[Speaker 1] (0:00 – 4:35)
You’ve built your business over decades, and now it’s time to think about that once in a lifetime exit. You’ve come to the right place. Here, you will hear business exit professionals talk about what you should know before exit.
Hi, I’m Armando Roman, Family CFO at Financial Planning. So call my office today to schedule your 30-minute founder strategy call at 480-367-9000. There’s no cost, no obligation.
You have nothing to lose. Enjoy this episode of the Founder’s Guidepost. Hello, this is Armando Roman with Axiom Founder’s Family Office here to bring you a seminar with three very distinguished experts in their spaces.
And our seminar title today is Death, Taxes, Money, and the Law. And the reason we have our specific disciplines on this is that when people die, sometimes it’s very, very sudden, people are unprepared, and they just don’t know what to do. Obviously, grief has to come first.
But after that, there’s a whole set of things that take place in the estate planning world, in the tax world, in the wealth advisory world that need to happen as well. And that’s what we’ll talk about today. So for you, the listener today, who’s interested in hearing and learning more about this, maybe you have somebody who has a terminal illness, and you’re seeing that right around the corner, this will be extremely helpful for you, because what you will know is you will know what to do before that person dies and after.
You will know what to do. You will have the tools and the resources from us so that you will be better prepared for that eventuality that happens to all of us. And if nothing else, in terms of resources, you can call any one of us, and we will help you understand what has to happen.
And you will feel much more confident that you’re a bit more prepared than most, because you spent time on this video with us to understand what happens. So that’s what happened today in death, money, taxes, and the law. And let me set the stage here a little more about that.
We all eventually expire, we all die. Sometimes it’s all of a sudden, sometimes we know what’s coming. But obviously, when we get in that situation, we’re often thrown into a tailspin.
We have family members who are grieving alongside us, and we just don’t know what to do. So that’s what today will be all about. Let me begin by introducing the people you see on the screen here.
And I’ll start with the upper left hand corner. Tom Markey is my business partner here at Axiom. And Tom is a financial advisor, also a licensed CPA who has spent time in the CPA public accounting world, as well as in the wealth management space.
And he now works as a team to serve our clients. Going clockwise on the screen here, we’ll get to Greg Patel now. Greg Patel is a tax CPA with MBE CPAs.
And Greg specializes in states, trusts, gifts, and all of that space is an area that Greg is an expert in that space as a career CPA. I’ll skip me for now. I’ll go to Richard Keat.
Richard Keat is an estate planning attorney with Keat Law and the estate planning law firm that he is part of. They will help with the state planning, with the document drafting, with the trusts, with probate, and business law, as well as other things that come into play for the estate planning they do for their clients. And then me, I’m the founding principal of Axiom Founders Family Office.
And we as a team here work primarily as a family CFO, as a family office for business owners, really serving their families. And we help them navigate literally everything that comes at them. So we’ll get calls that are very random at times, but we get those calls because our clients understand that we can help them navigate whatever gets in front of them.
So let’s go to you, Richard, and you as the estate attorney here, let me just ask you a couple of questions. When you think about estate planning and you’ve got a client who now suddenly has a death in the family, a question for you, do you need to review your personal representative and successor trustees?
[Speaker 3] (4:36 – 6:11)
Yes. So it’s very important to review, not only have an estate planning document in place, whether that’s a will or a trust, because in those particular documents, that’s where you will designate who your personal representative is or your successor trustees. And ultimately, whether you have to go through probate or you have a trust administration, it is the successor trustee or the personal representative who’s entrusted with carrying out your plan and making sure that it is followed responsibly, cost effective, and according to your wishes.
So if those two fiduciaries aren’t reviewed on a regular basis, you could come into a situation where you have a wrong person that’s not responsible or capable of handling the job that you’ve designated them to do. And it could be too, sometimes our clients will come in and they’ll have family members that they have put on their will or trust as a personal representative or a successor trustee, and those people have since passed away. And the alternate agent may not be around or may not be somebody that they want to serve.
So it’s very important to do that because if you’re not reviewing who those people are, it could lead to a costly probate or trust administration.
[Speaker 1] (6:12 – 6:42)
Yeah. But I’m glad you brought that up because what we often find is that people get their documents done and they feel like they can check a box and put that book on the shelf and just kind of forget about it. But exactly what you said, maybe that trustee that they named, maybe the family situation has changed and now that person is not the right person anymore.
How often would you say they should take a look at the trustee to make sure they’ve got that right person as the trustee?
[Speaker 3] (6:43 – 7:41)
At least every couple of years, but a good rule of thumb too is anytime there’s a major life event within the person’s life, that’s when you should go back and review those documents to make sure that you have the correct people listed. That could be a marriage between one of your kids and a new spouse. Maybe the new spouse is exercising a lot of influence over the child that you’ve designated as a trustee or a personal representative and you’re worried that may affect the estate administration.
It could be a death of a trustee or a family member. It could be a disability to a person that you’ve designated as a trustee or personal representative. So there could be a whole host of reasons that happen within the client’s life where it makes it appropriate to review those documents.
[Speaker 1] (7:41 – 8:06)
Okay. And then Richard, one more question about that. Sometimes we’ll see, well, often we’ll see a trustee and also a successor trustee.
If that first person named as trustee just can’t do it for whatever reason, is there an easy mechanism that can be in those documents where they can just say, I don’t want it after all, and it goes to the successor?
[Speaker 3] (8:07 – 8:57)
Yeah, it depends on the trust. So trusts have a number of ways to determine when a trustee becomes incapacitated. For most trusts, usually it’s the opinion of a spouse and the person’s position to make that determination.
In some trusts, you’ll see something called the disability panel. And that disability panel consists of family members who can vote either unanimously or by a majority vote as to whether or not the trustee is incapacitated and the successor trustee takes over. So it could be a whole number of procedures within the trust agreement that’s set forth when a trustee becomes incapacitated.
[Speaker 1] (8:58 – 9:15)
Okay. Another question for you, Richard. What about when there are minor children?
When a person has minor children and they have estate documents and that, what are the things they need to understand about those minor children in terms of someone suddenly dying?
[Speaker 3] (9:17 – 10:23)
There’s a couple of things that they need to understand. First of all, it’s important that they have a will that designates who will be the guardian for the minor children. So the guardian will be entrusted with the health and welfare overall care of the minor children on a daily basis.
And then the second thing that’s important is how the minor children will inherit money from the deceased and who is responsible for managing that money until the deceased feels as though their children are responsible enough to do so themselves. So those are the two primary considerations. And not all the time will the client want the guardian and the trustee to be the same person.
There may be people who are better suited to care for and raise a child than managing that inheritance for the child until the child is responsible enough to do so on their own behalf.
[Speaker 1] (10:23 – 10:35)
So maybe there’s very nurturing, loving aunt who’d be perfect as a secondary mom, but maybe not the best one to really manage the money and somebody else to manage the finances and monies that belong to those children.
[Speaker 3] (10:36 – 10:37)
Yep.
[Speaker 1] (10:37 – 10:47)
That’s exactly correct. Okay. Good, good.
Thank you. Another question for you, Richard. Did you or do you need to fund your trust during your lifetime?
[Speaker 3] (10:49 – 11:59)
Yes. It’s very important that the trust gets funded. The purpose in creating a trust is to avoid probate.
And that only occurs if your assets are transferred into your trust prior to your death. If you die and assets still remain titled in your name, then a probate’s required and the trust won’t work to the full extent that you hoped for when you initially created it. In Arizona, probate isn’t a nasty thing if you’ve done planning for it, but in other states, it can be nasty.
And an additional consideration is a lot of people have moved to Arizona here in recent years, so they may own property in other states. For example, if a California resident left California, but they died still owning California real property, now a California probate will have to be open to deal with that property, which could be very expensive for the deceased family.
[Speaker 1] (12:01 – 12:25)
And another question related to that, there are revocable trusts and there are irrevocable trusts. So when you say funding the trust for someone who has the more common trust, the revocable living trust, does that mean putting money into the trust? What does that really mean, funding the trust?
[Speaker 3] (12:26 – 13:05)
Funding the trust means transferring anything with the title. So think about your bank account, any financial investment accounts, real estate, anything with the title, that title needs to be updated so that the owner on the title is changed from the person to their trust. There’s two ways you can do that.
You can transfer ownership right away, or some places or some things you can transfer the ownership of the asset at the time of death.
[Speaker 1] (13:06 – 13:31)
Okay, good. So it is moving things, but really moving things simply by changing how things are titled, the title of the house, the title of the bank accounts, et cetera, right? Okay, perfect.
Thank you. And then Richard, another question for you. Do you need to review your non-probate transfers to ensure that they align with the planning under your will and trust?
[Speaker 3] (13:32 – 14:06)
Yes, if you set up… So a non-probate transfer is something we refer to as a transfer on death, pay on death. For real estate, it’s a beneficiary deed.
And a non-probate transfer with your bank, for example, if that doesn’t align with the plan that you’ve set up in your will or your trust, that non-probate transfer overrides the will or the trust. So those two items need to be consistent so that your estate gets distributed according to your wishes.
[Speaker 1] (14:06 – 14:41)
Okay, let me make sure I understand. So if the will, if the documents that you draft, that the client you’re working with asked you to draft, and they say everything that we own goes into our trust, but that person has gone to their bank and put their personal checking as Joe Smith, transfer on death to Amy Smith, that bank titling of the bank account overrides the trust documents? Correct.
Okay. I wasn’t aware of that. Thank you for that.
[Speaker 3] (14:41 – 15:07)
Yeah, those transfer on death, and then alternatively, it’ll also override a will. So it’s important that if you’ve either designated those beneficiaries on a transfer on death, pay on death, beneficiary deed, and subsequently create an estate plan that you review those documents to ensure that they comply with the wishes in your estate plan.
[Speaker 1] (15:11 – 15:30)
Okay. Well, that sounds like it’s an easy thing that could happen that people just aren’t aware of, like I was not aware of myself. And it is a very easy thing to do with the bank, to go to the bank and change that registration to the person’s name with a TOD or a payable transfer on death to somebody else.
[Speaker 3] (15:31 – 15:52)
And with bank accounts too, if you’ve created a trust, it’s better to have those accounts owned by your trust, because if you do become incapacitated, your successor trustee is able to access those funds to pay your living expenses and so forth during the time that you’re incapacitated.
[Speaker 1] (15:52 – 16:30)
Okay, great. Thank you so much. Greg, let’s go over to you.
The tax CPA, with all the experience that you have, and as you help people navigate this, obviously, this is a time of great grief for families when they lose a loved one. They don’t know what to do. They come to you and they’re telling you when the person passed and that.
So let me ask you some questions that people can learn from as they eventually need to go through this as everyone does. So Greg, what are some of the first things you do when you meet with someone who has lost a loved one for tax purposes?
[Speaker 2] (16:31 – 20:39)
Yeah, great. Thank you, Armando. So it is obviously, like you said, it’s a tough situation for the person that we’re meeting with, right?
They’ve lost a loved one. And pretty much the one of the last things that they want to do is deal with taxes, right? On top of all the other things that’s going on in their life.
Taxes is pretty much something that just doesn’t, it’s not important at that time. Unfortunately, it is something that we need to deal with. And when we meet with somebody, one of the things that we initially discuss, and we just call it like a gathering of the information.
It’s just this stage where we just say, okay, tell me what’s going on. And so we ask about the date of the death of the spouse or the parent or whatever. So just to kind of gather that information.
Some of the other things that we’ll ask about is we’ll get a listing of the assets or we’ll ask. So they may not have one made up as of yet, but just as a general kind of concept of discussion at that point to kind of get a list of an idea of what kind of assets they have, along with the values of those assets to determine if we need to file an estate, a 706 estate return. To then, if we don’t need to file one, or if you do need to file one, then go down that path of a discussion.
Then we kind of talk about the individual’s return. We’ll have a discussion about the 1040 return that may have been filed, may not have been filed for the previous year, depending on when they died in the current year. And then we’ll also talk about the current filing where there’s a final or potentially a final return that needs to be filed for the 1040.
And then possibly a 1041 return that may be filed. This is all really dependent upon us looking at their trust documents. A lot of times when they come in to meet with us, they’ll bring everything that they have.
They don’t really know what’s important and what’s not important. And it’s not like we can go through the trust document right there with them. But what we do ask is to provide us with the trust document, if they have one.
If they don’t have one, well, as Richard was talking about so eloquently, we’ve got some other issues potentially with regards to probate estate. But if they do have a trust document, then we kind of want to have an idea of what’s supposed to happen upon that person’s death. So those are some of the things that we talk about initially.
We also ask them to get several death certificates. There’s many times that you’ll have to send out original copies for whatever purpose. We’ll talk to them about getting day-to-death values on the assets.
We’ll talk about community property states and the rules with step-up in basis and things like that. So there’s a lot of stuff that we discuss when we first initially meet with them. It’s just a gathering of the information to then determine how to proceed or what needs to happen next.
[Speaker 1] (20:39 – 20:59)
Yeah, I can see how that could be overwhelming, the request for data as they’re going through something unexpected like this. Maybe you can talk about the tax compliance. What tax compliance should that person understand when someone dies?
[Speaker 2] (21:00 – 23:57)
Yeah. So we’re going to have a final 1040 return. Well, a 1040 return that’s going to be filed.
If it’s the surviving spouse, again, we don’t know how things are going to continue on. But assuming if there’s just no surviving spouse and this is just the final 1040, then we’ve got the final 1040 return that we need to do. We also have a potentially 1041 estate or trust return that we need to file.
We have to take their assets and that throw off income and pick those items up on the respective returns. And so sometimes we’ll get assets that are bifurcated pre-death and post-death. And so we’re able to put those on the individual, the 1040 return and the 1041 return.
Sometimes we’ll have to do that calculation for them and do the splitting of the income and file on the respective returns. One of the things that we run across quite a bit is the step up of the assets. Sometimes they’re just not properly stepped up or they haven’t been stepped up at all.
So we do talk about that with the taxpayer to see if they want to have us do it or go back to whoever to make sure they step up the basis properly. The other thing that we kind of do discuss is the potential filing of a 706 return. I just had a discussion not too long ago with an individual where the husband unexpectedly passed away.
Her total wealth is approximately $4 million. So they’re well under the current exemption for estate tax purposes, which is approximately $14 million. But with the sunset and so with 2026 looming not too far off the distance there, it’s supposed to go in half.
So we’re down to about $7 million. So now she’s still fairly young. I think she’s in her 50s.
So she still has a good way to go before anything happens to her. So we had a conversation about filing for portability purposes. And so those are some of the kind of things that we talk about when we talk about for tax compliance purposes.
[Speaker 1] (23:58 – 24:28)
Okay. Let me just clarify so it’s clear for the listener. And let’s say that someone dies on June 30th, that they were alive this year and June 30th, and that’s when they pass.
So the thing you said is there would be a final tax return, individual personal tax return IRS form 1040 for them, which from January 1 through June 30, any income earned during their lifetime for this year would be on that final 1040 tax return, right?
[Speaker 2] (24:29 – 24:37)
Correct. So the income that they earned during that six-month period will be on their 1040 return.
[Speaker 1] (24:37 – 24:50)
And then if they had say interest or dividends that they earned say in July, August or through the remainder of the year, then that would be the income that you would pick up on the 1040 return after they’ve already been deceased.
[Speaker 2] (24:51 – 24:52)
On the 1041 return.
[Speaker 1] (24:52 – 24:54)
1041, excuse me, 1041. Thank you.
[Speaker 2] (24:54 – 24:55)
Yeah. Yeah. Yeah.
[Speaker 1] (24:55 – 25:14)
That’s correct. Really two returns there to report income from that person while he or she was alive. And then after they had passed, and that’s what you want to separate to get that accurately filed for them with IRS.
And then you mentioned a 706, which is a whole separate purpose. Correct?
[Speaker 2] (25:15 – 25:16)
Correct. Right.
[Speaker 1] (25:17 – 25:38)
Yep. And you mentioned getting a balance sheet, getting the assets, understanding value. And you mentioned also on the date the person dies, it’s important that there’s some kind of evaluation done so that whatever the fair market value is of those assets, that it’s understood on their date, on the date that they passed.
Correct?
[Speaker 2] (25:39 – 25:55)
Correct. Right. So when they pass and there’s a value, there’s a step up value on those assets.
So when they sell in the future, they’re potentially paying less tax because now they’ve got to step up in basis.
[Speaker 1] (25:56 – 25:59)
Right. Right. Yeah.
Yeah. Okay. Okay.
[Speaker 4] (26:00 – 26:07)
You mentioned 1041 and 706. Most people are familiar with the 1040. Maybe just touch on what those are.
[Speaker 2] (26:08 – 26:58)
Yeah. The 1041 return is a trust or an estate. I mean, there’s more to it than that, but for our purposes, it’s upon somebody’s death.
It encompasses the income tax for post-death period. And so these assets that they have accumulated over their lifetime still continue to generate income after their death. And the income tax needs to be paid, picked up in tax needs to be paid.
And the form that represents that is the 1041 form.
[Speaker 5] (27:00 – 27:01)
Okay. Good.
[Speaker 4] (27:02 – 27:05)
Good. And the 706 is that the gift tax?
[Speaker 2] (27:06 – 27:16)
The 706 is the tax on the person’s assets that they’ve accumulated over their lifetime.
[Speaker 1] (27:17 – 27:23)
Okay. So the overall net worth, whatever that number is- Yeah. That’s what the 706 is relating to.
[Speaker 2] (27:23 – 27:55)
Exactly. Exactly. And for many people, the 706 won’t come into play.
It’s 14 million per individual, right? If you’re married, that’s almost $28 million. So it won’t apply to a lot of people.
But just to be aware, it is something that we constantly think about when we’re having these discussions with people.
[Speaker 4] (27:57 – 28:02)
So even after you die, the IRS still might be involved in your- Yeah.
[Speaker 2] (28:02 – 28:03)
Yeah. Yeah.
[Speaker 1] (28:03 – 28:13)
IRS wants to get paid. They want to get paid. So another question for you, Greg, what are some of the things that should be taken care of before death?
[Speaker 2] (28:14 – 29:39)
Yeah. So as Richard said, you want to make sure that the beneficiary designations are properly done. We do run into a situation.
It was just, again, another recent case. This person is in her 80s. She literally just passed away not too long ago.
Her beneficiary of her IRA was her sister who passed away like 15 years ago. Right. So now we’ve got that issue, right?
It’s going to an estate. So instead of getting all the tax benefits that you potentially could have had, yeah. So beneficiary designations are really, really important.
The second thing is, again, repeating what Richard said, to keep your documents, your trust documents and everything updated to current law. Richard, I don’t know if you recall or if anybody recalls. Remember when we- maybe back in 2012, we weren’t quite sure what the estate tax was going to be.
There was the potential of it being really low.
[Speaker 5] (29:39 – 29:40)
Yeah.
[Speaker 2] (29:40 – 31:32)
So people changed. There were discussions about these A and B trust being done and all this to avoid that. Well, none of that came into fruition, but I do know that there was a lot of push to get compliant to make sure that the trust documents was updated to what could potentially happen.
So you just want to consistently be looking at that like Richard was indicating. The other thing is that I would create a spreadsheet or I’m an accountant, so I love spreadsheets. So create a spreadsheet that lists your assets.
What I do find in that is generations are different. The older generations, it was usually the husband that managed the finances and managed everything and really didn’t- the spouse wasn’t involved in that. So when the husband passes away, the surviving spouse is just not aware of what’s going on at all.
So it’d be really, really good to have a listing of the assets to say, okay, this is what we have, the approximate value and kind of keep that updated. And then the final thing I can think of is just passwords. Create a list of username and passwords, right?
I mean, when you pass away, that all goes to somebody, that’s all gone. So you’ve got to have somebody or some way to access all those important things.
[Speaker 3] (31:33 – 32:16)
And to echo that point on passwords, Greg, I was involved in a probate a few years ago where a person died and the personal representative was trying to get access to the decedent’s Gmail account on a very minor estate, maybe a couple hundred thousand dollars. And Google refused to comply with the court order to allow the personal representative to access this account. And they kept driving up legal fees, litigating over this privacy issue.
So it’s very important, especially in today’s digital world.
[Speaker 1] (32:16 – 32:35)
Yeah, but I’m glad you brought that up. I was going to bring it up as well, that passwords, we tend to kind of not think about that. Asset listing, yeah, we might think about that.
But the passwords to access all those things that matter, it’s easy to overlook and not make a list and put somewhere that the family can access.
[Speaker 2] (32:36 – 33:06)
Right. And in today’s day and age, you’ve got people that have these Bitcoin accounts or some virtual currency just somewhere, and these keys that are just unique and the access to that stuff is just… So it’s really a different world.
So it’s really important to have, I think, good idea of where things are.
[Speaker 1] (33:06 – 33:28)
Yep. Yep. Thank you, Greg.
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[Speaker 4] (33:29 – 33:56)
So Greg did a great job of covering the tax section of today’s presentation. Richard earlier touched on the law section of our presentation. Now it’s the money part of our presentation, which I’m going to ask Armando Roman, my business partner, a couple of questions.
So Armando, what does the surviving spouse or family need to do first?
[Speaker 1] (33:57 – 36:54)
Well, a lot is typically happening when somebody passes. Obviously they’re grieving. Often it’s a surprise.
And what we see over and over again is that people have not prepared. They don’t have the password list. They don’t have the inventory list.
They don’t have that written down somewhere. So then the surviving family is not only grieving, but they’re trying to understand, well, now what do we do? And so when it comes to what they need to do first, I would say that first thing to come together as a family and grieve and give the time they need for that.
Not drag it out, not do the memorial a year later, but do what you want to do as a family first to at least get closure on that piece of it. But then as they begin to look at the next stages, what they will need to do is just what Greg says, get that listing of what did that person own, have in control, because those are the assets, that’s the net worth. And then it’s extremely important for the surviving spouse and or surviving family members to get control as best they can.
Even in cases where the family member has done what they need to do, Richard made a good point, Google refused to obey. So even when you do the best planning, you don’t always get the best outcome, but what you can do is begin to regain control of what that person was in charge of. So the family now has those assets that they can go forward with.
And that’s what I would say is the first thing to do is to look at everything. And they don’t always have a list, they have to put pieces together. And we’ve had to help them build some of those by looking at prior year tax returns, what income was for dividends and interest, what K-1s came in from investments.
And then we have to track down the source of where those came from. We have to look at credit reports to see what lines of credit were open, what loans might be on some assets that were just not listed. It could be a rental property that had a mortgage, and you’d find the mortgage maybe on a credit report, but otherwise you might not see it.
And looking at checking accounts to see what money came in, what money went out, because deposits from earnings say on a business or on an investment, they have to go somewhere. And so those might be going into a checking account, into a savings account, into a brokerage account, but really looking at, I’d say, 12 months worth of those statements to really get a good sense of what was this person in control of and in charge of, what did he or she own, so that the family then can retain control and regain control of all of those assets. That’s what I’d say has just got to get done first.
[Speaker 4] (36:57 – 37:03)
How about what else also has to get done? What are your thoughts there in your experience in dealing with this?
[Speaker 1] (37:03 – 39:17)
Well, I’d say that finding the assets, of course, is number one, but once you’ve got those, well, then it’s what do you do with it? The family had a certain income before this person passed and the family depended on that income. So how can we best replace that income now that that person is gone?
Maybe that you have to sell some of those assets. Well, it’s got to find them first, get control of them second, and then sell them third. So it’s looking at the family income that was there that came from that person who is now deceased and doing the best he can to get some sources of cash flow for that family.
We had an instance once where a young husband suddenly died and the family checking account was only in his name. So this wife with her three young kids, she couldn’t access the checking account to go buy groceries. And it was never intended.
It was just an oversight. He just never got to the bank to retitle the account. And what she had done is she called the bank to tell them that he died and they immediately locked down his accounts because her name was not on them.
So it just emphasizes the point that before you die, make sure they’re titled correctly, however you want them. And then afterwards, when we meet someone who’s freshly going through this, we will tell them, don’t tell your bank. Instead, if you have login access, login now, move those monies to where you can control them.
Because as soon as that bank finds out, they are required to shut down access. That’s what they’re required to do. And even though it was your spouse and community property state, and there’s no question that was intended for the benefit of you and your family, the banks have to follow the bank’s rules.
And those are their rules. So knowing that, maybe log in while you can, if you can. If not, go to the bank in person and do what you can do so that when everything is shut down, at least you can still buy groceries for the kids.
But sometimes that just happens.
[Speaker 2] (39:20 – 39:22)
That’s a really sad situation when that happens.
[Speaker 1] (39:23 – 39:30)
It is. It is. The spouse is grieving.
The kids are crying. The kids need… It’s just a very, very bad situation.
[Speaker 3] (39:31 – 39:41)
And banks are very difficult to deal with. And it becomes very frustrating for the families to try to access those monies.
[Speaker 1] (39:41 – 40:00)
Yeah. And those rules, of course, they’re intended to protect the family. And that makes sense.
We all understand that. But at times, it ends up causing more harm than benefit to the family, just because that’s how the rules work. Yeah.
You have another question, Tom?
[Speaker 4] (40:02 – 40:13)
No, I think you kind of covered it. I had one here. How does the family find all the assets and get control of them?
But I think you kind of touched on it. But if you want to touch on it again, that’s fine.
[Speaker 1] (40:13 – 47:06)
Yeah, I do want to touch on… I’m going to touch this again about when someone suddenly passes and now the family is grieving and then trying to put the pieces together and they don’t even know where to begin. It’s a bit of a puzzle that has to be pieced together.
And they will need to get copies of everything. So, Greg, you can be very critical in this as the tax CPA, because you may have copies of prior tax returns for the business, the personal debt that you can look at, of course, and see what income was coming in, what expenses and help piece things together. But then also, you have the ability to go directly to IRS with authority and ask them, IRS directly, what 1099Bs were reported to the IRS, what 1099 dividends were reported, what K1s went to the IRS reported by independent third parties.
And then you can help piece together as well, the assets and the income sources that that family needs. So, I think that people don’t often understand that that can be done. And that, Greg, your role can be very critical in that.
We’ve done that as well for clients as we try to piece things together for them. And really, it’s tracking down the clues you see, the credit card statements. There might be a little recent situation with a little tiny debit of $4 coming monthly out of a checking account.
What’s this for? It turns out it was a premium on their life insurance policy. So, that deceased spouse, there was a life policy that nobody knew about.
A little $4 a month through a credit union, but it meant additional monies for the family as they went forward. But if you didn’t look at that bank statement, you wouldn’t really see anything. And if you don’t get access to that deceased person’s email account and look through all those thousands of emails to look for clues, then you just wouldn’t find it and the family misses out.
So, it’s just so critically important to put on your inspector detective hat and start combing all the records you possibly can to find all those assets that can help the family continue without that loved one and without the income that he or she brought to the family. So, why don’t we go ahead and we’ve touched on a lot of things here that obviously matter. And it just didn’t wrap it up.
I’m going to go around and just do a little quick summary here. And Greg, actually, Rich, I’ll start with you. You talked about the importance of getting those estate documents done and keeping them updated.
You said probably at least every couple of years, look at those, look at the trustees, and make sure that the person that you’ve designated to be in that role, that that still is the right person. And again, making sure those are all up to date. And you also mentioned, Richard, about funding the trust.
So, retitle the house in the name of the trust, retitle bank accounts in the name of the trust, look at the beneficiaries on life insurance policies, on 401Ks, on IRAs, all that matters. And Greg, I think you said the beneficiaries actually, but all that just has to happen as well. Greg, you talked about the tax filings.
While the person is alive, there’s a final individual tax that has to get filed. That’s the IRS form 1040 that you do through the date of their death. And then beyond their death, after their death, additional income may have come in through interest or dividends or K-1s or that, then that income gets put on the 1041, which is the final tax return for that person.
You also mentioned having a complete listing of assets and how important it is that on the date that person dies, that there’s an assessment of fair market value placed on each of those items, because it may be that they do have a taxable estate. It may be that you have to file a 706 tax return, or maybe not. But until you have that full listing and you know the approximate values on the date the person passed, then you just don’t know until you gather that information.
So that’s what you talked about as well as making sure to just understand what those assets were and where they are. And then I mentioned a few things about really looking at gathering all the assets for family income beyond that person’s death, making sure that we can identify all the assets, decide what to do with those assets, sell them, keep them. Does it make sense to keep that rental property and keep that monthly cash flow?
Or does it make more sense to sell it and get one chunk of knowing there may be a tax bill attached to it as well? So all of that in terms of just helping the family go forward beyond suffering the loss of the loved one in the family. So that about is really where we are.
And any listener of this who has questions on this, you can reach out and of course ask questions. We will have this and if you need questions specifically on tax, then we’ll make sure to connect you with Greg Patel, CPA, who is on this. If the questions are estate planning related and those documents, then of course we will connect you directly with Richard Keat and his Keat Law Firm where they do probate trusts and business laws well and they will help you navigate this and plan ahead of time to ease the burden when that time comes.
And then for us, we are often the overall coordinator and where they go to helping that family navigate so many things on the family, the personal side, as well as the financial side and making sure that they haven’t missed anything as they go through this loss of loved one in their family. So Tom, thank you so much for your time here as well. And then Greg and Richard, thank you.
We’re hoping that this will help people plan ahead. And if they’ve not been able to plan ahead because as often the case, someone suddenly does pass, that they can get good information here and have a little more direction on how to successfully navigate as they go through grieving process and the healing process in their family.
[Speaker 2] (47:07 – 47:09)
Can I just add one thing? I’m sorry.
[Speaker 1] (47:09 – 47:09)
Certainly.
[Speaker 2] (47:10 – 47:42)
So I just wanted to say that it’s really important for them to contact their trusted advisors, their financial advisors, their attorney, their CPA and gather them and to make sure that everybody’s on the same page and work as a team because then we could really, really make sure and take care of the client in their grieving and deal with all the stuff that they don’t have to then worry about.
[Speaker 1] (47:43 – 47:45)
Yeah, excellent thought. And anything you’d like to add, Richard?
[Speaker 3] (47:46 – 48:15)
Yeah, that would be, that’s a great recommendation from Greg. And the one thing that I find too is somebody will pass and I think you mentioned this earlier Armando, they think they need to get all these things done right away, but it’s important to let the grieving process take its course and some of this stuff isn’t as urgent as one might think.
[Speaker 1] (48:15 – 48:18)
Right, right. Tom, any thoughts?
[Speaker 4] (48:18 – 49:00)
Yeah, I’ll add that some of our most powerful client testimonies that we have gotten when I Armando and I and our family office is from clients who came back to us after they lost a loved one and said, hey, we were able to grieve our family member because you guys had done planning on the front end. And these are, you know, not all deaths we know about, but a lot of times when parents, you know, they kind of know they’re getting to a certain age. So it’s something we’re all going to deal with.
Let’s just make sure you plan on the front end so that you can spend that time grieving your lost, your loved one, not worrying about taxes, estate planning and money, et cetera.
[Speaker 1] (49:01 – 49:54)
Yeah, exactly. Thank you, Tom. Thank you, everybody.
This was very helpful. And thank you so much for sharing your expertise so freely with those who could benefit from it. Hope you enjoyed this episode of the Founder’s Guidepost.
When you think about exiting your business, that’s often a once in a lifetime event with no do-overs and the stakes can be very high for your family. Before making that leap, ask for your free copy of our Scottsdale Founders Forum white paper packed full with information that first time sellers should know before exit and schedule your 30 minute founders strategy call at axiomcorp.com. Your exit can be amazing.
Everything you dreamed of when you plan ahead and take all the appropriate and necessary steps. That’s what’s possible. Until next time, I’m your host, Armando Romano.
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