Nate Reineke (00:13)
Hello physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
W. Ben Utley (00:19)
I'm Ben Utley, also a certified financial planner and the service team leader here at Physician Family. Welcome. Today we have a special guest. It's Christine Roberts. She is an estate planning attorney with a background in ERISA law, IRAs, and employee benefits. She comes to us from the firm of
Christine Roberts (00:42)
Mullen and Hensel in downtown Santa Barbara.
W. Ben Utley (00:44)
Mullen and Hensel.
Yes, Mullen and Hensel in Santa Barbara, California. β Christine and I have been working together on and off for, it feels like about a decade. And a lot of times in situations where we're trying to figure out if β a 401k is being run correctly, but she's transitioned into a new world of estate planning where she has experience and β knowledge. So
Nate Reineke (00:46)
Hehehe.
W. Ben Utley (01:09)
And the other thing we have in common is we both love dogs, right? Don't you have chihuahuas? Isn't that the case?
Christine Roberts (01:14)
I've got a 10 year old Chihuahua Yorkie underneath my desk right now, Daisy. But yeah, my husband and I have a Boston Terrier and this Daisy and I'm a serial adopter of elderly Chihuahuas.
W. Ben Utley (01:27)
Nice. And Jack is going on 18 years. He's our team mascot. He's a Chihuahua something mix rescue dog. blind and deaf, but still going strong. Happy as a clam. Yeah. Okay. So β why don't you tell us a little bit about your, about your background, where you, where you started your journey, anything that's interesting along the way, how you got to where you're at today, some of the new things that you're, that you're working on and β just let's get to know Christina something other than just a dog.
Christine Roberts (01:33)
Wow. Wow.
It's good for him.
W. Ben Utley (01:56)
lover.
Christine Roberts (01:57)
Yeah, well, that's a huge part of who I am, of course, but I β was lucky to go to UCLA School of Law and to get a job in the employment benefits field of law β fairly soon after graduating law school. And that allowed me to relocate from Los Angeles to Santa Barbara to work in-house at a company that set up retirement plans.
And eventually I moved to Mullin and Hensel in 1997, where I worked primarily with employers with retirement plans that were in one form or another of trouble, weren't operating according to their terms, had issues with the Department of Labor or the IRS. And I did that for quite a while. it was a wonderful way to make a living helping people also with issues regarding IRA investments and IRA.
W. Ben Utley (02:35)
you
Christine Roberts (02:53)
β transactions. β And basically, our estate planning department was just growing so quickly and needing so much help. And I was already an adjunct to the department working with IRAs and other retirement accounts in estate planning that I moved my practice over and went back to law school to get a master's in taxation. β So I love the way I was able to meld my past experience with my future journey.
and β have found estate planning to be a really rewarding and fascinating and much broader field than the narrow field of employment benefits was. I that's been one of its advantages is just how many different issues come up in this kind of practice.
W. Ben Utley (03:38)
I
love anyone who loves taxes enough that they want to get a second degree in it.
Christine Roberts (03:43)
I want to get a second degree. I'm halfway through and my GPA is, β well, since I'm only taking one class a semester, my GPA is high. If I were taking two or three classes a semester like my colleagues, would be a tougher slog. β But I love it.
Nate Reineke (03:45)
Excuse me.
W. Ben Utley (04:00)
Nice. OK, and we have some questions ready to go. We're going to start off with the easy, so we're to work our way toward the harder ones.
Christine Roberts (04:09)
Okay.
Nate Reineke (04:09)
Okay, so first question β is about control groups. How do physicians commonly mess this up and kind of what are the consequences of messing up control groups?
Christine Roberts (04:21)
Yeah, that's-
W. Ben Utley (04:21)
Hold on,
before she answers the question though, I need to talk about this for a sec because that's a not yet defined word for most of our listeners. The way that I met Christine was I had someone that was probably messing up their Groups 401k, which is to say that everybody was doing something different and I wasn't certain if that was right. So I contacted a buddy in California and I said, you have an attorney who does this? it's like, yes, I have this great person, Christine.
And I took this case to Christine, it was ER docs, if I recall, it's always ER docs. And they were doing different things with their plan. I knew that they were running afoul of either the affiliate service group rules or the control group rules. But before you answer that question, tell us, Christine, what are those words? What do those words mean?
Christine Roberts (05:10)
Well, I'll answer the question, but I'm going to talk to the audience right now, sort of from their perspective. From the perspective of physicians, a physician incorporates or creates some sort of LLC or some business entity and decides to practice alongside another physician who has their own business entity. What's not to love about that? They each have their own business entity, and then they decide they need staff.
W. Ben Utley (05:26)
you
Christine Roberts (05:38)
and or they need a billing office and or they need some sort of adjunct β lab or service office and they decide that that needs its own business entity. What's not to love about that? They get lawyers and CPAs setting up business entities left and right. They think it's great. Everybody's got their liability, you know, siloed in its own area and they're all practicing together and they're happy. And β the problem comes when they want to have retirement plans.
So why can't each one of those business entities have its own retirement plan? I think that's the reasonable question the doctors are asking. And the answer is you can't because the IRS views those siloed businesses acting in concert together as one employer for benefit plan purposes. The typical structure is the siloed corporation, doctor A, siloed corporation, doctor B.
staff and or billing and or lab or some other other organization that's C, Dr. A has a defined benefit pension plan, Dr. B has a defined benefit pension plan, know, lab or billing or staff C has nothing. The IRS doesn't like that. And the thing that's interesting about that structure that I just described with the two siloed doctors and the staff or the billing entity is that it's not a controlled group.
W. Ben Utley (06:35)
So thank for joining us.
Christine Roberts (07:02)
And I won't bore you with why it's not a control group. The typical control group is a parent that owns 80 % or more of a subsidiary or five or fewer people that collectively own large percentages of different businesses. That's a control group. In the silo, Dr. A, Dr. B, they don't own anything of each other's business. they were, the control group rules are the rules that come into play here. And the control group rules actually were created in the 1980s to fill a loophole
W. Ben Utley (07:21)
Mm-hmm.
Christine Roberts (07:32)
in, I'm sorry, the affiliated service groups were created to fill a loophole in the control group rules. So doctors and CPAs knew the control group rules and they were structuring around them. And then the IRS came back in and said, no, we're going to close that loophole and treat the siloed, even though the doctors don't own each other's businesses. If they own any portion of that billing or staff entity, we're going to loop you all together. That's why even though there could be very little
W. Ben Utley (07:56)
Mmm.
Christine Roberts (08:00)
small percentages of shared ownership, they loop it all together and they prevent doctors from having very rich, advantageous benefit plans in their own siloed physicians, medical corporations, and not such rich benefits in the staff or the billing or the lab entity. There's gotta be some parity, there's gotta be β shared benefits, and it is β basically...
W. Ben Utley (08:28)
You know, I just want to say that I studied this affiliated service group and control group rules about β over 25 years ago when I did my CFP studies. And at this very moment, this is the first time I've really understood the difference between the two and why we have both of them and that they're really kind of the same.
Nate Reineke (08:29)
Mm-hmm.
Christine Roberts (08:49)
They are, like I said, the affiliated service groups are a closed loophole that existed in the control group rules. No two doctors create an entity where one doctor owns another doctor. And doctors very seldom create an entity where five or fewer people collectively own very large percentages of the same entities. Instead, they create self-standing businesses.
W. Ben Utley (08:58)
Mm-hmm.
Yes.
Christine Roberts (09:16)
And then there's a smaller shared business or it could be a bigger shared business, but it's that shared business that the IRS uses to draw a loop around the whole arrangement. And there's very few ways around it. know, I have seen, these affiliated service group rules presume that these are service businesses for the most part, not always. I have seen instances where doctors
Nate Reineke (09:28)
Hmm.
W. Ben Utley (09:42)
Okay.
Christine Roberts (09:45)
had a non-service collective business. It was actually a real estate investment business. It was not service, it was capital, it was capital-based. They had capital, they invested it in rental real estate, they made money. And that was a situation where the individual doctors' organizations could collectively own that capital-based business and not be an affiliated service group. But that in all the 20 plus years I did benefits, that was the one time.
W. Ben Utley (09:55)
Is. β
Wow.
Nate Reineke (10:12)
Hmm.
Very good.
W. Ben Utley (10:12)
So basically
the high sign here is that if you're a doc and you have quote unquote partners, which is parallel play, you're doing the same thing they're doing in a similar space, but they have a vastly different 401k plan than you do. And maybe somewhere in there, you guys have some employees of some sort. You probably need to sit down with someone like Christine and figure out, we legit here? Because what's the consequence of this going wrong?
Christine Roberts (10:41)
What the consequences are that one or all of these benefit plans are gonna fail non-discrimination testing and β that means the benefits won't be tax qualified, there'll be tax consequences. It's a right mess. And really, you shouldn't, I mean, if all is going according to plan, these doctors are working with qualified planned administrators who know their stuff, who know these rules.
Nate Reineke (10:57)
Mm-hmm.
Christine Roberts (11:10)
and a qualified plan administrator working with the doctor will already have the affiliated service group radar alert.
W. Ben Utley (11:17)
Mm
Christine Roberts (11:18)
And we'll be looking at the whole structure the doctor operates in and we'll be asking, are there other benefit plans out there? Does Dr. B have an organization? Does Dr. B have a plan? Is there collective staff organization? How is that structured? Who owns what?
And a qualified plan administrator will be alert to this and will be careful about setting up plans. But if the doctor has used pay, nothing against these businesses, but paychecks, ADP, of these large, of these virtual only 401k plan businesses, they do not have the depth of knowledge β in their onboarding staff.
W. Ben Utley (11:39)
Okay.
Thanks.
Christine Roberts (12:01)
to flag these issues and prevent these scenarios from developing. So then you would need an attorney or somebody to sort of unwind it. β
W. Ben Utley (12:11)
So true
or false, true or false. If I'm a physician and I'm in this boat and I'm running afoul of the affiliated service groups and or the control group rules and I don't get that fixed and I get audited, or false, my plan could be disqualified. All of the money that was in there could become taxable all at one time and I could owe penalties.
Christine Roberts (12:27)
you
You know, I would say planned disqualification almost never occurs. Non-discrimination test failures for multiple years could occur and it could be, you know, a close pass at disqualification. β So I would say planned disqualification would not be so likely, but multiple years of failed non-discrimination tests, lots of money going back to the highly paid people or lots of money being needed to pay in for the lower paid people.
W. Ben Utley (12:45)
Eh-heh.
Christine Roberts (12:58)
β Nobody's happy in those scenarios, right? The highly paid people are getting all this money back with, know, and losing tax deductions and the lower paid people are happy because they're getting big contributions to bring their, you know, β contribution levels up. β But the IRS views these control group and affiliated service group rules as sort of low-hanging fruit, easy audit fodder for them because they know the rules in and out.
W. Ben Utley (13:01)
Yeah.
Okay.
Christine Roberts (13:27)
And β it's an area where there's a large knowledge imbalance, where the IRS knows this stuff in and out, and the people in the field, the doctors have never heard of these rules. So the IRS views this as very easy audit fodder. And...
W. Ben Utley (13:46)
I said we'd start easy and move on to the harder things. think we
started on like in the middle of the pool here, Nate, don't you?
Christine Roberts (13:53)
Yeah, I would say that this is, β you know, this is just part of the landscape for medical professionals who, a lot of them, they get bad advice somewhere. It could be somebody selling investments. It could even, God bless them, be a CPA who says, hey, you need to set up a solo DB plan or a solo cash balance or a cash balance.
Nate Reineke (13:53)
Yes.
Mm-hmm.
Christine Roberts (14:19)
get all this money packed in there and you're gonna be set for life and you've been paying off medical school bills and you haven't had time to save a retirement, now's your chance, grab it. And they just get going and they don't pull back. looking at the trees, they're not looking at the forest. So all I would say to doctors is look at the forest, don't look at the trees, get qualified advice before you set up any kind of qualified plan, even a SEPIRA. β
And if you're working in cohort with other doctors with their own entities and you share, collectively share any kind of an entity, make sure the plan covers the whole situation.
Nate Reineke (15:00)
Yeah, I think β the big takeaway here is that if you're setting up one of these plans, you need to pay an attorney to look it over first. Because in my experience, even in the last couple of months, I've had to have this discussion with several β physicians and they're not even aware of what I'm talking about. They don't even know this is a rule. Yeah.
W. Ben Utley (15:22)
And it's uncomfortable. It's uncomfortable,
Christine Roberts (15:24)
Yeah, you know,
W. Ben Utley (15:24)
right?
Christine Roberts (15:24)
it isn't just your benefit plan back when the Affordable Care Act came in. β If you've got 50 or more employees, there's control group rules that come into play. And you've got to, you know, you've got to stay under penalty of perjury whether you do or don't. And if you don't know, you can't really do that, you know, with any accuracy. So I would say that if you're a doctor and you're paying an attorney to set up a business entity,
you should get an attorney to tell you whether your business entity can truly operate on its own two feet or whether it has to factor in business entities owned by your business partners or entities that have staff that are involved in any way in your business.
W. Ben Utley (16:10)
So.
Nate Reineke (16:12)
Okay, let's take a step back and actually ask probably an easier question. Christine, can you explain probate to me like I'm five?
Christine Roberts (16:15)
Enough of that.
Sure.
Yeah, probate is a public process that happens in local courts.
And β creditors of an estate are notified of the death of an individual and given an opportunity to make a claim against the estate. And the decedent's property is distributed either to the recipients the decedent has named in a will or to their heirs-at-law as determined under the local probate code. β OK, I'm sorry.
W. Ben Utley (16:49)
Okay, wait a minute. He said like I'm five. I understood that, but I'm
Nate Reineke (16:53)
Okay.
W. Ben Utley (16:53)
55. Can I take a stab at it? Or do you want to take another stab? Why don't you take a stab like I'm five? Yeah.
Christine Roberts (16:54)
Okay, mean about that? Alright.
another step. I'll take another step. Probate
is a public, expensive process by which someone who has died β has their property distributed to people who survive them. And when people who are owed money by them get a chance to get repaid.
W. Ben Utley (17:19)
Nice, nice. So this goes in the paper, right? This is a public thing.
Nate Reineke (17:19)
Mm.
Christine Roberts (17:23)
β Yes, probate notices are published in local papers to give creditors notice and to give beneficiaries and heirs notice. And it is public and there are mandated fees. β is a process that it's like, you know, they say don't press play unless you want to watch the whole movie.
With probate, once one is initiated, it is going to go according to the probate code. It is going to take a number of months, if not years. It is going to cost a certain amount of money. And your level of control over the situation is fairly nominal.
W. Ben Utley (18:00)
Thanks.
Nate Reineke (18:03)
Mm-hmm.
W. Ben Utley (18:03)
Well done.
Nate Reineke (18:05)
Okay, so try to avoid probate then. β All right.
Christine Roberts (18:09)
Unless you have
a lot of creditors. I mean, if you die in debt and there are a lot of creditors, then probate may actually be good for your estate because they have a fairly short leash to get their claim in and they may not read those tiny print notices and those claims may be extinguished. So I would, know, but I, in all the, you know, in all the...
Nate Reineke (18:13)
Mm-hmm.
Mmm.
Christine Roberts (18:35)
the time I've been working and I can't think of many instances where we've had clients in that situation. β Generally people are trying to protect assets after death rather than avoid creditors, but it happens.
W. Ben Utley (18:42)
Yeah.
Nate Reineke (18:48)
Yeah. OK, let's talk about wills and trusts. So β I've heard everyone needs a will. β And a revocable trust is a good thing. So.
W. Ben Utley (18:52)
Thank
Christine Roberts (18:53)
Sure.
Yeah, this
is very state law dependent, but in California where I practice both a revocable trust and what we call a pour over will that pours over any estate property to the revocable trust are desirable for most people who are above the threshold that would trigger probate. And in California, the threshold that triggers probate.
is assets β exceeding $208,850. And it varies state to state, but anybody who owns a home in California is almost certainly β above that threshold. There are actually some special rules about exemptions for home ownership interests I won't bore you with. But I mean, granted, most people with homes in California are gonna need a revocable trust to avoid probate, if avoiding probate is a goal for them.
W. Ben Utley (19:55)
Well put, because probate is not always a bad thing, it's just usually a bad thing.
Christine Roberts (20:00)
It's an expensive public thing. So even if you have creditors, you have to realize this is a public process and it's got set fees and β it is, most people don't want to have to go through it.
W. Ben Utley (20:02)
Yeah.
Nate Reineke (20:19)
Mm-hmm.
W. Ben Utley (20:19)
Yeah.
Nate Reineke (20:22)
Okay. All right. Let's see. How should physicians go about designating guardians and conservators for their...
Christine Roberts (20:33)
You know,
W. Ben Utley (20:34)
So what's the difference?
Christine Roberts (20:35)
yeah, I will get there before, you know, in terms of your question, everyone needs a will. I mean, if you don't have a will, then, and you know, I'm assuming you don't have a will to trust, you don't have a will either, then if you go through probate, the people that are gonna get your property are gonna be according to the probate code. Your heir is at law, which if you have children,
know, surviving spouse, children, obvious. If you have neither of those, it will go up to your parents and out to siblings and down to nieces and nephews. And some people don't like their siblings or their nieces or nephews or their parents. And so you have to realize that, you know, the will at least gives you some say in who gets what. β And it also can designate a guardian of your children, which tees up your next question. How should physicians go about selecting and designating
Nate Reineke (21:17)
Mm-hmm.
Christine Roberts (21:28)
guardians, conservators for their minor children in their estate plan. First of all, for minor children, it would be a guardian because a guardian is more for your personal being, your care, your schooling. And a conservator is usually a term used at least in California for somebody who's lost mental capacity. Now, a young person doesn't have legal capacity due to age, but a conservator is usually used for somebody who had legal capacity and lost it due to a head injury or β
W. Ben Utley (21:46)
Mm.
Christine Roberts (21:58)
mental ailment. And focusing just on younger physicians with minor children, who do they name as a guardian? That is one of the hardest questions we as estate planners have to address with clients. β You know, generally you're looking for people who either are raising children in a way that is consistent with the way you're raising your children or want to raise your children or who...
if they had them would be raising them in a way consistent with the way you're raising your children or want to raise your children. And the most likely people named are β siblings who have children of similar ages, best friends who have children of similar ages. β Parents get named a lot. β Parents aren't always, you know, the thing with a guardian is it assumes both parents die young together.
And so that's when the guardian would be involved. So naming a parent isn't the worst thing, because you're assuming some sort of horrible unexpected accident.
W. Ben Utley (22:56)
So, thank
Christine Roberts (22:59)
β But sometimes parents, because they're older, have health issues and may not, you know, there could be other issues involved. So I would say, again, this is a challenging, challenging decision, β and it's different for every client.
W. Ben Utley (23:07)
Thanks.
I want to drill down on that for just a sec, Christine. This is kind of non-legal. It's more like in the realm of people and humanity and that kind of stuff. So we're talking about guardian versus conservatorship. And in that realm, we're drilled down on guardians because we're talking about kids, kids under the age of 18, parents that are probably in their 30s, 40s kind of thing. And let's say that I get along great with my neighbor or my brother-in-law or my friend.
Christine Roberts (23:19)
Mm-hmm.
Mm-hmm.
W. Ben Utley (23:45)
And, know, I have an eyeball to eyeball conversation with them and they're like, yeah, something bad happens to you. I'll take care of your kids. Something bad happens. We got this all papered over with the guardianship stuff. But if that was me on the getting into this deal, I might say, sure, I'll, I'll raise your kids, but β I'm not going to, I'm not going to send them to college. I'm not going to, I don't want to pay all their bills. Like I've kind of done that. So, β I'd be kind of like, β I can do that, but it'd be cool if we had some funds.
Christine Roberts (23:50)
Mm-hmm.
W. Ben Utley (24:13)
raise your kids too. So how does that go?
Christine Roberts (24:15)
Well, that's
a great question. And it goes back to that, do you need a will and a revocable trust? Because the will is going to name the person, but the will isn't going to give them any money. The revocable trust is going to give them money. Because if both parents die, the trust property is going to go in trust for the kids to a set age or to a uniform transfer to a minor act account to age 25 in California. don't know what it is in Oregon.
W. Ben Utley (24:24)
β Got it.
Christine Roberts (24:40)
β The trustees of the trust are going to dole the money out. The trustees may not be the guardians, but the guardians will be the people the kids live with and who spend the money doled out by the trustee for the kids. mean, actually, all actual fact, let's say the kids go to private school, the trustee will probably pay the private school directly, but the guardian will be the one cooking them breakfast and driving them to and from school.
and making sure they do their homework.
W. Ben Utley (25:10)
Mm-hmm.
And those are not necessarily the same person. The trustee and the guardian are not necessarily the same.
Christine Roberts (25:17)
They are not necessarily the same, but the Rokeable Trust will make sure that the guardian, know, that there's ample funds for the kids' health, education, maintenance, and support. I mean, all of the trust property will be for the kids. And there can even be provisions for the guardian to like improve their home if the home needs to be bigger to take the kids on. You know, there's lot of provision for.
money to be able to go to the Guardian to raise the kids.
W. Ben Utley (25:47)
So what I'm hearing here,
Christine, is I think as advisors, we think of estate planning as this thing that's kind of in its own box over here. And it's kind of like, you just want to make sure somebody gets your stuff when you die. That's the simple version of estate planning. But what I hear you unpacking here is that there are many, many facets to this. Like, who's going to take care of the kids? Where are these kids going to live? How are they going to get money? Who's the person who's taking care of the money?
it's it's tells me that there's a much broader conversation here and what what we on our end typically hear about
Christine Roberts (26:22)
Yeah, exactly, which is one of the reasons why estate planning is so easy to put off, because you have to get your arms around so many issues. And you're not just thinking about death, you're thinking about incapacity, too. We have, you know, we do durable powers of attorney and advanced health care directives so people can express your wishes in the event that, you know, due to a head injury or other accident, loss of capacity. It is incapacity planning, it's death planning, it's...
W. Ben Utley (26:27)
Mm-hmm.
Mm-hmm.
Christine Roberts (26:49)
It's who will raise your children if you're not there to raise them planning. It's do I care about charity planning? β It's how do I really feel about my family members planning? β I view it as the ultimate in adulting. mean, it is getting money, taxes, family, death, incapacity, legacy, and it's piling it all up in one big pile and it's turning it into a plan.
W. Ben Utley (26:56)
you
So.
Nate Reineke (27:05)
Thanks.
Christine Roberts (27:18)
and the plan may not anticipate every eventuality, but it will anticipate the most likely eventualities.
W. Ben Utley (27:24)
So you, you have laid your finger on an issue here that I've experienced for decades, which is client comes to me and says, we think it's time to do some estate planning. And I'm like, okay, here we go. And then I say, okay, well, let me help you find an attorney. I help them find an attorney. They go talk to the attorney and that's like almost the end of it. The attorney sends them some documents. The documents don't get read. sit in the living room floor and it just goes on and on. And I'll tell you, I had a couple.
Christine Roberts (27:47)
Yeah. Yeah.
W. Ben Utley (27:54)
been with me for a long time, they wanted estate planning. Like they wanted it. And it took us three years to get that estate plan in place. And I'm not going to talk about funding. I'm talking about like getting the documents finally signed. So given that, given that that's the case and you're agreeing, I can see you're nodding your head yes. What could we as advisors do or β for listeners who are literally all over the country and
Christine Roberts (28:01)
Yeah. Yeah. Yeah.
Yep. Yep.
W. Ben Utley (28:22)
They're like, no, that's not me, but it is, you. If you're listening, it's you, believe me. How can we change our frame of reference or our mindset so that estate planning is something that we're more likely to want to enter into and expedite the doing of?
Christine Roberts (28:39)
Well, the best way is a way you can't really mass produce, which would be to watch what happens when somebody dies without an estate plan and see the expense and the public nature of it and the delay and just the cost and the drain on the family members. And the flip side of that was to see how a well-administered estate plan, a well-designed estate plan is smoothly administered after someone passes away.
W. Ben Utley (28:48)
β
Christine Roberts (29:07)
or unexpectedly, that's sort of the best selling point. Neither of those is likely. So what you can do is you can make the entry point to estate planning have less friction. Now we have an estate planning worksheet that asks for family information, financial information, you real property, business entity ownership, you know, everything.
W. Ben Utley (29:28)
Wait,
wait, hear a beep beep. Someone's backing up a dump truck right now. β
Christine Roberts (29:33)
Yeah, yeah, yeah.
And people have varying degrees of β thoroughness in how they do it. And I always love to see a client who's chased down every single account number and every single beneficiary designation and every single, you know, APN number for their real property and has just, you know, just aced it. I'm like, this is going to be an easy client. I also see estate planning worksheets where somebody has clearly spent no more than 10 or 15 minutes. All the numbers are round numbers, know, cross out here, cross out there.
β But we can work with any kind of client. But what you guys as financial advisors can help is that especially if you're managing a lot of their liquid assets, can get them, know, last four digits of the account numbers, the type of the account, is it money market, is it mutual fund, you can get beneficiary designations on IRAs and you can sort of do a little, here's a little...
β summary of your holdings for estate planning purposes to take to your estate planning attorney and make that part easy. That way they'll just have to come up with real property, maybe any life insurance or annuities, any kind of small business holdings they have, any investments they have other than with you, which why would they do that? But maybe somebody would do that.
W. Ben Utley (30:34)
Yeah. Well, you know,
to a certain extent, a lot of this is balance sheet information. And I recognize that life insurance, not always on the balance sheet, but this is one of the things that we do for all of our clients in the second meeting.
Christine Roberts (31:00)
Yeah.
Yeah.
W. Ben Utley (31:02)
We
help them build a balance sheet and marshal these assets. it's, it's always there. It's very helpful in estate planning. And I hadn't, I hadn't really made that connection. I mean, we use it all the time, but I hadn't thought of that as something that eases the burden of getting into estate planning.
Christine Roberts (31:15)
It was,
I have no doubt that two thirds or three quarters of the clients I send estate planning worksheets to already have someone like you in their life who has this information at their fingertips, but connecting the dots between that blank estate planning worksheet and the information you have and the information they have to get is very challenging. And basically,
W. Ben Utley (31:26)
You
Christine Roberts (31:39)
People do it when they're ready to do it and they don't do it when they're not ready to do it. And only sometimes do things happen before people get ready to do it, which is unfortunate. Most people get around to doing it when they're ready to do it. And I don't really wanna work with a client who's not ready to sit down and invest not just their money, but their time and their intention.
W. Ben Utley (31:46)
Yeah.
Christine Roberts (32:07)
in what the process is all about. Because like I said, you really have to have the stomach to deal with. And I know I'm not really selling my services very much, but you have to think about death, about incapacity, about taxes, about legacy, about family. Some people aren't ready to think about any number of those things. Nevermind.
Nate Reineke (32:17)
Heh.
W. Ben Utley (32:28)
I tell you, let
me tell you a cute story before we move on to the next question. Okay. And it's this. So a young couple, they're getting on an airplane for the first time. I'm sure Christine, this is very familiar to you, right? And they call me and they're like, we want to do estate planning. And I'm like, okay, cool. Let's schedule a time. No, we need to start right now. And I'm like, okay, what's going on? Well, we're going on a trip. We're going to be away from the kids the first time we're going to be together. We're going to be flying on an airplane. And I'm like,
Christine Roberts (32:44)
Hey
W. Ben Utley (32:58)
Okay. I think I've seen this movie before I say, okay, sure. well, β when are you leaving? Two weeks. I'm like, well, that's, that's not long enough. mean, maybe we can schedule a meeting with attorney, but we can't be done by then. It's just not possible. And, but then I say, I promise you this, I'll make, I'll probably, we'll make a deal. I promise you that you will not die on this trip. And you promise me that when we get back, we'll do a state planning.
Christine Roberts (33:11)
Yeah. Yeah.
W. Ben Utley (33:27)
And they say, you can't make that promise. say, yes, I can. Because if I'm wrong, you won't be here to hold me to it. And they always laugh. And then I've got permission to do what we need to do and they get back. if you're thinking about estate planning, you're not sure. Schedule a trip away from your kids for the first time and then you'll be boom, right in that mode.
Christine Roberts (33:33)
You know, I like your confidence. like your confidence.
Nate Reineke (33:37)
Mm-hmm.
Christine Roberts (33:51)
Yeah, I mean, we can pull stuff together in a few weeks, but premium rates will apply. It's expensive. It's not fun for us. We don't like to work under that kind of time pressure. When you come to an estate planning attorney with two weeks to set up a estate plan, you're giving them a message right away about how you approach big events in life and what kind of planner you are. And you might not want to send that message. Go on your trip, come back.
W. Ben Utley (33:57)
Yeah.
No.
Yeah.
Christine Roberts (34:20)
and do it with peace of mind and with some more β focus because you can't focus when you're pulling things together for an international trip or God forbid a big surgery or something. You kind of need to put your energy into the trip or the surgery and do the estate planning when you have more wherewithal.
W. Ben Utley (34:33)
Yeah.
Nate Reineke (34:38)
I just had another one of those Ben. wasn't estate planning, but I found out a family got $2 million of life insurance while they're sitting in an airport.
I was like, how? That was really fast. Yeah.
W. Ben Utley (34:46)
Well, better than never, I guess, but yeah, questionable
Christine Roberts (34:51)
Did they sit down
next to a life insurance salesman? And I say that as the daughter of life insurance salesman.
W. Ben Utley (34:52)
planning.
Nate Reineke (34:54)
I guess maybe.
W. Ben Utley (34:57)
And
he just happened to have the phlebotomy kit there and the scale and the urinalysis cup. Yeah. Yeah. That's, that's a ready life insurance agent. I'll tell you. Okay.
Nate Reineke (35:00)
Yeah, you're right. Yeah.
Yeah, I have a feeling
the paper wasn't inked by the time they left, but the process was started.
Christine Roberts (35:10)
Wow.
W. Ben Utley (35:11)
Thanks.
Christine Roberts (35:13)
Well, know, that brings up, we do want to know about life insurance and IRAs because even though they don't go into a trust, the beneficiary designations say where a lot of the family's money is going to go at death. So we need to make sure that the beneficiary designations are consistent with the estate plan that we're creating or restating for the client. So we do need to collect those beneficiary designations. So we don't just want the primary one, which is usually the two spouses, but the secondary.
β You know, we get real intentional, especially me with my background. I'm real intentional about gathering all that information, making sure it's up to date, changing it if it needs to change.
W. Ben Utley (35:41)
Yeah.
Nate Reineke (35:51)
Yeah, that was actually my next question there. do β you have, other than that, β do you have any other common mistakes people make about beneficiary designation on retirement accounts? And what mistakes do you see when minor children are involved?
Christine Roberts (35:51)
you
Yeah, I see a lot of mistakes. The biggest mistake is to not make a designation, because when you don't make a designation, you are making a designation. It's whatever the default language is in the custodial account agreement. You know that 17 or 20 page document that comes with your IRA application that you never read? That's telling where your money's gonna go if you don't make a designation. It's gonna go to your surviving spouse if you have one, if you don't have one, to either your children or your estate. If it goes to your estate, you're probably gonna have a probate.
Nate Reineke (36:12)
Mm-hmm.
Mm-hmm.
W. Ben Utley (36:28)
Hmm.
Christine Roberts (36:38)
All right, unless there's stuff that can happen with your estate blanket and they can help avoid that likelihood. But yeah, not designating a beneficiary, designating a beneficiary and not changing it when your life circumstances change. β Naming your estate because you think naming your estate has some magical legal tax avoiding properties of which it has none. And as I mentioned, it's almost a sure route to probate. Naming your revocable trust.
Nate Reineke (37:00)
Mm-hmm.
Christine Roberts (37:05)
desirable only when you have a beneficiary such as a minor child or someone who lacks capacity who can't be designated outright. And yes, young children shouldn't be designated outright as beneficiaries of an IRA. The IRA, a custodial account agreement may say that the IRA custodian can pay money to β a minor child, to a guardian or somebody taking care of them, but it would be better that there's a custodial account set up for a minor child.
So those are the big ones. Failing to make the designations, failing to keep them up to date.
W. Ben Utley (37:41)
So, follow-on question. someone in the throes of opening an account would probably name their spouse as their primary beneficiary, but they might name a minor child as the contingent beneficiary. And so, if mom and dad both expire at the same time and that minor child is still named as a contingent, what happens?
Christine Roberts (38:04)
Well, you need to look at the custodial account agreement, but it probably will say that the money can be paid to a guardian β or somebody in the place of a parent. β Ideally, you will set your retirement account, your revocable trust up so it can be named as a beneficiary. so you would name the revocable trust for the benefit of the child as a secondary beneficiary.
W. Ben Utley (38:32)
Mm-hmm.
Christine Roberts (38:34)
That's best practices. β if you can't do that, at least get a copy of your custodial account agreement and see what it says about money's paid out to a minor, because it will have language.
W. Ben Utley (38:36)
Mm
Nate Reineke (38:48)
So we've asked a couple questions about minors and minors eventually become adults. What are some milestones to update your state plan documents?
W. Ben Utley (38:49)
Got it.
Christine Roberts (39:01)
Yeah, divorce, marriage, remarriage. Definitely if you have created an estate plan when your children were like nine, nine and 11 and the children are in their mid 20s and married or getting married and you maybe that would be a good juncture. I mean, your kids, you know, for instance, your your existing trust probably says the money will be held in trust until your kids are 25. Well, your kids are 25 now.
Nate Reineke (39:10)
Mm-hmm.
Christine Roberts (39:28)
or your kids are 30. would they get the money out right? They're married. Maybe you don't like one of your sons or daughters in law and you want to make sure they never get any money, never have any fiduciary role. Maybe you adore your son or daughter in law and you want to make sure they get something in addition to your grandkids. These are the kind of things, definitely kids coming of age, starting their own families, that's an inflection point.
Nate Reineke (39:29)
Mm-hmm.
Mm-hmm.
Okay, good. All right, β so doctors get sued, right Christine? Yeah, so a lot of them are afraid of being sued. We've heard IRAs and 401Ks get some protection from that. Can you tell us about that?
Christine Roberts (40:05)
They do.
W. Ben Utley (40:06)
So thank
Christine Roberts (40:14)
Well,
you know, the laws, first of all, a 401k account or a defined benefit pension plan account or a cash balance account or a money purchase pension plan account, any kind of an employer sponsored qualified plan, not an IRA type account has protection from creditors other than the Internal Revenue Service. But for IRAs,
Generally, their protection from non-bankruptcy, they have over a million dollars of protection from bankruptcy creditors, but we're mainly talking about non-bankruptcy creditors, you people that sue you. β Their protection varies according to state law. And in California, you're allowed to keep in an IRA the money you need to support you in retirement, but not in a life of luxury. So if you're 35 and you have a $4 million IRA, first of all, God bless you. Second of all,
W. Ben Utley (40:42)
So.
Christine Roberts (41:12)
Second of all, the court probably won't let you keep all of it. They'll say you don't need that much. You're going to work a lot more years, et cetera. So it's a varying thing with IRAs according to state law. There's some rules about money that comes from a 401k to an IRA and whether the
W. Ben Utley (41:15)
So, thank
Christine Roberts (41:34)
the magical status of the protection from creditors carries over. There's case law in California about that. There might be case law in other states. This is one of these things where if you're really concerned about
creditors, then the best thing to do is to talk to a retirement benefit attorney and a risk attorney, have them look at what accounts you have that are IRAs or 401ks, where the money came from, and give you a memo about the level of credit or protection you could expect.
Nate Reineke (42:04)
Mm-hmm.
W. Ben Utley (42:05)
One of the things I've heard β astute estate planning attorneys say is that the the best asset protection looks like really good estate planning.
Christine Roberts (42:16)
β that's an interesting comment because a revocable trust doesn't really in and of itself. I mean, I suppose maybe if they're if they're talking about irrevocable trusts, that's an interesting comment. I want to have a conversation with the person who made that comment. I will say that if you do an estate plan with somebody who knows what they're about,
W. Ben Utley (42:35)
Ha ha ha ha ha ha
Christine Roberts (42:42)
They will have you revisit all your beneficiary designations for your IRAs and getting those in the way you want them is a good thing to do and knowing how much is in them β is a good thing to do. β
W. Ben Utley (42:47)
Mm-hmm.
You know, you raise a really
valid point here, Christine. β I've had experience with a number of attorneys and their approaches to estate planning. Some of them do the full Monte, which is you sit down, they draft up a document, you figure it out, you agree, you sign it. then after that, you fund trusts, you rename IRA designation, beneficiary designations, you change title to property if necessary, you do all those things. But there are another group of attorneys
Christine Roberts (43:23)
Mm-hmm.
W. Ben Utley (43:26)
who when you step out of their office, they're kind of done. It's like you go in, you sign the trust document, you sign the will, it's executed. And then either the attorney assumes that you implemented on your own or they assume that you'll come back to have them implement it. And I've seen this many times. And then there's times that I haven't seen, and I know this is happening because I'll ask the client, do you have a trust? And they'll say, yes, I have a trust. And I'll say, well, okay, show me your revocable trust. And they show it to me. And then we get their account statements.
things like joint accounts or taxable accounts are not titled to the trust. And I pointed out and I'm like, is this intentional? They're like, what do you mean titled to the trust? And these things have never been funded to the trust. They've never been put in trust. And it's an omission. It's not an intentional thing. talk just a little bit about like β the difference between having a state planning documents and having an estate plan.
Christine Roberts (44:09)
Yeah.
This is like the physician being asked about other physicians who maybe don't, a little uncomfortable. But attorney hygiene around trust funding is variable. I will tell you that at Mullen and Hensel, we have never met a trust we haven't funded. β And we fund religiously the real property that we can find title to.
W. Ben Utley (44:28)
Okay, well you don't have to answer that question then.
Nate Reineke (44:41)
Hmm.
Christine Roberts (44:46)
β And we have a funding memo that goes out and we have a certification of trust that they can take to any kind of investment account and have title transferred over to the trust. We are assiduous. We're not perfect because no one's perfect, but we are assiduous and we put a lot of effort into it. We have seen a number of β estate plans from clients coming from Massachusetts, my home Commonwealth, love you Massachusetts. But I don't know what it is with the Massachusetts attorneys, but they don't fund trusts.
W. Ben Utley (44:55)
Mm-hmm.
No.
Christine Roberts (45:14)
And we have had a number of clients come with significant number of assets and we haven't found an account or a piece of property titled in these trusts, they no doubt paid an attorney money to repair. So I would say that it might be variations in practice state by state. β It might be an attorney's bandwidth and what they just leave to clients to handle. But it's certainly funding real property and trust is something you need.
Nate Reineke (45:27)
Mm-hmm.
W. Ben Utley (45:27)
So.
Christine Roberts (45:42)
an attorney's help with or should give an attorney's help with. β And even getting investment accounts titled properly could take some doing. For instance, sometimes like Fidelity will give you new account number when you put your account in the trust. And so now the client comes back to us
W. Ben Utley (45:56)
Mm-hmm.
Christine Roberts (45:58)
and says, you know, that schedule to the trust that lists this account, it's now a different number. So we need to amend our schedule. you know, so there's a lot of moving parts and a trust that's not funded is not really doing anything.
W. Ben Utley (46:05)
Yes.
Christine Roberts (46:11)
And when we have clients that have come to us with trusts that were never funded, we very often revoke the trust to create the new trust. And that trust was paid for, they signed it, they notarized it, it never did anything.
W. Ben Utley (46:18)
Mm.
Nate Reineke (46:19)
No.
W. Ben Utley (46:26)
Yeah. And this is, this is not something that a lay person, someone who's not skilled in the law, particularly physicians doing this on their personal finances. They don't know that this is happening or that this has happened or how it should go down in the best case scenario. And that's why I wanted to bring it to the four in the podcast because I've seen it and, β fortunately these are people that are still alive. Right. But yeah.
Christine Roberts (46:49)
Yeah, they have plenty of time to fund their trust. But one of the things your clients
can, your audience can do when they go to an estate planning attorney, they say, great, I know you can set me up with a great estate plan. Will you help me fund the trust? What will you do? Will you put real property? What about my investment accounts? Will you help with that? I'm willing to pay for your assistance. I wanna make sure this trust is funded. And remember, going back to our first questions about why have a revocable trust and a will, the trust functions to take title of property
out of your name as an individual with an estate to probate. It puts it in the trust that never has an estate to probate. So funding it and transferring title is the reason for being for that trust. That is the reason for being. It is not just to sign it in a lawyer's office and walk away and have a nice lunch. It exists to take title. And until it takes title, it is sitting there, costing you money, not doing anything.
W. Ben Utley (47:20)
you
Nate Reineke (47:32)
Mm-hmm.
W. Ben Utley (47:48)
Yeah.
Nate Reineke (47:49)
Good. Well, Christine, we had more questions for you, but we're running out of time, so we're going to have to have you back on. β I have one final question for you. If you were at a dinner party and someone asked you about your job, what is the one piece of advice you wish everyone knew?
Christine Roberts (47:56)
Okay, this has been so hard. Sure.
W. Ben Utley (47:57)
Yeah.
Christine Roberts (48:07)
wow. mean, when I first saw that question, when you were kind of readying me for this presentation, my response was that as estate planners, we cannot predict the future, but we can plan for a variety of potential futures. And I think that that is my response, which is that we can't ensure that everything will go perfectly, but we can do a lot better than what would occur if you did nothing. β
Nate Reineke (48:22)
Mm-hmm.
Christine Roberts (48:36)
So that would probably be.
Nate Reineke (48:37)
I like that answer too because I think something people will miss is rather than just drawing up documents, you've seen a lot of the potential things that could happen. You get to gather all these experiences from all these different families and plan for something that I would have never even thought of.
Christine Roberts (48:46)
Yeah. Yeah.
Yes. Yes.
Yeah, to liken it to your audience, just as doctors practice medicine, we are practicing law and we are learning with every client and perfecting what we do. And β eventually that experience accumulates and we begin to be able to sort of steer clients through most of the eventualities that could occur.
Nate Reineke (49:00)
Mm-hmm.
Yeah, great. Christine, how can
people get reach you? This is California. So if you're in California and you want to talk to Christine.
Christine Roberts (49:23)
Right, will say estate planning is a very localized set of services. β And I thought that we can't work with clients outside of the Santa Barbara β area. We do, but a lot of times people are best served by getting a good estate planning attorney in where they work and live and play. β But I am at β Mullen and Hensel in Santa Barbara, California. β My β email address is C. Robert, C-R-O-B-E-R-T-S at Mullen
W. Ben Utley (49:25)
So,
Nate Reineke (49:39)
Mm-hmm.
Christine Roberts (49:52)
Law.
m-u-l-l-e-n-l-a-w dot com. And I'd be happy to hear from your audience, especially if they have further thoughts, comments, feedback about this presentation and stuff that's come up and are just sort of trying to get their mind around the idea of estate planning. And I'd love to help them on that journey.
Nate Reineke (50:14)
Yes, please.
W. Ben Utley (50:14)
Nate, shall I take us out?
So all of our listeners out there, β we are not attorneys and we don't practice law.
But we do practice what I would say a state planning adjacent stuff, which is to say, we know a bunch of estate planning attorneys and we also have some guidance around estate planning. And we're there for you through the process of estate planning, sometimes to translate what is happening, sometimes to help you dot the I's and cross the T's. Also to communicate your circumstances more fully to the people that may be serving you in the estate planning realm. So that's part of what a good financial advisor does.
So if you're looking for a good financial advisor, we are raising our hands here. β If you're interested in us, visit physicianfamily.com, click the get started button, take a little quiz, and we'll see you for a match to schedule an interview. If you're not ready for that, then send us a question to podcast at physicianfamily.com. And until next time, remember, you're not just making a living, you're making a life.
