother and I are a product of that second marriage. And I think it's natural that there are going to be things that come up. And estate planning is a good way to confront some of those topics that might be challenging to discuss with family. Confront sounds maybe, how about navigate? Yes. But absolutely. Right. So let's go through some like circumstances. What I'm picturing is, okay, I have kids from, I don't, but if one did like, oh, I have kids from a prior marriage.

3:50 I want to make sure that they get some of my resources after I'm gone. Yeah. Right. So how do you do that? Now, sometimes this can be challenging when someone marries their spouse who happens to be notably younger, then it could be challenging for when will those kids ever see their inheritance, right? If they're closer in age to the new spouse, in this case, it could be male, female, whatever it is, but how that works out, it could be challenging. So in those instances, maybe there's different types of estate planning considerations.

4:35 Maybe you create some life insurance if you're eligible and available to create some wealth with that in mind to say, well, you may not see it for a while, but I want there to be something that's given. But a certain type of trust document, a qualified terminal interest, Q-tip trust can produce the arrangements that we might typically want to see. Something where you say, I want my spouse to be able to receive the benefits of my wealth while they remain alive, but after their passing, this part of the trust goes to, and you can direct where that goes.

5:21 Maybe it's kids from a first marriage in that scenario. You mentioned a situation where in your family situation, you're the product of the second marriage. Do you have siblings from step-siblings or whatever? Yeah, I have siblings. Have siblings. So you could envision that circumstance where, okay, well, what happens to the assets after the fact? Now, what if, as an example, the second spouse says, well, I want to go to my kids. If everything just goes by joint property, it's possible that things could be excluded.

6:05 People can be excluded. So having the right kind of estate planning in place could allow for things to be done the way you want it to be done. And this requires a lot of navigating among the family discussion. What do we want? And what's fair to, in the way you want this to be arranged? Certainly there can be complexities in thinking that through and how to navigate that. And I think that's probably why I said confront because a lot of the time it is very complicated. And it could be confrontational. It's probably confrontational.

6:45 There are a lot of dynamics at play. So we see a lot of times when there's no estate plan with all these factors in mind because it's so challenging to untangle. Yes. And how are you going to have this conversation among the family might be uncomfortable. So you just avoid it. Right. And so then there's no real plan in place. And then it leads to more confrontation later on among other family members. Another thing that comes to my mind when we talk about this topic is the idea of when there is this second marriage, are assets mingled or are they separate?

7:31 We came across an example recently where there's a second family and a second marriage kind of situation. And this becomes one of those things. Is it what's yours is mine and what's mine is mine? Or is it what's ours? How do we navigate these circumstances? Do we put everything into joint name of some type or whether it's trust or whether it's through joint ownership or are we keeping segregated wealth?

8:15 This is mine. I came into the marriage with this. You came into the marriage with that. These are decisions that have to be approached and discussed and clarified, particularly when there's a second marriage involved. Brings us kind of to the topic of prenuptial agreements. I can see at times, I think it would be difficult. My wife and I did not have a prenuptial agreement. We both came into the marriage with virtually nothing. So it really didn't matter. But what if you had differences in wealth when you come into a marriage?

8:56 I've always kind of had the personal kind of view that it seems kind of awkward to say, hey, honey, I love you. Let's talk about what happens if our marriage fails. It just seems kind of like it's almost predicting failure, which we don't want to do. But what are your thoughts about prenuptial agreements? Well, certainly not romantic to be going to a lawyer's office to sign a prenup or whatever. But my mom is a lawyer and she's always thinking in these terms.

9:40 So definitely has drilled that into my brother and my minds growing up. I think one perspective is 50% of marriages end up not working out. I don't know if that's still the statistic. I think that's the statistic for first time marriages. I think it's even higher for second marriages that don't work out. That don't work out. Okay, interesting. Well, I think it's just a confrontation of the reality that different things can happen. And it's not always one person's the enemy, one person's a good guy, one person's a bad guy.

10:21 But sometimes marriages don't work out. And what better time to plan for what would happen if other than when you're... When you're both caring. When you both like each other. Rather than confrontational. Exactly, exactly. We were recently at a seminar from Boyd and Boyd. And someone asked, what's the best way to prevent my assets from going to my daughter -in-law, for example, in the case of a divorce? Oh, yeah. And Keats, through trust, there are things you can do to try to prevent that from happening.

11:05 But Keats did say, the best thing you could do is a prenup or a postnup. And just legally, that's the most ironclad way. And it's probably not the right way to say it. It's probably not ironclad. Yeah, but I follow your point. It's probably a sound way to approach it. And in the case of estate planning for someone worried about their child, their adult child, not having to lose the wealth that they are intending to have their child inherit to a divorce. As you mentioned, there are creditor protection features within trust that can be utilized that Keats, Boyd and Boyd often makes use of in their estate planning conversation.

11:54 So that is a good point. There are a variety of ways you can approach this. IRAs tend to be an asset that don't go through the estate plan ordinarily. But you can have some specialized trusts that can help to pursue certain objectives without sacrificing the tax deferred status of the IRA features. So, okay, gotcha. I think that there's some virtue to this conversation to do a little planning in advance while you care. And they perhaps might have an easier time finding consensus as to how you want to handle things prior to the dissolution of a marriage.

12:44 Yeah. And like a worst case scenario, how would we approach that kind of thing? I think sometimes the challenge people run into is, as you said earlier, it can be a really difficult thing to talk about. And like with most things with planning, the more that's done in advance, the more deliberate we are, the better outcomes we're likely to have. So whether it's thinking about your financial planning in terms of this kind of an issue for estate planning, but in the complexities of a second marriage, sometimes these can be a really important part of your planning.

13:35 Let's talk not about the estate planning component, but about the cash flow. And we run into this not just with really with any kind of marriage or combined effort, maybe people living together or whatever it might be, but the notion that what do I do when I'm bringing more to the marriage, right? Maybe it's capital, maybe it's wealth rather, maybe it's income. There's disparities that we run into in how things could happen. And how does that factor into how we're thinking about our cash flow? Who pays what?

14:16 Many times we run into families where they opt for one bank account. Everything goes in and money gets paid out. I've talked about this in the past where my wife and I, when our kids were young, we ended up both writing checks on the bank accounts. I'm trying to pay a bill. She's trying to pay for groceries. There can be some challenges of operating out of one account with multiple people. So sometimes people opt for multiple accounts, two accounts. But what happens where? Which bills get paid from what kind of priority?

14:58 Whose money goes into what objective? Sometimes people will do three accounts, his, hers, and ours. So this is a little bit of money for your flexible spending, whatever it is, the things you want. Here's some money for the things I'm going to prioritize, but here's our combined efforts. So there's all kinds of approaches that we see and all of which have practical considerations about virtues and drawbacks. Any comments about that topic? Yeah. Well, I've read a lot about the psychology around these different considerations and one account, individual accounts, the three account solution, his, hers, ours, or whatever it is.

15:49 And basically the conclusion I've come to is that there is some benefit of having possibly three accounts or at least having your own individual accounts for something to have some level of, this is mine, this is my money for doing whatever I want, or just the feeling of independence over the course of a relationship. Because as I said earlier, relationships and money are not often seamless, to put it lightly. So I definitely would subscribe to the, you each have your individual accounts that you came into the relationship with, but I do think that there is some benefit to having, whether it be a credit card that you're both using for essentials or a joint account that you automatically route some money into where it's like, this is a shared expense.

16:44 There's many ways to do it, but that's kind of my take. I think there is some validity to the fact that there is some psychological aspect of having some individual account that feels like, all right, this is. Yeah. I think that one of the things I would be inclined to do if you do the three account approach, which I kind of agree there can be merit to that, but I would make sure that all of the accounts are, or at least I would be inclined to suggest have all three of the accounts be joint accounts. Yes. Yes. So that if anything were to happen to one of you, there's no difficulty in accessing the money. I also think that you, you know, there's transparency in all of this.

17:25 And even though you may say, well, I wanted to buy this or that, this is for my, you know, I'm using my money, so to speak. There has to be clarity about that in some consensus that we agree that there are some things you're going to use your money for, and you're going to use money for your things. And that we've got consensus around the idea of that. But I think those are maybe good practices. When it comes to the whole topic of financial planning and whether it's in a married situation or not, you know, I think we want to come back to the idea that financial planning in many respects is simply a matter of decision-making.

18:13 It's prioritization. It's about having clarity of objectives, having maybe in some cases, having shared priorities and goals in the process. And so there can be challenges that we face. And we've run into people on the one hand, they have plenty of wealth, but they're facing retirement and they're in the decision of, am I going to work longer or am I going to start to spend less? Because even though despite having wealth, the forecast of things doesn't work the way they'd want based on the level of spending they have.

18:59 So, you know, okay, what do we prefer? What do we prioritize? Do we want to spend less? Do we want to work more? Do we want to restructure the way our wealth is designed? There's room for any of the above, right? Or some combination. Other times we have people who, you know, they have an abundance of wealth. And so the question becomes, how much is enough? What's the right number? What do we value with the time we have? How long? None of us knows how long we have. So we want to be finding that sweet spot of how do we have the kind of lifestyle that works for us, whether that includes work or does not, you know, whether work becomes optional or is still valuable.

19:53 People, you know, let's face it, people still enjoy their involvement in, you know, the cognitive stimulation, the social engagement, the paycheck coming in, right? All of the above, right? So circumstances can be, I still want that or no, I don't. I'm done. I'd like to get out. But, you know, so when do you draw that line? What's the priority? We've often talked about, you know, what comes next? You know, what do you focus on? But sometimes the challenge is saying, hey, you've got a plan that works. You have permission. And or, hey, you have to make some choices.

20:35 And these are your choices. We can give you counsel. But and we can help you see how much impact does that make? If I, what if I do this? What if I do that? But ultimately, it's a matter of just having an opportunity to have shared communication of what do we prioritize? Yeah. I mean, it's definitely more gratifying to be able to share, you know, a plan that looks beautiful and fabulous. Yeah, yeah. Fabulous outcomes. But, you know, part of this world, part of this job is to, you know, have this whole plan in place to show people, all right, like this is working, this is not working so much.

21:17 And to play around with these variables and to see, you know, maybe we don't have to go to one extreme or the other, maybe we could find some sort of middle ground that would work. And, you know, it's they're difficult choices that need to be made, difficult conversations that probably have to be had. But having the perspective of a big picture plan really is beneficial because sometimes when the money's coming in and going out and you think, well, retirement, it's probably going to work out like do a little math. Yeah, it sounds about right. I got a spreadsheet. Yeah. Yeah. Oftentimes we've talked about this many times before is people won't think about all the variables that can come into play, all the factors, all the expenses.

22:00 If you're not tracking your expenses meticulously, it's a very hard thing to get a grasp of. You might paint a little too rosy a picture sometimes because you go, well, let's see, we've got the utilities, we've got the mortgage, that'll be gone soon. We got, you know, if you rattle off a few, oh, we spend this much on groceries. OK. But there's probably things you've overlooked, you know. Oh, well, we probably do need to spend some money on home repairs from time to time. Oh, we're going to need to buy a car from time to time. Oh, we're going to fill in the blank. Right. There's a very rare and sometimes people just paint that picture as being too rosy. Yeah. And especially when we're thinking about retirement, because that's you're entering a different stage of your life where there are a lot of, you know, it's not the same structure as you had before.

22:51 It's not just, all right, I'm going to go to work, work, come home, get some dinner. It's you have to create your world around you the way that you envision it. And so that could mean different expenses. Opportunity. Yeah. Opportunity. But, you know, it creates different expectations. Maybe you want to take more vacations. Maybe you want to spend half the year somewhere else, whatever it may be. Those are it's not it's not going to be a fluid transition right from from working life into retirement where your day to day is exactly the same. We had some people recently talking about the idea that they wanted to spend more for a while and then slow down. Yeah. That was interesting. I mean, I think and then another instance where they similar said we're going to spend more now and then we're going to slow down and then we're going to slow down more.

23:38 You know, so there's all kinds of variables that people envision. And we I think we're the sounding board oftentimes to help them navigate. Is that realistic? How much are you assuming? What I think we should also mention here is the idea of stress test. So aside from have you thought of some of the variables that are often overlooked, we also need to say sometimes, hey, you know, you've got your numbers, but maybe we should include a little extra for health care as an example, especially if you're retiring early.

24:20 Right. Oh, Medicare won't kick in yet. You're going to have some out of pocket costs that could be expensive. OK, now you're retired at 65. OK. But health care can grow at a higher rate of inflation. Let's separate those costs out and adjust them at a higher rate of inflation. What if you have long term care costs at some point, presumably later in life? Well, that can be a big drain on the wealth. Let's look if that works. OK, that works great. What if we have let's go through some of those stress test variables, bad market conditions, temporarily disruption?

25:05 What if we have consistently less return than we might have expected? What if we have consistently higher inflation? What if we have less Social Security because they don't solve the Social Security problem? What if, what if, what if? Right. And there's a lot of others. What if I live longer? What if I die soon? Higher taxes. Higher taxes. These are all things we can do with some great software, and it's pretty efficient as a way to do it. It's probably a good idea to get a second opinion when it comes to the financial planning. We look at this as the building block. The financial plan is the building block on which everything else is supported.

25:47 So it informs how we think about cash flow. It informs how we structure the portfolio. It informs the liquidity, we presume. It informs how we think about tax opportunities or challenges, right? How are we going to improve this tax picture, etc. So having the, and I think what we try to do at Wealth Enhancement, which may not be identical to other firms, is we try to take an integrated approach to these things. We look for, the latest thing I think people seem to latch onto is tax strategy.

26:28 People are so, I think, hungry for greater integration into their planning for tax strategy and opportunities, particularly as they get to retirement, thinking, how are we going to make this more tax efficient? And really, it's something you can do at any stage to try to improve on that. But it's not just that. So it's the estate plan. It's the tax planning. It's the, do we have risk that we haven't accounted for? How do we mitigate that risk? Do we want to try to mitigate that risk? And so on, right? Anyway, I'm rambling. Yeah.

27:09 Well, and it's not just about retirement either. It's the different milestones you reach in life. It's your legacy planning. It's how much do I want to save for my child or grandchild's college education? And how do I go about buying a new house or selling a house? These are all things that not everyone remembers to talk to their advisor about from a planning perspective, but that's all part of what we do in this part of this integrated planning approach. We often talk about the idea of a family can be an unexpected expense. And when we do that, we talk about kids usually for the retiree thinking about, oh, what if my kids have a divorce or the failure to launch or whatever it might be?

27:56 But it can work the other way too. We've seen in some conversations with clients where they're having to figure out how are they going to help their parents who have insufficient resources navigate their needs for assistance. So these are the kind of things that we want to put into a plan, make sure we can structure it in a way that works for you to get an outcome that fits your preferences and desires. So in any case, Russ, what do you think? Lots of cover, right? Let's just encourage you to think about your financial planning and whatever kind of circumstance.

28:38 We started talking about remarriages, but any kind of circumstance, these are the kind of variables that we want to put together and give some thought to. And if you need help in that process, that's why we're here. You can come in for a complimentary consultation and we're happy to be a resource to you. Don't hesitate to reach out to us either by phone or by email and let us be a resource to you. Until next time, everybody keeps striving for something more. Thank you for listening to Something More with Chris Boyd. Call us for help, whether it's for financial planning or portfolio management, insurance concerns, or those quality of life issues that make the money matters matter.

29:23 Whatever's on your mind, visit us at somethingmorewithchrisboyd .com or call us toll free at 866 -771-8901. Or send us your questions to amr-info at wealthenhancement.com. You're listening to Something More with Chris Boyd Financial Talk Show, Wealth Enhancement Advisory Services and Jay Christopher Boyd provide investment advice on an individual basis to clients only. Proper advice depends on a complete analysis of all facts and circumstances. The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth Enhancement Group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss. Listeners should consult their own financial advisors or conduct their own due diligence before making any financial decisions.