Jason and attorney John Kenney discuss estate planning.
Mr. Kenney has nineteen years’ experience helping families, individuals
and business owners with estate planning, asset protection, wealth
preservation and transfer and tax minimization. He is a Managing Partner
of his law firm.
A sought after expert, Mr. Kenney is the author of several articles and has
presented at dozens of seminars throughout the country to audiences of
potential clients and his contemporaries in the legal and tax field.
Mr. Kenney is a Captain in the US Navy JAG Corps (Reserve Component). He serves on several non-profit boards within the Seattle area. He has been an adjunct instructor, teaching military justice for the University of Washington Navy ROTC program for thirteen years.
To learn more please visit: www.kenneylawfirm.com
Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now, here is your host, Jason Parker.
Jason: America! Welcome back to another round of Sound Retirement Radio. You can find us online at soundretirementplanning.com, where we archive all of these programs for you. So if you’re driving down the road this morning in Seattle and you can’t listen to the whole show, by all means check us out online. And for our podcast listeners, those of you tuning around from around the country, thanks for making your way back here to another show. We’ve got a great one lined up. This is episode 139. I’m going to be bringing John Kenney on to the program to talk about estate planning. But before we do, I want to remind you that I … There’s two ways we like to get the morning started around here. The first one is to renew our minds, and then the second one is to put a smile on your face and give you a joke that you can share with the grandkids.
Here’s the verse. This comes to us from Galatians 5:1. “It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery.” It is for freedom that Christ has set us free. That’s awesome.
Then a joke for you. What animals need to wear a wig? What animal needs to wear a wig? A bald eagle. I know, you guys, everybody that reaches out and sends me an email, they always say, “Hey, keep the bad jokes coming.” So there you go. One for you to share with the grandkids.
Okay. This episode, 139, estate planning. We’re going to be talking about things that have changed and things you need to be thinking about as you’re making this transition into retirement. Like I say, I’m bringing John Kenney on to the program. He’s an attorney here locally that we’ve referred a lot of folks to over the years. John Kenney, welcome back to Sound Retirement Radio.
John: Thank you for having me back, Jason. I love being here, and I certainly look forward to talking to you today.
Jason: Yeah, well we appreciate you being a resource, not just for folks here in our community but for people around the state. And people around the country that are trying to get this retirement planning thing done right. I want to start out just at a high level, John, talking about the documents that everyone needs as they’re preparing for retirement. Will you just hit on those for us?
John: Sure, Jason. The basic estate planning documents that everybody in Washington state and around the country should have would be, at the very least, a basic will. A will is something that individuals or married couples can decide … or nontraditional couples these days … can decide how their property gets distributed once they’re deceased. So that’s a very basic thing. If you don’t have a basic will, the state, wherever you reside, will have a plan for you, and it’s not always the plan that you want. So that’s important.
Another very important document is a financial durable power of attorney. A financial durable power of attorney is kind of a mouthful, but basically if you do not have a document like this and you somehow or someday become incapacitated, it statistically … If you read studies, a lot of people when they get older will become incapacitated for a period of time, mentally, before they actually pass away. So there’s a good likelihood of this for many folks. It basically allows somebody that you appoint, whether it’s a spouse or an adult child or another trusted advisor or friend, to manage your financial and legal affairs for you if you ever become incapacitated. So that’s very important, because the contrast to that is if you do not have one of these documents, a process called a guardianship, which is a very time consuming and expensive court process, would have to be initiated by somebody in order to get the powers that a very good basic durable financial power of attorney can give to somebody for just a fraction of the cost. So that’s important.
Another very basic document that everybody should have is a healthcare power of attorney. Just like the durable financial power of attorney, a healthcare power of attorney is only used when someone is unable or incapacitated and not able to make their own healthcare choices. That document is, again, a very fundamental document, because sometimes when people reach a certain age or have a stroke or something, they cannot make their healthcare choices. So someone needs to be assigned to make those choices for them. It may also include that right-to-die or that end-of-life decision, so that’s a very important thing for a lot of folks. Again, not having a document such as this would require a costly and time-consuming guardianship process in the state court system. So another very important, basic document to have.
Finally, a fourth document that almost everybody should consider, although it’s an option, is a right-to-die document. In the state of Washington we have a document called a living will. A living will is just a document that states your desires when you get to that point in life where you’re being kept alive by artificial means and measures such as respirators or intravenous feeding, and it specifies that you do not want to be kept alive in that condition. So it’s a way for people to get ahead of that decision, and think it through, and make that decision in advance, and let their family know that that’s what they don’t want, unnecessarily being kept alive. Because it could be costly, very expensive for that sort of intensive care. Tens of thousands of dollars per day. I’ve seen some catastrophic medical bills at the end of someone’s life just because they don’t … people don’t have a document and it takes them several days or weeks to make a decision and get the right authorities to pull the plug or remove life support on somebody. So that’s important.
So those are the basics. There’s some other advanced things that we may talk about, like revocable living trusts, as sort of a step above a basic will. I can talk about that later and go into that later. But the basics are those four documents: a will, a financial durable power of attorney, a healthcare power of attorney, and a living will.
Jason: All right, John, appreciate it. I want to dive into each one of these a little bit more. Any stories … You have a lot of experience helping people on this, but do you have any stories that come to mind where somebody did not have a will and then it ended up being costly, or things didn’t play out well for them as a result of not just having that most basic document done?
John: Sure. I have plenty of examples. It’s hard to pop one into my mind. But typically it’s sort of that unintended heir that somebody doesn’t want to get their wealth, that actually ends up getting their wealth. For example, I had a case a few years ago where an ex-spouse, who had been divorced from this individual for many years, received many of his financial accounts because she was named as the beneficiary of those financial accounts and he forgot to change them. That wasn’t necessarily due to not having a will, but that was a failed beneficiary designation and change, which is very important for folks, in addition to having a will. I’ve had other cases where parents have been estranged from their children, and the children … The parents are in their 80s and the children haven’t visited them for 20 or 30 years, and they have no desire to leave a penny to their children, but they failed to create a will so by default their children got everything.
There’s more famous cases. One of the most famous cases is James Dean, who as many people know, of a particular generation … He was a young actor, had made a lot of money, tragically died in a car accident, I think it was in the 60s. And basically he had no will, of course, thinking he was young and invincible. And everything that he owned, including future rights to his films and royalties to his images and other things that would continue producing income for generations and decades … everything went to his dad, who had abandoned him as a child. His dad had never really known his son, and vice versa, but he still got everything.
John: There’s just a lot of cases, you can go down the list, of unintended heirs that occur because of not having a good will.
Jason: Yeah, that’s great. The second document was the financial durable power of attorney. The result of not having that, you mentioned, was having to go through the guardianship process. Help our listeners understand, what is the guardianship process?
John: Guardianship is a process whereby if somebody has no document, like a durable financial power of attorney or healthcare power of attorney that delegates the specific powers needed to run someone’s life … that’s kind of a generic way to say it … then a court has to decide. They get to decide what kind of powers somebody will have, and who will be appointed. Again, I’ve seen cases, no kidding, where I’ve been at the courthouse, where there are six attorneys standing up in front of the judge, each one representing a different child. One attorney representing the state because there’s sometimes in these cases charges of financial abuse by a family member, and so the state gets involved. And then the person who has their rights being given to somebody else has a right to an attorney also. So there could be several attorneys, and you can imagine the costs involved in a case like that. Whereas, having a good document that’s created in advance avoids all that.
The unfortunate thing too, that I’ve seen, is a lot of people will either go to an online site like LegalZoom, or go to an office supply store and get a fill-in-the-blank durable financial power of attorney or healthcare power of attorney. They may contain some of the powers that somebody needs, but not all the powers. In fact, sometimes a guardianship is necessary because somebody had a power of attorney that didn’t have all the things in it that was needed. So a bad power of attorney is almost as bad as having no power of attorney. So that’s really important.
Jason: I want to ask you another question about power of attorney here in just a minute. But I want to remind our listeners, this coming Wednesday, August 9th, we have a live webinar happening. The title is Retirement Planning in Trump’s America. You can sign up for that webinar by attending soundretirementplanning.com and just look for the link over on the right hand side. If you miss the live event but you sign up for it, we will send you an email to the replay once it’s done. So I want to encourage our listeners to sign up for our next webinar, Retirement Planning in Trump’s America.
John, coming back to this power of attorney, we had you speak … I was teaching a class recently at one of the local community colleges, and we had you come in and speak as a guest speaker on some of these estate planning issues. You had talked about some changes, in the state of Washington specifically, regarding powers of attorney. Do you want to take a minute and just talk about what changed and what people need to be thinking about?
John: Sure. Yes, that’s a great comment. The Washington state legislature here last summer enacted a new law as it relates to financial durable powers of attorney, and it went into effect on January 1st of this year. There was some major changes to the law, more specifically related to digital assets. One of the things, as I mentioned in your last question, if somebody doesn’t have the proper authority or power granted in a document, whether it’s a will or a trust or a power of attorney, they have difficulty or impossible odds of getting control of someone’s digital assets. Which could be a Facebook account, a Gmail account, any email accounts, Instagram, you name all the social media that people use these days. Those companies will not deal with anybody unless the powers that are granted are specifically given to govern digital assets. So one of the big things that the Power of Attorney Act added was that then if a power of attorney document has the proper verbiage in it to govern digital assets, then that would be legally binding. So that would then give more powers to deal with those things.
Another thing is gifting. A lot of times, when people are older, they may want to have their agent, the person they’ve designated, make gifts to their family, to the people that they want to give away their wealth to. There may be a number of reasons. The most common reasons are to lower the amount of wealth that they will own at their death, in order to avoid an estate tax, whether it’s a federal estate tax or a Washington estate tax. Another reason is to give away some of their wealth to sometimes qualify for the state’s Medicaid system. That’s a little more complicated, far too complicated to get into in this discussion, but the bottom line is there may be good and valid reasons to give away somebody’s wealth.
In the past, the law didn’t address those types of things. This new law put in place some very specific requirements and guidelines that the powers of attorney must have in them, in order to be able to give away wealth or make gifts. So a lot of the older powers of attorney that I’ve seen don’t have any authority or power whatsoever to give away gifts, and it can really hogtie or hamstring somebody who needs to reduce wealth for whatever purpose and cannot do so if they have an old power of attorney document.
So those are the big ones. Then a lot of other, minor changes, mostly the procedures and how they must be executed. They all must be notarized or witnessed by two witnesses. Some of the older ones are never notarized or witnessed. So those are some big ones. But suffice it to say that a lot of the older power of attorney documents that are out there, or a lot of them that are generic and come from a national source such as LegalZoom, don’t deal specifically with the state of Washington’s law. So it’s very risky to run around with those types of power of attorney documents.
Jason: That brings up a good question, though. How often should people be getting these documents reviewed and updated?
John: Our recommendation to clients is if they have a major change in their life, such as you had four children that you wanted to give away your wealth to but one of them has passed away … That would be a major change, and you need to change your documents. If you had certain persons listed as your agents for power of attorney or as a personal representative in a will, and now you’re not friends with them anymore, or you want to change it around because your child moved to Europe and they’re not going to be able to do it. Those are major changes that you should always go to your attorney and talk with them about making the updates.
If none of those major changes occur, then you would want to at least every five years or so reach out to your attorney. When we have a major change in the law that would affect our clients, we actually would write a letter or send emails out to our clients who it would affect. So we would notify clients when a major change in the law occurs. But yes, there are certain things you want to look at to consider for somebody updating their documents.
Jason: Folks, if you’re just joining us, you’re listening to episode 139. We’re talking about estate planning documents, the documents you need to make sure that you’ve prepared, so that you can have the greatest amount of confidence that people aren’t going to be put into a bad position as a result of your changing health or your death. You want to be proactive with this. You want to make sure you get it done ahead of time. I have John Kenney as my guest. He’s an attorney here in the state of Washington, does a lot of this type of estate planning for folks.
John, I wanted to ask you, because oftentimes I think when people are doing those power of attorney documents they think of their adult children as the most natural fit for having those documents done … But there’s a lot of people that we serve that have no adult children, or those relationships are broken. Who should people be naming for these power of attorney responsibilities if the kids, the adult children, aren’t a good fit?
John: That’s a great question, Jason, and I see that quite often. The recommendation I make is to have the clients reflect upon whether they have a sibling who is capable and organized and can help them do it, whether they have a good friend or other person in their life, whether it’s someone from church or that they trust to be able to help them with this. And then the last resort would be a professional fiduciary company. There are professionals that do this, whether it’s a bank, or a trust department of a bank, or even professional private individuals like … I know some private companies that do this. They’re sort of the last resort because they, as you would expect, they charge a fee, and they sometimes can charge a pretty high fee. So ideally it would be someone who knows you personally, that you’d be able to ask and be able to assign that [inaudible 00:16:40] these roles.
The other thing too is to make sure you … I always encourage clients to have at least a two-deep roster, so to speak, so there’s a backup plan in case the person they chose as the first option is not around or doesn’t want to do it. I see that happen a lot, particularly with clients who have older people involved in their roles. Because people get old, people pass away, and it’s good to have backup plans.
Jason: That’s good. So the other piece there is the power of attorney for healthcare. Now, why have two separate powers of attorney? Can’t you just accomplish both of these with one document, or is it necessary to have one for healthcare and one for financial?
John: That’s another good question. It used to be, in the old days, that it was attempted to be accomplished with one document. Ever since the early 2000s, however, with the advent of the HIPAA rules, it’s become pretty standard now to separate these documents for a number of reasons, primarily related to a whole new set of laws associated with healthcare privacy and security, that have to be dealt with separately in a healthcare power of attorney.
Another big reason, and I think this is a more practical reason, is sometimes the people that you choose to make your financial and legal decisions for you may be very good at doing that and very sound mind and maybe even an accountant or an attorney that know how to do that sort of thing. But then you may want something with entirely different skillsets and capabilities and sensitivities to make the healthcare decisions, such as your son who’s a doctor or a nurse, or even a good family friend who has a healthcare background, or even just someone who’s very closely and intimately familiar with what your personal healthcare decisions or even the end-of-life decisions would be.
But yeah, the two big reasons are the advent of the HIPAA law and other associated court cases, and then the fact that you may want to have separate people doing the separate roles for legal and healthcare.
Jason: Okay. Folks, if you’re just tuning us, you’re listening to episode 139 … or just tuning in, I should say. Episode 139. We’re talking about estate planning. You can find these programs archived online at soundretirementplanning.com.
I want to thank all of you that have signed up for the Retirement Budget Calculator, retirementbudgetcalculator.com. Remember, retirement is a spending exercise. It’s how much can you spend before you die. What we found was there wasn’t a really good tool out there that really helped people account for what they’re spending today, as well as those inflation adjusted dollars. So we developed the Retirement Budget Calculator. If you are a listener of ours and you use the coupon code … Either as a podcast listener use the coupon code “podcast”, or if you’re listening as a radio listener use the coupon code “radio”. You can get 50% off the price of the Retirement Budget Calculator. You’ll find a link to that at Sound Retirement Planning.
John, I wanted to switch over here to talking about the right to die or living will, and also if you will talk for a moment about the POLST form. I know that that one’s been brought up in the past as well.
John: Sure. Those are great questions. In Washington state, we do have an act called Death with Dignity Act, and it is a state law that permits someone to make a choice, when they are terminally ill, to end their life. Unfortunately … I guess it’s fortunate that we have the law, because a lot of people don’t want to prolong their suffering, but the unfortunate side of this law is it’s very complicated. When I say it’s complicated … For example, the requirements are that you have to go and have a terminal diagnosis that, I think it’s within six months you’re going to pass, and that you then have to have a consulting doctor advise you. Then you have to wait a certain period of time and then come back. So the process isn’t always the easiest.
What I’ve found with my clients, who are terminally ill, is that they actually can pass away faster by going through the hospice process and using pain management and medications, than they can by going through the actual procedural process that the Death with Dignity Act requires. So I’ve never actually had any clients go through that. But it is a right in our state now, in Washington, to pass away if you want to.
The other thing you mentioned is the POLST forms. As I mention to clients, we create legal documents, and our legal documents are the ones that are authorized by state law, state statutes, here in Washington. But the medical community has their own document, which is created here in Washington, and in fact it’s been adopted by may states, by the state’s medical society, which is the certifying body and licensing body for physicians here in our state. It’s called a POLST form. POLST is an acronym for Physician’s Order on Life Sustaining Treatment.
I actually recommend this now, having gone through this with my own mother a few years ago, that every client in addition to legal documents goes and sits down with their medical doctor to go through this form and get educated. Because it’s a very informative and educational process that they’re … They’re required to go through a counseling with their doctor, and then the doctor helps them fill out the form. And it’s actually a doctor’s order, so it’s different than the legal document. It goes in their medical chart, and it kind of follows them around as they’re going to visits, and appointments, and inpatient surgeries, and whatever. And it actually goes through a lot of the very, very technical medical details that occur when someone’s at the end of their life. Such as whether you want to keep treating infections or not, or how many times do you want to try to treat infections before you give up, and if you want feeding, what kind of feeding, and how do you want it administered to you, and for how long.
So there’s a lot of very good things that the legislature, not being doctors, couldn’t get into the legal statute, but are filled in … The details are filled in nicely with a POLST form. So it’s something I strongly recommend. So you-
Jason: In addition to the living will?
John: In addition to the living will and a healthcare power of attorney. It can only help support those documents, and so I think it’s very important for clients to have that also.
Jason: All right. If you could just briefly touch on … We only have about a minute, but briefly touch on the revocable living trust.
John: As I mentioned earlier, revocable living trust is another common type of structure that people use to do their end-of-life planning and incapacity planning. It’s like a corporation. It has a separate life of its own. It’s legally recognized separately. The primary benefit of having a revocable living trust is it can avoid a probate. Probate can be expensive and time consuming, but generally if a probate’s done correctly and if you have a good will, it’s not that time consuming and expensive. But the most common scenario I see doing a revocable trust with is if someone wants to avoid probate and if they have real estate in multiple states.
A couple just left my office an hour ago. They have a property in Alaska, California, and Washington. If they were to pass with basic wills, they would have to do a probate in each of those three states, and California’s a nightmare. So doing a revocable living trust will avoid a probate and any state, so zero states probate. So it’s important.
Jason: Yeah. John, thanks so much for being a guest on Sound Retirement Radio.
John: You’re welcome. Glad to be here, Jason.
Jason: All right, thanks. Take care.
Announcer: Information and opinions expressed here are believed to be accurate and complete for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance-related discussions are subject to the claims-paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent, fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046, or visit us online at soundretirementplanning.com.