“Do I need a trust or just a will?” might be the single most common estate planning question there is, and estate attorney Tim Semro says most people are asking it backwards. The real question isn’t trust versus will, it’s how do you avoid probate, and a trust is just one of several ways to get there. Tim returns to answer a full mailbag of real Stacker questions, covering everything from a $200,000 mistake buried in a lady bird deed to the exact reason so many families accidentally disqualify a parent from Medicaid.
What You’ll Walk Away With
- Why “trust versus will” is the wrong question, and the three-column framework that actually determines what you need
- What a lady bird deed is, when it makes sense, and the family conflict it can quietly set up down the road
- The tax detail buried in gifting property early that can cost your heirs tens of thousands of dollars they didn’t expect
- Why naming a power of attorney without having an honest conversation first is one of the most common and costly mistakes families make
- The five-year Medicaid look-back rule explained clearly, including what happens if you don’t quite make it to five years
- How debt actually works after someone dies, including a real statute of limitations window most people don’t know exists
- A special needs trust structuring tip that can protect a family member’s government benefits without giving up their inheritance
Why This Matters Now
Estate planning tends to get pushed to “someday” because it feels complicated, uncomfortable, or like it only matters once you’re wealthy. But the actual decisions, who has power of attorney, how property transfers, what happens if a parent needs long-term care, apply to nearly every family, regardless of net worth. Getting the structure right isn’t about predicting the future perfectly. It’s about making sure the people you love aren’t left guessing, fighting, or losing money to easily avoidable mistakes during an already difficult time.
From the Basement
A birthday trivia detour into the surprising origin of the Nobel Prize reveals it was born from a very specific kind of reputation crisis, proof that it’s never too late to actively shape how you’ll be remembered.
Resources Mentioned
Stacking Benjamins Field Kit — the all-in-one financial organization tool
Your Money, Your Way by Tim Semro — Tim’s book on estate planning, free to download
Semro Henry Ltd. — Tim’s estate planning law firm
Our Mentor: Tim Semro
Big thanks to Tim Semro for joining us today. To learn more about Tim, visit Semro Henry Ltd. | Toledo, Ohio Attorneys. Grab yourself a copy of the book Your Money, Your Way: Keep the Most, Give the Most, and Enjoy True Peace of Mind
Doug’s Trivia
- What did Alfred Nobel create that completely changed the way the world remembers him today?
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Other Mentions
- Field Kit Finance
- Welcome to the CoastFI Couple Podcast Website | CoastFI Couple Podcast – Leading Podcast where love meets financial independence
Join Us Friday!
Tune in on Friday when we head back to Mom’s basement for a roundtable on kids and money, including the questions we should be asking young people, the lessons that actually stick, and how the rest of us can keep getting smarter about money no matter how old we are.
Written by: Kevin Bailey
Miss our last show? Listen here: The Four Psychological Tricks That Get You to Sign Anything (SB1885)
Episode transcript
[00:00:00] opener: I, Max release Snavely, being of sound mind and body, do hereby bequeath the following. To my wife Rose, who spent money like there was no tomorrow, I leave $100 and a calendar. To my sons, Rodney and Victor, who spent every dime I ever gave them on fancy cars and fast women, I leave $50 in dimes. And to my other friends and relatives who also never learned the value of a dollar, I leave a dollar
[00:00:40] Doug: From Joe’s mom’s basement, it’s The Stacking Benjamins Show
[00:00:54] Doug: I’m Joe’s mom’s neighbor, Doug, and on today’s show, we’re featuring your questions about estate planning. From wills to trusts and power of attorney to deeds, we’re covering as much as we can cram in with attorney Tim Semrau. But that’s not all. While we help you protect your legacy, we’ll share some trivia about a man who really tried to change his.
[00:01:16] Doug: And now, three guys who are all here without a contract, but one of them could probably help us do something about that. It’s Joe, OG, and Tim Semrau. That didn’t sound right
[00:01:33] Joe: Hey there. That was close, Doug. Hey, everybody. Happy Wednesday. We’re super happy that you’re here, and you know when you go back every year and you look at, uh, some of our longtime Stackers’ favorite shows, this is another one. We had our Len Penzo sandwich survey on just recently and followed up with our friend in Toledo, Ohio.
[00:01:53] Joe: How often do you get to say that? Tim Semrose back. How are you, man?
[00:01:57] Tim: Oh, I’m doing great. Just, uh, got back from Northern Ireland from a little golf trip and ready to get back at some estate planning.
[00:02:05] Joe: OG, uh, did you get back from Ireland, too? Were you on that trip?
[00:02:09] OG: Nope, I’ve never been to Africa, but, uh, someday.
[00:02:14] OG: I’m looking forward to it.
[00:02:15] Joe: Perfect. And by the way, I know that as we record this, you just had, uh, first day of school happening.
[00:02:22] OG: Mm-hmm. First and last day for one, and, um, you know, 10 more first days for the other. But, uh, we’re checking them off one at a time. I told the middle one, I said, “Hey, uh, you know, congratulations,” you know, “on making it to your first day of your senior year,” ’cause there was…
[00:02:38] OG: We had some doubts. So this is- … this is pretty awesome. This is quite an accomplishment. Um, ’cause early on it was touch and go there for a while.
[00:02:49] Joe: Well, I have to say, just as a member of the OG family, Doug and I had three to one that the second one might not make it this far.
[00:02:57] OG: Yeah, okay. So cha-ching. That didn’t pay, sadly.
[00:03:02] OG: That-
[00:03:02] Joe: It did not pay …
[00:03:03] OG: that opposite bet.
[00:03:04] Joe: We’re both a little bummed. But good news is Mom had your back, so we gotta give her the money. So- That’s right … that, that’s good stuff. Hey, we asked all of you in Mom’s basement for questions for Tim, as we do every year, and, uh, Tim, you’ve looked at these, and we got some dandies, man.
[00:03:20] Tim: Yeah, they did a nice job. The wheels were turning here because, uh, some of these questions are the things we run into all the time. People ask us these questions and, yeah, I’m excited to get through these
[00:03:31] Joe: Before we start, for people that haven’t heard you the last couple years that you’ve been on, tell everybody about your practice and exactly what you help people do.
[00:03:38] Tim: Yeah. So I do estate planning and that, you know, that covers a huge array of things from wills, trusts, powers of attorney, healthcare powers, and, and all the things that go along with that and, and the, the planning involved and how do we protect the next generation? How do we do the transfer of wealth if there’s tax issues to discuss?
[00:03:57] Tim: All the things that people worry about, but they don’t really wanna ask the questions. They’re afraid to ask usually.
[00:04:03] Joe: That is why I love this episode ’cause I feel like, Tim, it’s the same stuff people think about all the time, but they’re always afraid to, afraid to put out there. So some pretty brave Stackers out there have done the heavy lifting for you today, everyone.
[00:04:15] Joe: So grab a piece of paper, whatever you use to take notes, because Tim, OG, Doug and I, we’re gonna dive into these, and Doug’s trivia today. He’s got a great one talking about legacy. Doug, you got some great trivia teed up?
[00:04:29] Doug: I do. I do. Yep. Yep.
[00:04:32] Joe: It’s good. I knew it. Wait.
[00:04:33] Doug: Pretty, probably gonna be good.
[00:04:34] Joe: We do have a couple sponsors who make sure we can keep on keeping on and bring this to you for the big cost of zero.
[00:04:43] Joe: So we’re gonna hear from a couple of them, and then we’re going to dive into your estate planning questions
[00:04:56] Joe: I love the number of, uh, creators who also ask questions who are also stackers with us. I’m gonna start with maybe, uh, Tim, what I think is the most basic question here. This one comes from our friend, uh, Matthew Tarr. Matthew’s been on the show. He’s also the co-host of the Coast Fi Couple podcast, as well as being a frequent contributor to the fun here at Mom’s Basement.
[00:05:22] Joe: Matthew says, “I’m still fuzzy on what criteria makes having a trust a must versus just a will.” I think, Tim, this is probably the most basic question I- I’ve gotten at my entire career. So if I get it, and I’m only tangentially involved, this is the question you probably get at dinner parties all the time
[00:05:43] Tim: Yeah, you know, we do.
[00:05:44] Tim: And the question is kind of misguided because it’s not really about a trust or a will, it’s about avoiding probate. So when we do a will plan, even if we’re not using a trust, the number one thing is let’s avoid probate. And ironically, you don’t use a will to avoid probate. So if you think about this, what I usually do is I’ll draw out for clients, and I’ve been doing this my whole career, three columns, okay?
[00:06:06] Tim: The left column will say probate, the middle column says contract, and the right column says operation of law. So if you kind of draw that out and you say, okay, probate is the stuff that you own that is no co-owner, no beneficiary, sometimes, uh, a payment that’ll come in after d- that’s like a refund, a tax refund or something.
[00:06:26] Tim: That’s what a probate asset is, so something that doesn’t go anywhere. Contracts are things like, um, if you have a beneficiary on a life insurance policy, for example, uh, or if you have a TOD account, uh, where you have a transfer on death designation on a bank account, or let’s say you have a beneficiary on your IRA.
[00:06:44] Tim: Those are all contracts, and contract law is gonna govern that, not probate law. So in other words, like with a life insurance policy, you promise the– or you, you pay the, the premium and the company promises to pay your beneficiary if you die. And if they don’t do that, we’re gonna sue them in contract court.
[00:07:00] Tim: We’re not gonna sue them in probate court. The other one is operation of law, and that’s like joint tenancy with right of survivorship, uh, sometimes a lady bird deed or a, or a transfer on death deed or enhanced transfer on death deed, life estates, things like that, that by operation of law, they just occur upon the death, okay?
[00:07:18] Tim: So if you think about those three columns, I want people to not be in the probate column because that involves the court and that involves actually if you die with a will or if you die without a will, you’re gonna be in probate with those assets. If you die without a will, then it’s intestate and you have a statute that takes care of that.
[00:07:36] Tim: I want to get people in the contract column because that happens automatically without any probate, uh, avoidance, uh, or probate issues. Operation of law sounds good, but if I have a joint with rights of survivorship and both spouses die, let’s say it was mom and dad owned the house together, we’re back over in probate because now we don’t have a beneficiary.
[00:07:54] Tim: So what I’d rather do is get people into that contract area. One of the contracts is a trust. So when you think about it, avoiding probate is our main goal. A trust is just one of the things that’s gonna avoid probate. It’s not the only thing. So when you say, “Well, do I need a trust or do I need a will?” It kind of depends on what you’re gonna do.
[00:08:14] Tim: So the will is always our backup plan. It’s gonna say, if we didn’t get it on to the middle column with the contract, whether it’s a trust or not That will catch it and say, “Here’s where I want it to go.” Uh, there are certain things, by the way, that you can only do in a will, and that’s like name your, um, guardian of your children.
[00:08:31] Tim: So if you have minor children, we have to do that in a will. But other than that, it’s not really a question of do I want a trust or not, it’s let’s get out of probate, and then what’s the best way to get out of probate? Is it to use a trust or is it to use, uh, one of these contract beneficiary designations?
[00:08:46] Tim: So here’s when we use a trust. We’ll use a trust when we need some kind of enhanced protection like asset protection, bankruptcy, lawsuit, divorce protection. The way I usually describe it is I say, “Look, look at this. Let’s, let’s say you have three kids, and we’re sitting at the table after you pass away, and I got three stacks of cash, and I just push the stacks of cash across the table to them.
[00:09:07] Tim: They put it in their pocket and they walk away.” That’s kind of how a beneficiary designation would work. A trust, though, instead I’m gonna hand them each a checkbook and say, “Here’s your checkbook. You’re now in control of your trust.” And by the way, if you have a lawsuit, if you’re going through a divorce, if you have a bankruptcy, they can’t touch that because you can legally say, “I don’t own this.
[00:09:27] Tim: I just have this checkbook.” So that’s the, the big, uh, protection there. The other one is while you’re alive. So while you’re alive, a trust can protect you if you have some illness that knocks you out for a couple of weeks, uh, an injury. You know, that’s what people are always worried. What if I’m, what if I’m out of it for six weeks?
[00:09:43] Tim: Who’s gonna pay the bills? Well, a trust can take care of that sort of thing. Cognitive decline, if you run into dementia, things like that, the trust can help you while you’re alive. Uh, and then the last thing, and this is a big one, but it doesn’t affect many people, is the tax side. So the estate tax exemption’s pretty high right now, so you really have to have $15 million or more for that to be in effect.
[00:10:05] Tim: There is estate tax planning we can do in trust. There’s also income tax planning we can do in trust that can be powerful.
[00:10:11] Joe: Income tax, income tax to the beneficiaries?
[00:10:14] Tim: Income tax to, yeah, to the beneficiaries, and that has to do with step-up in basis, and I’m- Yeah … I think we’re gonna touch base on that in some other questions.
[00:10:20] Joe: Yeah.
[00:10:21] Tim: And then the other one is special needs planning. So if you have a child or a beneficiary, you know, a niece or a nephew or grandchild who has special needs, what I mean by that is they might be on government benefits. Well, if you inherit money when you’re on government benefits, needs-based benefits, Social Security Disability and things like that, you’re gonna get kicked off of those benefits because you inherited money.
[00:10:42] Tim: So what the trust can do is, is change the nature of it and say, okay, the trust can pay for anything outside of what the government will pay for, and therefore you don’t get kicked off of the government benefits. You can get the best of both worlds and have, uh, the benefit of the, uh, inheritance without having to spend it.
[00:10:59] Tim: So all of those things are in the trust area. But if we’re just looking at avoiding probate, we can do that with just beneficiary designation. So it’s really how do we avoid probate? That’s the question.
[00:11:08] Joe: Yeah, that’s what I was wondering is, so what I think I hear you, you saying, Tim, is we don’t start with trust versus will.
[00:11:16] Joe: We take those three columns and we see where our assets are currently lined up. Like if, if all my assets have beneficiaries and the ability to have beneficiaries and I’ve taken care of that, then the piece the trust can still do is some of these other, like bankruptcy protections, those types of things.
[00:11:34] Joe: Right. But in terms of transfer of assets, it could be taken care of.
[00:11:39] Tim: Yeah, so if you think about it, if somebody says to me … ‘Cause what also annoys me is when attorneys are … I’ll hear people say, “Well, you have to have X amount of dollars to have a trust.” Well, you could have a $10 million estate and say, “I want to…”
[00:11:50] Tim: And it’s all in just one brokerage account, “And I want to leave it all to charity when I die.” Well, then just put a beneficiary on it. Boom. You don’t need a trust for that, you know? Yeah. Uh, especially if you don’t want to direct how they spend it or anything. You just want to leave it to the charity. On the other hand, if you have, say, $500,000 and you have a child who has, uh, special needs- You might need a trust to make sure that they’re taken care of the way that you would take care of them.
[00:12:13] Tim: The, the instructions are there on how to take care of them. We don’t kick them off their government benefits. So it really has nothing to do with the amount of money you have. It’s what is the issue, what are you trying to achieve? Yeah, what are your goals? What is- Yeah …
[00:12:24] Joe: what is the goal? Matthew’s question goes on, because you mentioned some things our stackers might not be familiar with, and he tackles one right away.
[00:12:32] Joe: He said, “I understand this may be state specific. Florida has a lady bird deed to simplify real estate transfers.” I’ve heard the term lady bird deed. A lot of our stackers have. A lot of people have no idea what this thing is. What is … Because we had maybe three people ask the same question. What the hell is a lady bird deed?
[00:12:50] Tim: Yeah. So a lady bird deed, um, or some states will have it statutorily, they’ll call it a transfer on death deed or a transfer on death affidavit. But a lady bird deed, in effect, kind of works like a life estate, which basically says, like, “I own this during my life. Upon my death, it passes to a remainder person.”
[00:13:07] Tim: But the difference is in the lady bird deed is you, uh, i- in a true life estate, if you own the remainder interest and I want to sell the property, I’ve got to get your permission, ’cause you own that remainder interest. But in a lady bird deed, uh, the way that works is you have, uh, the ability to change it.
[00:13:23] Tim: It’s revocable and changeable. But the idea is we’re avoiding probate once again. So it is a convenient, a simple way to, to transfer property. Where we run into issues is sometimes they’ll put … You know, mom will put the two kids down on the lady bird deed or on the transfer on death deed, and they’ll, uh, the kids’ll inherit it, but at the time they inherit it, one of them’s going through a divorce or a bankruptcy or a lawsuit.
[00:13:46] Tim: Now we’ve got problems. Or the two kids don’t agree on what we’re gonna do with the, you know, the family cottage, and they, they don’t wanna sell. One of them wants to sell it and one of them doesn’t. Now they’re in court. Where if we used a trust in that instance, you could define all those terms out. You could put who’s in charge, if it could be sold, you know, all of that stuff in there.
[00:14:05] Tim: So there are times when we use it, when it’s simple, if you have one beneficiary and we’re not worried about that creditor protection piece. But we don’t necessarily need to use a, a trust, d- depending on the situation.
[00:14:16] OG: Tim, how do you deal with the tax issue or potential tax issue, or is there a tax issue with this?
[00:14:22] Tim: Yeah, so here’s the tax issue. So if you think about this, this has to do with step-up in basis. So- Yeah,
[00:14:27] OG: this is what I was
[00:14:27] Tim: thinking about … if you buy a share of stock at a dollar and you sell it at $10, you know, you have a $9 capital gain that you’re gonna pay taxes on. The same thing works- I, I
[00:14:35] Joe: was gonna say that I love Tim’s returns.
[00:14:36] Joe: Go
[00:14:37] OG: on.
[00:14:37] Tim: Yeah. Tell me
[00:14:38] OG: more.
[00:14:39] Tim: The, the same thing works with, with a piece of property. You know, Mom and Dad bought this property back in the, you know, 1970s, and they’ve held it all these years. For them, it’s a personal residence, so there’s an exemption for that. If the kids inherit it, you go, “Oh my goodness, they’re gonna have to pay this tax on this huge gain.”
[00:14:54] Tim: But what we have in our, our law is the, what we call a step-up in basis that says if you die holding that property, then the value of the … The fair market value of that property becomes the new basis. So if it’s worth $10, that is the new basis, and if the kids sell it, they pay no tax on the gain. This is important though because sometimes when we do planning or, or people will be worried about, well, what if Mom goes into a nursing home?
[00:15:18] Tim: Maybe we should give away the property ahead of time. If you gift the property to somebody, they get what’s called carryover basis, which means they get your basis. There’s no step-up when you die. Wow. Or if you put it into an irrevocable trust, you get the … You don’t get a step-up in basis when you die, and, and here’s the, the reason.
[00:15:35] Tim: When you die, your assets go through the estate tax system. Now, most people say, “Well, I don’t have $15 million. That doesn’t matter.” But you still went through the system even if you were under the 15 million. And so-
[00:15:46] Joe: Just to check the box that you didn’t do it …
[00:15:48] Tim: right. And so you get a step-up in income tax basis, which is the other tax system.
[00:15:52] Tim: There’s the estate tax and the income tax. You get a step-up in income tax basis because you went through the estate tax system Well, if it’s a gift, it never went through that system. If it’s an irrevocable trust that we put it into, it never went through that, that system. So that’s why we don’t get the step-up in basis.
[00:16:08] Tim: But your question is, well, so if I use a trust or if I use a transfer on death or a lady bird, you get a step-up in basis in any of those. If it’s a revocable living trust, meaning it counts as yours when you die, as opposed to an irrevocable trust, which may not count as yours, uh, when you die, you do get that step-up in basis either way.
[00:16:26] Tim: So it’s not really a… The, the tax question sometimes gets confused with the transfer question.
[00:16:31] Joe: So the lady bird deed, you do get the step-up in basis?
[00:16:33] Tim: You do get the step-up in basis. Okay. But I think one of your questions that one of the, um, stackers asked was, well, what if there’s a mortgage on the property?
[00:16:40] Tim: How does that work? So let’s talk about that for a second. Well, remember the mortgage is a security interest in the property that says if the loan isn’t paid, then they can take over the property. Well, if that property transfers, it’ll transfer under a lady bird deed to the new owner, but now the mortgage, there’s a clause in that mortgage that says if the owner changes, the, we foreclose on the mortgage.
[00:17:03] Tim: So normally what’ll happen is the bank will say you gotta refinance that mortgage. Now, interestingly enough, when interest rates are going down, the banks don’t tend to actually make you refinance that mortgage. But when interest rates are going up like they have been lately, guess what?
[00:17:19] Joe: Oh.
[00:17:19] OG: That letter comes a little faster in the mail.
[00:17:21] OG: Yes, it does. There’s a little bit more due diligence on- On that. And they would notice this, right? Like, like the banks- Are you saying banks are
[00:17:27] Joe: like gas stations? Yeah. The price goes up quick, but comes down slowly. Exactly.
[00:17:31] OG: And with technology, if you could say AI, whatever, i- this is fairly inescapable.
[00:17:37] OG: Like, I mean, they’re gonna see… The bank will see that, you know, 1234 Anywhere Street just transferred ownership from Don and Susan to Bill and Tammy, and they’ll go, “Whoa, what the heck?” Now, first of all, probably won’t even happen, right? Like, you probably can’t even transfer it with the security interest.
[00:17:55] Tim: Right. W- if the security interest is filed, the title company, if it’s a title company transfer where they’re getting title insurance, they will make sure that the liens are taken care of- Yeah … and they’re gonna notify, yeah, the, them about that. Yeah, they’re
[00:18:07] OG: gonna tell the bank, so.
[00:18:07] Tim: Yep. Yeah.
[00:18:08] OG: So the question then is what happens to the mortgage?
[00:18:10] OG: You’ll have some amount of time, right? The bank will say, “Hey, you’ve got X number of days, you know, 30 days, 60 days, 90 days to, to figure out what you wanna do with this. Otherwise, we’ll just go through our normal foreclosure proceedings.”
[00:18:23] Tim: Yeah, they’ll either let… Yeah, they’ll either say you can refinance with them, or you can go get another bank to refinance it.
[00:18:29] Tim: Sometimes banks make stupid decisions just because it makes them feel good. So we had one case where the, um, kids inherited the property, and they all had, they had enough money to keep paying on the mortgage, but they didn’t have jobs, but they had inherited all this life insurance. And so the bank said, “Well, you don’t qualify for a mortgage.”
[00:18:47] Tim: Um, so they were gonna foreclose, and it actually took them almost 18 months to foreclose on that, and the kids just lived there for free in the meantime. And of course, the bank paid the, the water and the electric ’cause they didn’t want the pipes to freeze and stuff like that, so they took over those pay- So these kids lived there completely for free, and then finally got kicked out.
[00:19:04] OG: Wow. What do they call that on Reddit? Like, uh, malicious compliance. It was like- Yeah … “I was gonna pay you, but now you’re gonna mess with me, so I’m gonna mess with you back and just…” Okay.
[00:19:12] Tim: Well, and the funny part was at the very end, you know, they didn’t want the kids to trash the house, so they offered what was called cash for keys, and they gave them 500 bucks to walk away from the house nicely.
[00:19:22] OG: We do that every two weeks with Doug. We’re like- But it’s not cash.
[00:19:25] Tim: Yeah. It’s just,
[00:19:25] OG: it’s muffins.
[00:19:27] Tim: Yeah.
[00:19:27] OG: It’s like, “Hey, if you just leave this place somewhat decent shape, you can have a muffin.”
[00:19:33] Joe: It’s the blueberry ones, Tim, by the way. The blueberry ones are the ones that get Doug.
[00:19:37] Tim: But it, it irked me because they could have paid the mortgage so that bank didn’t have to foreclose.
[00:19:42] Tim: And then when they did foreclose and they put it up for auction, they didn’t get anywhere near what they could have just- And what was the
[00:19:46] OG: ticker symbol of this bank again?
[00:19:48] Tim: Right.
[00:19:49] Joe: You short that one.
[00:19:50] Tim: Every, every once in a while do you see these things happen
[00:19:53] Joe: While we’re on the topic of property, Michelle, Stacker Michelle, has a question that has to do with property, but also has to do with really everything.
[00:20:03] Joe: As we see, Tim, kids are finding jobs across the United States. I know I have a son who’s in Detroit. I’m in Texas. My daughter’s in Boston, right? We see this more and more often. B- the family isn’t all together like they were even 20, 30 years ago. Michelle asks, “What state laws do we use? My mom owns a house in Texas.
[00:20:24] Joe: I’m her power of attorney. I’m in Oklahoma, but she’s in an assisted living facility right now in Illinois. So if she dies in Illinois, do we go by Illinois law? Is it because of the house in Texas? Is it if Michelle’s in charge? She’s in Oklahoma. Who wins?”
[00:20:42] Tim: Yeah, this is a tough one because this has to do with, uh, your domicile and, you know, which state is gonna count you as being their, their resident and their domicile.
[00:20:52] Tim: And so the, the official definition is something to, uh, each state is different, but it’s something along the lines of your true, fixed, permanent home and the place that you intend to in- return to when you’re away. So that’s the key. So the question is, she’s away from her house in Texas, but she’s in an assisted living.
[00:21:09] Tim: Does she ever intend to return? And it gets more difficult when you have a situation where there’s cognitive decline. So if she has dementia, does she really know where she’s at and where she intends to return? But here’s the key. Texas, if I understand right, doesn’t have an income tax, right? Illinois has an income tax and an estate tax, and so Illinois is very aggressively going to say, “Oh yeah, she’s an Illinois resident.”
[00:21:33] Tim: And Texas is like, “We don’t really care. We don’t have a tax either way.” So you really would have to go to extremes to show that she still is a Texas resident and not an Illinois resident. And, and the problem is the things they’re gonna look at is, well, where does she get her mail? Where does she vote?
[00:21:49] Tim: Where does she have her driver’s license, you know, other, other registrations, car registrations? Well, if she’s in assisted living, she might not have any of that stuff anymore, so I think it’s gonna be very difficult. You could say, “Well, where are my accounts titled?” Well, so many banks are in every single state now, so who knows if it’s, you know, d- if that even would work.
[00:22:07] Tim: So it’s especially difficult when you’re in a taxable state as opposed to a non-tax state. But unfortunately, I think in that case you’re gonna end up with Illinois law, unless you can somehow prove otherwise, which I think would be difficult to do.
[00:22:21] Joe: Boy, I’m just thinking of the hoops that you described that she would have to go through to prove.
[00:22:27] Tim: And it’s significant when you look at the income tax and estate tax now. So the other thing is does that matter, though, because, yeah, there is an estate tax and an income tax in Illinois, but would she be subject to that? We’d have to look at her assets and her income and, you know, maybe it’s not as big of a deal as we think, but it could be if these, uh, numbers are, are high enough.
[00:22:46] Joe: M- Michelle mentioned being a power of attorney. Let’s go to Gretchen’s question, ’cause it deals with that. “What are the key factors that are easy to trip on when serving as someone’s power of attorney or healthcare proxy?” OG, you and I just had this, remember. We, we, we just tackled a headline about this.
[00:23:00] Joe: Somebody was given power of attorney, Tim, and, uh, immediately stole a million dollars from Dad, immediately.
[00:23:06] OG: I have such a funny story about this.
[00:23:08] Joe: Oh, boy.
[00:23:09] OG: So before Tim tells his story, or gives his advice I should say- … I’ll tell the story. So when I was younger, before we had kids and before we had been married a long time, you know, gone through this process of trying to decide, and I chose my brother to make the healthcare decisions.
[00:23:25] OG: I just didn’t think Mom was a good candidate for that, a little too close, and I got this new bride, maybe a little too close. So I had my younger brother. Basically, this letter just says, “Hey, if something happens to Josh, you have some role in this, so just let us know and we can kind of walk you through it.”
[00:23:41] OG: So my brother calls me and he says, “Hey, I just got this letter. Like, what, what do I do with this?” And I said, “Well, honestly- you know, I kind of put you in charge of pulling the plug if something happened. I just don’t think that mom should do that or be in charge of that.” And he’s like, “Cool, so, uh, how soon do we do that?”
[00:23:59] Joe: Can we just take care of that now?
[00:24:01] OG: Can we just jump to the end? I’ll just get that knocked out right now. And, uh, Tim knows my brother Justin, and knows that that is fairly on brand.
[00:24:08] Tim: Yes, it is.
[00:24:09] Joe: It’s probably good, Doug, that we’ve never been in charge of that, ’cause we wouldn’t have even asked. We’d have said, “What?”
[00:24:14] OG: Well, you guys are in charge of the smothering with pillow, which is why sometimes I wake up and I’m like, “What are you guys doing?” And you’re like, “Ah, ah, just playing hide and seek,” uh, you know.
[00:24:23] Doug: Practicing. We’re just practicing.
[00:24:25] Joe: Just kidding.
[00:24:25] OG: Just kidding. Kidding. Oh. You have sleep apnea. Wake up. I’m like, “I have sleep apnea ’cause you’re sitting on my chest.”
[00:24:31] Tim: So let’s start with the healthcare part, ’cause that’s a good place to start. Here’s the number one thing that people trip up on is they don’t know what their, their person wants. So you’ll name, you know, the brother, and then you won’t have that conversation with your brother. And if you didn’t, how do they know what you wanted?
[00:24:45] Tim: And remember, this isn’t just pull the plug stuff. This also covers healthcare decisions when you’re unable to make a healthcare decision. So, you know, your pattern of care, uh, if, especially if you have a, a major health issue or terminal disease, what is the, the, the steps that you want taken along the way with your care?
[00:25:03] Tim: And if you’re unable to make a decision on that, this person is, is fully in charge of doing that. And if they have no idea, then they’re using their own idea or their own thoughts on what they would do for themselves, and that may not match up to you. So I think too many times people don’t have that conversation, or they feel kind of uncomfortable about the whole healthcare power thing, so they don’t even tell the person that they’ve named them, and it’s a big surprise.
[00:25:26] Tim: And that could be bad, because they could step off and say, “Hey, I’m, I’m just not going to make any decision. Who’s the next in line?” And there might not be a next in line.
[00:25:34] Joe: I was at a dinner party the other night, Tim, and I heard a story that over 30 years of being involved with this stuff I have never heard before, which was because the spouse did not have a healthcare proxy, they wouldn’t tell the spouse anything about her husband.
[00:25:52] Joe: I’ve never heard that before.
[00:25:54] Tim: Well, so this is the HIPAA Privacy Act. So it’s supposed to protect us from evil drug companies, we always say, but what it ends up doing is stuff like this, where all of a sudden they won’t tell the spouse what the prognosis is and what, you know, what our options are. So you might have decision-making authority, but if you don’t have HIPAA, uh, rights, you don’t even know what’s going on, and then there’s this uncomfortable situation where we don’t have all the information.
[00:26:15] Tim: So, uh, most of the states have the HIPAA stuff right in their healthcare power. Some of them don’t, and we have to attach a, an attachment with a healthcare HIPAA, uh, rights proxy on there, but that’s a situation that’s real. It doesn’t usually happen with spouses, uh, in reality. Usually the, the doctors will talk to them, but if they’re going by the letter of the law, I mean, you don’t have…
[00:26:38] Tim: Uh, but we always tell people, “Look, when the HIPAA is most important is when you have children or non-family members that have been named, because then you will run into the problem.” But it can happen with spouses.
[00:26:50] Joe: So the key to Gretchen’s question was how does one best serve a loved one and f- with healthcare proxy, it’s find out what they wanna do- Yeah
[00:26:57] Joe: find out what they want, and have the document. What about the power of attorney piece that we did a headline on a couple weeks ago, you know, where daughter stole a million dollars from dad?
[00:27:07] Tim: Yeah. So on the healthcare p- or on the financial power, the first thing is you’re probably gonna have to have the original document to, to go to the bank or wherever you’re gonna use this.
[00:27:17] Tim: Nowadays, you can have… Some states will allow remote notary and remote signature, so you might be able to have a printout. But, um, a lot of the states are still, they wanna see a wet signature we call it, so they wanna see that document, so having the document’s important. And the other thing is you are giving them full rights to, to do anything financially that you could do.
[00:27:37] Tim: They do have a fiduciary responsibility to act in your best interest, but as your headline shown, sometimes your, your agent might not do that. The mistake that people will make when naming a- an agent is they go, “Well, here’s the people I have in my family, so I must… That must be the people I have to name,” or they just don’t see the issue of this person has never been good with money and shouldn’t be named as a power of attorney.
[00:28:01] Tim: And, and I put some of the fault on the lawyers because on the other side you’ve got the lawyer saying, “Well, you know, if you don’t have a financial power of attorney, we’d have to get a guardian appointed for you,” and that’s pretty expensive to go through a guardianship procedure. However, the thing the guardianship does is the court’s watching over and accounting for everything, and they can hold somebody accountable.
[00:28:20] Tim: With a power of attorney, they don’t get held accountable until it’s too late and they’ve already spent the money. So they’re very- Yeah … convenient to use, but if you just don’t have a person that’s trustworthy, and that’s sometimes difficult for people to see, you might not wanna name a, a financial power.
[00:28:34] Tim: So we always do healthcare powers. We don’t always sign a financial power, depending on the family situation. But yeah, the fiduciary responsibility is the number one thing. Because the other point I wanted, uh, to talk about is What’s for the best interest of that person, not the estate in general. So sometimes Mom’s getting on in years and, and she’s got a large estate, and they go, “Hey, we should try to get her on Medicaid.
[00:28:58] Tim: We need to gift away everything.” Well, if Mom wants to spend all of her money on healthcare-
[00:29:03] Joe: No …
[00:29:04] Tim: it’s her money. Or if there’s a better option for her in private pay than there is in the government pay, it could be that the best thing to do for her is to spend her money. And so saying, “Well, no, she wanted to give it away and qualify for Medicaid,” may or may not be what she wanted to do.
[00:29:21] Tim: So again, that’s where you have to be careful on who you pick, and remember, you have to act in their best interest.
[00:29:27] Joe: This gets so uncomfortable sometimes- Yes, it does … watching kids that want to protect the state over protecting Mom. It’s like the dog’s a part of the family until it needs healthcare. And then, well, when I see the cost of the vet, maybe Dog’s not as much a part of the family as I thought.
[00:29:42] Tim: Yeah. No-
[00:29:43] Joe: Maybe- …
[00:29:43] Tim: that’s exactly it …
[00:29:44] Joe: maybe a horrible analogy comparing Mom to the dog, but it is awful to see what some families do. In the second half of today’s discussion, we’re gonna talk about long-term care, we’re gonna talk about disabilities, we’re gonna talk about some mistakes that people make with beneficiaries.
[00:29:59] Joe: We’re gonna do that after, Doug, y- you’re gonna be talking legacy, I think, on today’s trivia question.
[00:30:05] Doug: That’s right, Joe. Hey there, Stackers. I’m Joe’s mom’s neighbor, Doug. You know, it’s never too early to think about protecting your legacy. Someday, after you’re gone, what are people going to remember about you?
[00:30:17] Doug: Were you a good parent? A loyal friend? Do people believe your golf scores? Or in my case, will people just stand around the El Camino saying, “You think he’ll want us to bury him in it?” These are the important questions. The answer’s yes-
[00:30:28] Joe: Which brings- … though, right? It is yes
[00:30:30] Doug: Yeah, but not in the, like, the back bed.
[00:30:32] Doug: Like, put me in the cab. In the ca- okay. Anyway, it brings me to a guy named Alfred, born in Sweden in 1833. Alfred was a brilliant chemist and an inventor who held more than 350 patents during his lifetime. Unfortunately, the invention that made him incredibly wealthy was dynamite. That’s a tough legacy, man.
[00:30:52] Doug: Sure, I mean, you can put inventor on your resume, but eventually somebody in the interview’s gonna ask, “Uh, inventor of what?” And you’re like, “Well, you know that thing Wile E. Coyote always orders from ACME?” Legend has it that Alfred eventually got an unexpected glimpse of how history might remember him when a newspaper mistakenly published his obituary while he was still alive, and apparently the reviews weren’t that great.
[00:31:17] Doug: The obituary portrayed him as a guy who’d gotten rich helping people blow each other up. That’s gotta ruin breakfast. Imagine opening the newspaper expecting to check the weather and discovering a one-star Yelp review of your entire existence. So Alfred decided maybe it was time for a little reputation management, which brings us to today’s trivia question.
[00:31:37] Doug: What did Alfred create that completely changed the way the world remembers him today? I’ll be back right after I make sure Joe’s mom hasn’t already written my obituary.
[00:31:55] Doug: Hey there, Stackers. I’m reputation management expert and guy who still gets scared when he pops open a tube of biscuits, Joe’s mom’s neighbor, Doug. Before… I mean, seriously, it just surprises you every time, doesn’t it? Before the break , we were talking about our mysterious friend Alfred. After making a fortune from explosives, Alfred apparently wasn’t thrilled with the idea that his lasting contribution to humanity might be making it considerably easier to blow stuff up.
[00:32:23] Doug: And you gotta admire a guy willing to make a late career pivot. Most people buy a Corvette, get an earring, and start telling everyone they’re getting into long-distance cycling. Alfred decided to change how history would remember him. When he died in 1896, he left most of his fortune to fund annual awards honoring people whose work had provided the greatest benefit to humankind.
[00:32:46] Doug: And I’d say the plan worked because today, when somebody mentions his last name, you don’t immediately think about dynamite. You think about brilliant scientists, great writers, world-changing discoveries, and peace. So what was Alfred’s last name and what did he create? Alfred Nobel created the Nobel Prizes.
[00:33:06] Doug: See ya.
[00:33:09] Joe: Is this the part, uh, that you go, “And now you know the rest of the story”?
[00:33:14] Doug: It felt like that, didn’t it? It
[00:33:16] Joe: did. That was good. It did. Man, legacy. Change your legacy. People know you for Dynamite, do something else. Speaking of do something else, we’re gonna talk about something nobody really wants to talk about, but we all need to because…
[00:33:32] Joe: OG, what are the statistics now on long-term care and the chances that you may need long-term care?
[00:33:38] OG: The statistics now? I mean, I don’t know that they’ve changed really. It’s fairly consistent. I mean, the average 65-year-old, if you’ve got… If you’re a couple aged 65, probably one of you needs it, and some level of assisted care.
[00:33:53] OG: And I think we think long-term care, we think, you know, nursing home- Right … you know, that sort of thing, which could be the case, or some assisted care, which could be somebody comes to the house every couple of days just to make sure you’re good. You know, helps out with cooking or making sure you take your medicine or something.
[00:34:10] OG: So 50% of people, and the average length of time in which they need that assisted care if you’re gonna get it is, um, is just about two and a half years. So you got a 50/50 shot. I pick you guys.
[00:34:24] Joe: Our friend. This is what true love looks like, Stacker. It’s like
a
[00:34:27] Doug: battle royale between Joe and I and which one’s gonna need it.
[00:34:31] Joe: We’re standing at the doorway trying to shove each other in. Uh, Stacker Paul asks a question about long-term care and long-term care planning, which I think because of those stats is so important. Paul says, “Structuring assets for nursing home or memory care for a parent requiring that. When creating our revocable trust, the attorney briefly touched on irrevocable trust, but I understood it would require post-tax assets, and the tax burden to convert a primarily pre-tax portfolio wasn’t worth the cost.”
[00:35:05] Joe: Let’s just talk in general before we get to Paul’s tax question about long-term care planning and really the extent to which you structure things, Tim, to maybe protect assets
[00:35:19] Tim: Yeah, and that’s a, uh, an interesting area of the law because if you have a certain amount of assets and income, you qualify for government benefits.
[00:35:29] Tim: And sometimes people say, “Well, why, why is it so restrictive and so difficult to get on these government benefits?” And it goes to the way this program is administered. So every state is given an allocation from the federal government for their Medicaid program, and then they look at the amount of people that are applying, and they have to fit that money into that pool.
[00:35:51] Tim: So they have to make their rules more restrictive or less restrictive depending on the state you’re in. So some states will be a lot more restrictive than others. But generally speaking, most states have a certain amount of assets that you’re allowed to hold onto and a certain amount of income that you’re allowed to hold onto, and everything above that– And those are pretty low if you’re single.
[00:36:09] Tim: If you’re married, it’s a little higher. But above that, you have to spend it down, and that spend down has to occur before the government benefits will kick in. And so if you give away– A lot of people say, “Well, let’s just– let’s give away and gift to other people,” like kids or, or whoever. They have a look-back period, and that they’ve extended in to five years on the look-back period, and that’s what makes this the most difficult, is five years is a really long time.
[00:36:34] Tim: And when you’re 80 years old or 85 years old, five years is a really long time. So when do we start doing this gifting and separating you from it? And I think what people don’t understand all the time is you can’t be in control of the assets anymore. So the difficulty for me when I’m advising people on this is a lot of times I’ll see when- Once they separate themselves from their assets and they don’t control it, even if the kids say, “Well, we’ll make sure we take care of, you know, Mom or Dad,” you know, they don’t have control anymore, and they start to give up is how I feel.
[00:37:07] Tim: Is a balance, it’s a delicate balance of, you know, keeping them engaged and in control of their life, but putting them in the best financial situation. Now, there’s all kinds of things around this and, and we can talk about, you know, there’s long-term care insurance that you can buy. There’s trusts you can set up where you can try to make that five-year and get past that five-year look-back.
[00:37:27] Tim: Those are tricky because if you’re four years into that transfer and you need to go into a home, what they do now is they pull that gift that you did four years ago to today and they do a calculation, and they say, “Based on that calculation, you don’t qualify for, you know, this many months,” which could be a huge amount of time.
[00:37:46] Tim: So if that, if those assets are already transferred and spent, we’re in big trouble, which is why we usually use a trust and not just transfer it to the kids. But sometimes that five years can be really hard to make.
[00:37:58] Joe: So if you’re doing it, you move it to the trust, you sit the money there just so everybody doesn’t blow the money before the five-year look-back’s over.
[00:38:06] Tim: Right. And then the other thing, and what this question was about, was, well, what about if the primary asset, which a lot of retirees, their primary asset is their 401, their IRA- Oh, 401,
[00:38:17] Joe: yeah …
[00:38:17] Tim: yeah, the, their retirement plan. Well, you can’t just change the ownership of a retirement plan to a tru- an irrevocable trust.
[00:38:25] Tim: If you do that, that’s a distribution and you pay tax on it. So what’s worse? Are we gonna pay tax at, you know, a high rate of income tax and try to make this five years, or are we gonna hold on to the money and if you don’t, you know, need a lot of long-term care, you don’t have to spend it and the, the kids can inherit it?
[00:38:43] Tim: And so this comes to the crux of the whole thing, is I think people many times, and I’m talking about the children, have an unrealistic idea of the longevity of their parent. So they think, yeah, for sure they’re gonna make five years. They’re gonna make s- you know, 10… They’re gonna be around for 10 years or 15 years.
[00:39:01] Tim: And you look at the health situation and you, you say, “Ooh, I’m not sure.” And so the worst-case scenario is you take all that money out and you pay tax on it now, and then Mom or Dad dies in two years, and you could have just passed it down without paying that income tax and spread it out over a longer period of time.
[00:39:19] Tim: And I’ve seen that happen. I’ve seen it happen with not just retirement plans, but I’ve seen farmers say, “Okay, we’re gonna sell the farmland or we’re gonna transfer it to the kids.” And remember that carryover basis discussion, that you don’t get a step-up in basis if you gift it to the kids. So we could be setting ourselves up for a huge income tax or paying a huge income tax if we’re taking it out of the IRA in a situation where they’re really not gonna make it the five years.
[00:39:44] Tim: Very difficult, uh, discussions.
[00:39:46] OG: I’m fascinated by this too, because I think in some cases this turns into, what did you say before? Managing the estate instead of managing for the, the benefit- Yeah … of mom or dad. And it’s like the kids are like, “Well, I gotta get mine,” so versus like, you know, you got a million bucks, like that’s gonna cover mom’s long-term care, you greedy SOB.
[00:40:06] OG: Like just, it’s mom’s frigging money. If she needs to spend 200,000 of it on assisted care for the next couple of years, y- your choice is, let’s have the government run this, which I always think is like a great solution, right? Like I’m sure the state of Texas is fantastic in their programs, but I also think Capital Enterprise is probably a little bit better scenario if there’s a profit motive.
[00:40:31] OG: But anyways, so what’s the practical thing here if we do gift the money away and we’re three years into the five-year thing and the kids spent the money because nobody, you know, nobody talked to you about it. Like what happens? Like they just go, “Sorry, there’s no place for you. You can’t…” Or, or the bill is 10,000 a month, somebody needs to write a check or we just throw mama into the, you know, from the train, so to speak.
[00:40:57] OG: Like what, what practically happens if you mess this up? Yeah.
[00:41:00] Tim: No, you’re right because a lot of people think, oh, they’re gonna come and take the house back or take that money back or, or sue those kids. No, what they do is they say, “We are not going to pay starting on this date.” If there’s no payment coming in, they can’t stay in that facility, and so now you’ve got home care Without the benefit of any nurses or anything like that.
[00:41:23] Tim: So you’re right. It- practically it’s, it’s a difficult situation So they
[00:41:26] OG: don’t come after… It’s not like they go, “You know, we tracked this money. You spent it on a trip to the Caymans,” asking for a friend. And, um, and they, they’re just like, “We’re not gonna send the money. Like, we’re just not gonna pay for it.”
[00:41:40] OG: So- Well, no,
[00:41:40] Tim: they just stop paying is what happens at that point
[00:41:43] OG: And then the facility says, “Well, if we’re not getting paid, then we’re not sending anybody to go help,” so may the odds be in your favor.
[00:41:51] Tim: Right. And the other thing is there is what’s called, um, Medicaid recovery that’ll happen in the estate.
[00:41:56] Tim: So if, if after that the parent dies and assets come into the estate, uh, they might be able to get after those, and they have, um, depending on the, the different states, they have different powers a- as to how far they can go to get that. Um- Yeah,
[00:42:11] OG: this is a big deal, thinking through
[00:42:12] Tim: this … it is. And, and so the states have tried to remedy this, and one of the things they’ve done is they’ve said…
[00:42:17] Tim: A lot of states have said, “Well, if you buy a long-term care policy that covers $300,000, then we’re gonna give you the state amount that you’re allowed to keep, plus $300,000.” So if you ever spent through your entire long-term care policy, they’re gonna reward you for that and let you keep $300,000.
[00:42:34] Joe: Wow.
[00:42:35] Tim: That’s in a, a bunch of states.
[00:42:36] Tim: I don’t know if it’s in every state, but, but yeah, it’s a difficult situation, for sure
[00:42:41] Joe: Let’s talk about one more difficult situation, which is, uh, our friend Kelly brings this up, kids with disabilities. Lots of families of stackers, every time we talk about ABLE accounts, we get, uh, people thanking us when we talk about special needs situations, especially if you aren’t sure how they’re gonna be long-term, if they…
[00:43:02] Joe: If you need to set them up long-term. How do you set up your children or family members that have disabilities to make sure that if you pass away, that things are gonna be reasonably okay for them?
[00:43:14] Tim: Yeah. And actually, um, uh, we… I have a chapter in my book about, uh, the kids with disabilities, ’cause this is a, a, a difficult situation, and it goes beyond just the money.
[00:43:23] Tim: So a lot of times it’s preparing documentation, uh, especially with, like, autistic children, for example. You know, they like things a certain way, and this is what I want you to… You know, how you need to have their day be structured, and this goes beyond just the, the money situation. The idea, too, is they might qualify for government benefits because of their disability, and having an inheritance come to them can kick them off of that.
[00:43:49] Tim: So how do we structure the trust? And this is when even with lower amounts of assets we’ll use a trust, because if you can have someone in charge of that money so that they can receive funds but not get kicked off of their government benefits, then we can have that set up. Interestingly enough, sometimes we run into situations where they’ll have multiple children.
[00:44:10] Tim: One of them is on government benefits, and that’s really all they need, and I’ve seen parents say, “Okay, we’re not gonna leave equal shares because they’re never gonna spend that money because they have everything they need. We’re gonna leave extra to the other kids.” Or maybe what I like to do is have a bucket that’s kind of in reserve in case there would be a situation where they’d need it.
[00:44:31] Tim: Um, I’m always trying for flexibility in everything we draft to say, “Well, you know, that’s where we are now, but how do we know that we’ll be there in a couple of years?” And so I think some careful drafting there to make sure we protect the things that we can, and then also just from a… from the human side, you know, put them in the best position for success in the life that they have.
[00:44:51] Joe: Last question from me, and then we’ll see if, uh, OG and Doug have anything as well. Uh, this one comes from Stacker Don. Don says, “In the case where a family member has an insolvent estate, no probate open, first question, does the natural order of debt payments still apply the same as if probate was open?”
[00:45:11] Joe: And then second, if the natural order of debt payments applies for an insolvent estate, what’s considered a reasonable amount of time to wait for assumed bills like credit card debt, medical, and legal bills? So when can they come calling? Is there a, a time where you go, “Well, no, the statute of limitation’s ran out on that.
[00:45:29] Joe: Uh, no coming back”?
[00:45:30] Tim: So this is a great question because there are statutes of limitations in different states. And for example, some states will have the rule that says, okay, creditors have six months to bring their claim. A lot of states used to be a year, and they’ve all pulled it back to, to six months now.
[00:45:46] Tim: And so you have six months to bring your claim, and if you open probate and you’re aware of the, the debt, well then the debt is recognized by the court and it’ll be, uh, satisfied with the assets. But if we don’t open probate and we wait until after six months, so after the six months we go in and we open probate, they are now time-barred because they didn’t have their claim in in the first six months, and we can process the estate and just ignore.
[00:46:09] Tim: The court will dismiss those creditors. And so this is a powerful thing. And so a lot of times people will say, “Well, why aren’t we opening the estate yet?” And we’ll say, “Well, because there’s all these debts. We’re gonna wait the six months, and then after the six months they can’t do anything.” So all of those debts, if they’re unsecured debts.
[00:46:25] Tim: So if it’s secured, meaning like if it’s a mortgage on a house, they have the right to go after that property. But credit card, like you said, the, the whole list of bills there, they can all be excused. Now, here’s the one, the one caveat. Creditors can also open the probate estate. So if the creditor was large enough and they were aware, they could come into the probate court and say, “We want to open the estate.
[00:46:45] Tim: Here’s our debt.” And then they could collect information about the assets and make it… So you’re not home free until you get to that six months. But I can tell you normally the creditors aren’t that aggressive and they don’t come in and, and open the estate. And we get by the six months and a day, and we open the probate estate, and we d- we just basically tell them to pound sand and we can transfer assets.
[00:47:06] Tim: That’s not in every state, but most states, uh, have some version of that.
[00:47:10] Joe: And that right there, by the way, is why unsecured debt has a higher interest rate on it than secured debt- Yeah … is because of your ability to tell them to pound sand. She talks about the natural order of debt payments. What does that mean?
[00:47:24] Tim: Oh, yeah, and those are statutory. So e- every state’ll have a statute that says, “Here’s who gets paid first,” and, and normally the funeral directors get paid first because they don’t want dead bodies laying around. They wanna make sure they’re taken care of. Yeah,
[00:47:37] Joe: that’s a good plan.
[00:47:38] Tim: Second is usually the attorneys, uh, ’cause they want the estates administered, and we wrote the rules, so we put our-
[00:47:43] Tim: ourselves second. Um, and then there’s other- And the judges were
[00:47:46] OG: attorneys at one point.
[00:47:48] Tim: Yep, and then there’s other super creditors like the IRS and, and stuff like that, and then you get to the general creditors later. But every state has its own statute, it’s easy to look up, uh, that says, “Here’s the order of payments.”
[00:47:58] Joe: It’s really similar to when companies go bankrupt, the bond holders are first, the blah, blah, blah, blah.
[00:48:03] Tim: Yeah.
[00:48:04] Joe: Great questions all. Man, we got so many great ones, and I’m sorry we couldn’t get to all of your questions. We got so many great ones, Tim. We’re gonna have to have a part two on this thing. OG, you’ve got one as well, I think.
[00:48:16] OG: I’ve got a bonus question. I, I was just thinking about this, and I think maybe you and I have talked about this briefly. I was thinking about this from a planning standpoint, so tell me if this is doable. If it is, uh, you can give me like a high level if it’s, like, complicated and we gotta talk about it later, or it’s like a cliffhanger, contact us for more.
[00:48:35] OG: So we were talking about step up in basis, you know, so if I buy a stock for a dollar, it’s going to 10 bucks, and my kids inherit that as is, you know, whether it’s through trust or whatever, then they get a … They, their basis is now $10, which means they can just turn around and sell my stock that was 10 do- you know, that I would’ve paid cap gains on.
[00:48:55] OG: They can sell it, pay no taxes, and maybe from a planning standpoint it’s a great idea to sell, just turn around and reinvest it if that was a good investment plan, but you just kind of reset. Well, I guess you wouldn’t have to, right? You, you would just, you know, you just have to keep track of it. But that’s on you to keep track of.
[00:49:09] OG: So here’s my question. Can you do that backwards? You said you can’t gift somebody stock becau- well, you don’t wanna gift somebody stock because they inherit your basis and whatever. What if I was, I don’t know, 48 years old and maybe my mom and dad are not, like, the healthiest people in the universe, and I’ve been a good investor, and I’ve got this tech stock that was, that I put 50 grand in and is now worth, you know, 4 million.
[00:49:40] OG: Can I gift them the 4 million and then turn around and when they die I get a step up as long as they gift it back to me? Like how… Can I, can I, can I game the system?
[00:49:51] Tim: Yes. Now, now you’re getting into estate planning 2.0. Oh. And the short answer is yes, you can do that, but the IRS has rules that says, well, but if it comes right back to you, then no, you can’t do that.
[00:50:03] Tim: The
[00:50:03] OG: substance over form, is that the right
[00:50:04] Tim: terminology there? Yeah. Well, and contemplation of death and, and things like that. However, what we’ll do is we’ll have them, uh, you gift it to them in a trust, and now the, the trust after they pass away is for the benefit of you and your children, not just you.
[00:50:17] Tim: There’s things that we can do like that and get a step up in basis. There’s other unique things that we can do, ’cause we have a lot of times when there’s a parent or an aunt or uncle who has lower assets, they don’t have $15 million, and we’ll have a wealthy client that says, “Oh, it’d be really nice if I could utilize that step up in basis that they’re gonna get or they’re gonna waste, basically, because they don’t have those assets.”
[00:50:38] Tim: And yeah, we can do some of that. But that gets into the more advanced stuff. But absolutely, there’s, there’s a lot of fun planning to do there.
[00:50:45] Joe: Tim, thank you so much for taking the time to mentor our Stackers on Estate Planning 101 today. I super appreciate it as, as always. Believe it or not, Stackers, Tim actually doesn’t just show up here, he has written a book on this topic.
[00:51:01] Joe: Say it ain’t so, Tim.
[00:51:03] Tim: Yeah. And actually, that book has done quite well. It- I’ve been surprised how people really like it. It’s five stories, just a short little book. You can read it in about 90 minutes. Five stories of people doing trusts, and we cover, like, the special needs situation, someone with a family cottage, kind of a regular estate plan, a charitable plan, and also a business owner.
[00:51:23] Tim: And it’s powerful stories, very short, but gives a good idea. Here’s a sneak peek. We’re working on a second book, and that book should be done sometime this fall, which will have more stories, a little more advanced ones, but yeah.
[00:51:36] Joe: Revenge of the Estate Planners?
[00:51:37] Tim: Yeah. Yeah.
[00:51:38] Joe: Yeah.
[00:51:38] Tim: And I think we’re actually gonna publish a bonus sixth chapter to the first book as well because there was, uh, another story that needed to be told that didn’t make it into the book.
[00:51:48] Joe: And the book we’ll link to in our show notes page, but it’s Your Money, Your Way: Keep the Most, Give the Most, and Enjoy True Peace of Mind, available wherever books are sold. But is it also on your website at Semro Henry?
[00:51:58] Tim: Yeah. Yeah, more than happy if people wanna go buy it, but they can go to semrohenry.com and download it for free- Oh
[00:52:04] Tim: uh, if they would like.
[00:52:05] Joe: Check that out.
[00:52:05] Tim: Or call me and I’ll send you a, a hard copy if you really want. But, uh, yeah, it’s just a good book to get. The idea was people are afraid to take that first step and have a conversation, and that’s really all it is. This is just a conversation with an attorney to talk about your estate planning.
[00:52:19] Tim: Get out there and do it. It’s important.
[00:52:21] Joe: Well, I know how they feel, Tim. I was afraid to talk to you today, so you know.
[00:52:26] Tim: Well
[00:52:26] Joe: done. You spell Semro if you wanna reach out to Tim, uh, S-E-M-R-O. It’s, uh, Semro Henry, Henry the traditional way, H-E-N-R-Y, semrohenry.com. All right, Doug, you’ve got it from here, man. Uh, by the way, before we go to Doug, just one quick thing.
[00:52:43] Joe: As you’ve heard lately, the Field Kit is out, it’s active, and it’s a great place to have all of your money in one place to review all of your accounts, check your credit, stay off all those lists, keep your private life private. You’ll find it at fieldkitfinance.com. But if you’re a member of the 201, if you get our great newsletter, you will also get dates when we have our live webinars where I can walk you through it, show you how it works so you can see what we’ve been bragging about the last couple weeks.
[00:53:13] Joe: So you’ll find that if you sign up for the 201, our newsletter, stackingbenjamins.com/201. All right, Doug, you got it from here, man. What should we have learned on today’s show?
[00:53:23] Doug: Well, Joe, first take some advice from today’s special guest, attorney Tim Semro. Not sure when you should have a trust versus just a will?
[00:53:31] Doug: Don’t begin with, “Which one do I think is best?” Begin with, “What are my goals?” And then choosing? That’ll be much easier Second, different states have different statutes of limitations on debts they can collect. Sometimes it’s beneficial to not open the estate after a death until that deadline has passed.
[00:53:51] Doug: Know the rules. But the big lesson, Alfred Nobel proved it’s never too late to change how people remember you, which is great news for Joe’s mom, although she’s gonna need one heck of a fourth quarter. Thanks to attorney Tim Semero for joining us today. You’ll find Tim’s book, Your Money, Your Way: Keep the Most, Give the Most, and Enjoy True Peace of Mind, wherever books are sold.
[00:54:17] Doug: We’ll also include links in our show notes at stackingbenjamins.com. This show is the property of SP Podcast, LLC, copyright 2026, and is created by Joe Saul-Sehy. You’ll find out about our awesome team at stackingbenjamins.com, along with the show notes and how you can find us on YouTube and all the usual social media spots.
[00:54:40] Doug: Come say hello. And oh yeah, before I go, not only should you not take advice from these nerds, don’t take advice from people you don’t know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I’m Joe’s mom’s neighbor, Doug, and we’ll see you next time back here at the Stacking Benjamins show
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