Podcast Episode - Ask KT & Suze Anything: Do I Need a Will and a Trust?

On this edition of Ask KT and Suze Anything, Suze answers questions about what to do when a couple splits up and owns a home, work out dates for CDs, and when to take Social Security.  Plus a quizzy about wills and trust and more! 

Listen to Podcast Episode:

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Podcast Transcript:

Suze: July 25th, 2024. Welcome everybody to the Women and Money podcast.

KT: And KT.

Suze: Yes. And welcome everybody to KT. Today is KT's Day. Period. It's her day. Nothing else exists.

KT: I had the best birthday week with my twin sister and Suze was so great. We did everything and Lynn's husband, Tom was golfing and it was just so much fun.

I was golfing and my sister was golfing, but most important, it was just the most relaxing.

Enjoyable. Fabulous.

Suze: What was your favorite present?

KT: Colo crying on the podcast? Yeah. Did, did you all hear that on Sunday on my birthday? Oh, my God. Suze snuck him in the studio

and I thought we were gonna all do like a family podcast. Wishing each other happy birthday. But Suze said, no, no, no. My studio is really small. I'm just gonna do something on my own. It'll be a surprise. Well, for those of you that haven't listened, go back and listen to Sunday, July 21st because Colo wished me and my sister a happy birthday in tears. All right, let's get on with it.

Suze: For all of you who wanted

see pictures from those incredible days because it was more than one day. Trust me on that, you can go to the women and money podcast app and that's where they are posted.

KT: And Suze, wait, I just have to do a little shout out Jennifer Little Hales. You are incredible. Everyone. She wrote a birthday card. That was a synopsis of 72 years of my life.

It took me three days to read it. It was unbelievable.

Suze: And Jennifer, you know, you have written me many of those emails that we will treasure forever. And a day, you are one extraordinary woman.

KT. Before we begin. Do you know what tomorrow is? Come on, come on July 26.

KT: Love your Credit Union day.

Suze: That's right. Everybody.

KT: Wait. What's your favorite credit union, Suze?

Suze: Well, I have to tell you and everybody should know this. I really, really, really, really love Alliant Credit Union. And how do you know that? I love Alliance Credit Union

because do you think I would allow them to sponsor the Women and Money podcast for all these years if I didn't know that they were the most honest credit union out there?

The credit union that tries to bring you the highest interest rates when it comes to certificates of deposits and, or with the ultimate opportunity, savings account or other things. So I love Alliant Credit Union, not just tomorrow, I love them 365 days

a year and 366 if it's a leap year. By the way, for those of you who want to check out the offers that Alliant Credit Union is still giving to all of you. Go to my alliant.com and look for me. That's myalliant.com.

All right, KT.

KT: So wait, I have to start with another one of my. It's not a question.

Suze: This is going to happen every time now. KT is on, I can tell.

KT: These are little mini love letters but this one I love is from Lynn. My, the same name as my twins. It says hi Suze and KT. I have never understood money.

My ex-husband.

Suze: Oh, you have something in common with her. I didn't mean that, so I take it back, I take it back.

KT: So she said I have never understood money. My ex-husband kept me in the dark now. I am single at 58 and learning about money for the first time with you and ready everyone and sweet KT

you go on every dog walk with me every car ride. I am so appreciative for all you do now. I know I won't be living under a bridge at 80.

I love that. That was from Lynn. Thanks to Lynn for the, the little love letter

Suze: And sweet KT, yes she is.

KT: All right, my first question is from Anne. Hi, beautiful ladies. My father

mother bought a savings bank life insurance policy for me in the 1970s with a death benefit of $5000. The policy is now paid up and worth 11,000 if I were to surrender it now,

I have the option of taking the 6000 and leaving the 5000 policy or cashing out the entire amount I will have to pay taxes. Of course, on whatever I take out. If I keep the $5000 policy, then my daughters get it tax free when I die. Suze, what do you recommend?

Suze: Pop quizzy, pop quizzy real quick. What would you do? Pop quizz?

KT: Um I would I would cash it out totally right.

Suze: Do you have a reason for it or you just...

KT: I just would get rid of it.

Suze: Alright. Ding ding, ding, ding, ding, ding, ding. Alright. There you go. That's the answer. But Ann let me tell you why. That is the correct answer.

You said that your father bought you a savings bank life insurance policy for you in the seventies. So let's just say it was 1975 because I have to tell you they were very, very popular back then and usually the average premium per year was about 100 to $300. So let's just say

that was about 50 years ago. And is that right, KT? About 50 something like that.

KT: Yeah, it's 2024, 1970.

Suze: There you go. My girls listening. Right? So, so that was 50 years ago and let's just say that your father spent $10 a month for 50 years

and now you say it's paid up so no premiums are due anymore. If he put in $10 a month with no interest on that money, it's just what he put in,

that would be $6000. So now you tell me that it's worth $11,000. But you then say to me in this email that, you know, if you cash it out, you have to pay taxes on whatever you take out. How do you know that? I don't think that's true on any level. Just so, you know, if he put in 6000

and now it's worth 11,000, if you cash the whole thing out,

chances are you're only going to owe income tax on that $5000. So you have got to call the insurance company and really ask them how much of this is taxable. If they tell you all of it is taxable, then possibly he got you something called a modified endowment policy.

And therefore when it matures, if you take the money out, all of it is taxable, but I just have a feeling that only $5000 is taxable. Now, either way, let's say all $11,000 was taxable.

If you took it out and you paid income tax on all $11,000. Let's just say, after taxes, you're in the highest tax bracket, federal state, whatever you'll have at least seven or $8000 left if you were to take that money since you want this for your Children anyway. And you were to put, let's just say, $7000 in a Roth IRA.

Do you know that a Roth IRA, if you were to do that over, let's say 30 years, it's gonna be worth about $40,000 even if it was just $5000. And your kids put in 4000 in a Roth and only left it there for, let's say 15 years, it would still be worth $8300 which is still $3300 more than the $5000 that you would be leaving them. It would

all be tax free anyway. So bottom line KT is absolutely correct. You cash that sucker out. But first just find out how much really any of it is taxable.

KT: Ok. My next question is from Doris. Good morning KT and Suze. Help my son, please.

Actually, this is a good one because you and I talk often about what can happen. And here's a perfect example. Everyone, my son bought a house with his fiance two years ago, ready everyone, both names are on the mortgage and the deed. Last week they decided to split up.

My son will keep the house. My question is can he remove her name from the mortgage without refinancing?

Suze: That should not be your question.

You should see KT's face. Because you don't care if her name is on the mortgage, right? Because it doesn't hurt you one way or the other. It puts her in danger. If you stop paying that mortgage, they're gonna come after her. However,

if she's going to make it mandatory, which she should, by the way of taking her name off the mortgage, then really the only choice your son's gonna have is to refinance that mortgage just in his name. But he's going to have to show the financial institution that he can qualify to make those mortgage payments all on his own.

But taking the name off the mortgage refinancing the mortgage doesn't mean that it takes the name off of the deed.

So the real question at hand is how do you get her name off of the deed? That's the question and the answer to that, believe it or not, is that the only way to truly do that is to get what's called a quit claim deed form. And really you can get this form from a local of, you know, anywhere real estate office. I bet you could even find it online if you look for it. And if I were you, I would have your son get this form and he should fill it out. He will have to include the property's legal description the name of his ex on it and the name of the person which will be him who will remain on the deed. Then they're going to have to sign the quick claim deed in front of a notary. So they're going to have to take it down to somebody. They will verify their identities, then sign it and have witnesses and all of that. And then they're going to have to file the deed with the county recorder where they actually kind of submit this notarized quit claim deed to the county recorder's office where the property is located and there will probably be a small fee to do so. But that is what your son and his ex is going to have to do. But having her name on the mortgage puts her in danger, not your son, but having her name on the deed, I don't know, you can't sell it without her name. Right.

KT: Next question is from Carol. She said, hello, KT and Suze. I have a question about CDs and what a workout date is. I don't know what that is either. I have to. Is that no, I would say it means go to yoga or something.

I have two CDs that I opened with Fidelity and they both have workout dates. You know, I never heard.

Suze: It's funny. I read this one and I actually responded to them directly.

KT: What is it, tell me.

Suze: So, for everybody else, when you buy a certificate of deposit many times you have a certificate of deposit, that's a callable certificate of deposit, which means the issuing financial institution has the right to call the CD back before its maturity date. And essentially that is the workout date where they let you know that on this date, they are going to call the CD back. Now. The reason that that's important for you to know is that a lot of banks are saying you can get 6% on this certificate of deposit for X amount of months and you just think it's a great deal, but it's a callable CD. So you give them all your money three months from now if they want to call it and take all the money back and give you the amortized interest rate of 6% over the three months you were in there rather than the year. Oh, they can, like I said...

KT: Like a bait and switch?

Suze: It can be. So if I were you at these times, I would not be doing callable CDs on any level or if it is a workout. No, they all, if it's a callable CD, they all have workout dates, KT. So that is another reason why the one year certificate of deposit from 12 months all the way to 17 months and 30 days at Alliant Credit Union is not callable and it is something that you should look into fabulous interest rate. My alliant.com I'm giving him a lot of love today because it's tomorrow. I love my credit union.

KT: All right. This next question is from Sue. A financial advisor cold called me regarding 260,000 in a money market. And then it says Spaxx.

Suze: It's, it's a Fidelity regular treasury government money market fund that I usually tell everybody to put their money in.

KT: And said I'm eligible for a premium. MMFZDX.

Suze: That's the...

KT: How do you say that? Say it.

Suze: Well, no, that's the symbol of it. So, but what that is is the previous...

KT: Wait, then he recommended putting it into a deferred annuity for safety and guaranteed income. Before the rates go down, the money is from a lump sum pension and the other half is invested. I'm 60 still working and want to retire in 2 to 3 years, Suze. I don't like the part that says deferred annuity.

Suze: Now, here's what, let me tell you what I don't like in it. So Fidelity does have a Fidelity money market premium account, KT. If you have $100,000 or more, you can put your money in there. And now you're getting about until it changes a 5.17% interest rate. But their expense ratio is only 0.30% But minimum of 100,000 or above where most people have their money is in the Fidelity Government Money Market Fund where there is no minimum paying right now about 4.90% because their expense ratio is 0.42%. So it's a 0.12% more than the Fidelity money market premium. So for those of you who want to get a higher interest rate, because you get a lower expense ratio, you have $100,000 or more in a money market. With Fidelity, you can go to their Fidelity money market premium account against. Symbol would be FZDXX. Here's what I don't like.

This advisor, cold calls you. What does that mean? You've never spoken to him before. You have no idea who this person is, but he's able to see that you have $260,000 in a money market account. Why if he really cared about you, why didn't they call you the second that you had $100,000 in there? Because the minimum was 100,000 to put your money in there? Not 260,000. That's number one. But so now he's telling you you're eligible for this however, more than making that interest rate and keeping that money safe and sound. He because you say it's a, he wants you to put this money into a deferred annuity. Why for safety and guaranteed income before rates go down. Scare tactics. Fear. I don't like it.

However, you tell me in this email that your money is from a lump sum pension, which means you took a lump sum of your pension and you rolled it into an IRA rollover where half of it is invested and the other half was just in a money market account. Have I not told you that I do not. Are you gonna underline that? I do not want you within a retirement account to put money in an annuity? An annuity has surrendered charges. It has all kinds of things and chances are if you did that, he's gonna get at least a $10,000 commission to do so. If he really cared about that, why doesn't he tell you to take this money and do a treasury ladder with it? Lock in the interest rates right now in a five year treasury, maybe a seven year treasury, maybe a 20 year treasury, a 30 year whatever it may be. And if interest rates do go down, as he's telling you, they're going to, the value of those treasuries are gonna go up. Oh, why doesn't he tell you that? Because he doesn't really get a commission on it. So your question is a deferred annuity a good idea?

KT: See, I knew that that deferred annuity part would get you.

Suze: But not in this situation, but here's what's so great. She was smart enough to know, to write in and ask, you know what that tells me. She already knew that it wasn't a good idea.

KT: Ok. My next question. This is a very sweet one. Everyone, this is from Francine.

Suze: Wait, I have to say something else. I'm so sorry. When somebody cold calls you, they are given a list of names of people that the brokerage firm, in this case Fidelity, wants them to call to get you to do something with your money that generates a commission. It's not about anything else. You never want to invest with somebody who cold calls you. They're looking for customers; they're looking for a sale. All right. Ok.

KT: This next question is very sweet and I, I hope you can help her. It's from Francine and she said, hi, KT and Suze, hope you're both well. I have a disabled adult child who receives both social security and Medicare paid and before I pass away I would like to set up some sort of funeral arrangements for my child. What are your thoughts on either a prepaid funeral contract or a burial insurance policy? So, Francine's child is now 48 and obviously Francine hopes that her child will outlive her by maybe 20 or 30 years from now. So she, she wants to just put a little security blanket in place.

Suze: But here's the problem Francine because KT just passed your email to me and it says at the end, I have no one to do any of this after I pass away. So I want to do something soon. Who knows how much longer I have? The truth of the matter is none of us know how much longer we have on any level. Age is not the determining factor of that outcome, believe it or not. So you could do that. But then who is going to be telling the company that you did this with that you have this policy and you want to do this to take care of your child? Who? Because if you say you don't have anybody and you spend the money now to get a burial insurance policy or prepaid funeral contract, and we're talking about 30 or 40 or longer years from now, who's gonna do this? How? So I have to tell you, I'm not exactly sure. I don't think I would do that unless you had a person that you knew that would do that or an irrevocable trust or anything like that.

KT: Couldn't she leave instructions?

Suze: She can. But who's gonna know she even had a trust? So, you know, because you have to remember that if there's any money even left over, it has to go back to the state because those are the Medicaid rules. So if you know that you can set this up in such a way and that, in fact, somebody will do this for you and do it correctly, OK. But somehow I have a feeling, uh, you better find that person first or that entity or somebody. I don't know. I'm not sure I would do it just so you know. All right.

KT: Ok. Next question is from Vic. I'm 67 and still working and then it said, but not for the money. I do not have any debt. My home and car are paid for. My social security amount as of now will be $3500. If I defer till 70 I will get 4500. My grandson thinks I should collect now and pay the one third taxes. Your opinion is appreciated. What should Vic do?

Suze: I wish you could see my face. Your grandson. All right. So maybe if you're 67, so your grandson is probably where, late teens, maybe 20 or 21.

KT: Maybe he wants some money from grandpa.

Suze: And your grandson says you should collect it now and you're even considering that your grandson may have the correct solution for you when you don't have any debt, your home and car are paid for, you work but not for the money. Are you crazy? Are you crazy? You should wait, wait until you're 75. Where else are you going to earn 8% a year guaranteed on your money for the next three years? Number one. Number two, it's not just 8% a year, it's also the cost of living increase. Now, Vic, I don't know if you have a spouse, whatever, but if your spouse is younger than you and not making a whole lot of social security, wouldn't you want to leave them $4500? Are you kidding me? And you also have to remember that depending on how much money you are already making and your other income and all of that, this 3500, if you take it, then could be taxable. And so, uh, grandson? KT, did you pick these today to aggravate me?

KT: No, but I know this, some of them. I thought the grandson one was kind of fun. I could, I could see that. Hey, cash it in now and then he's, and then they have the money to buy him a car. Smart kid. So Suze, this is my last question from Sandra. I am getting a divorce and need $200,000 to pay off my soon to be ex-husband. I have two choices: one, take out a home equity but get a tax benefit or clear out two small accounts, one IRA and one pension that are not high earners. If I liquidate the two, I still have good funds to live on. What do I need to consider? Am I missing anything, Suze? So 70. So she's, she's Sandra's 70. So the house equity is around a million dollars.

Suze: Sandra. The simple answer to this obviously is I would do a home equity line of credit. I would not take money from a pension or an IRA for you to pay off $200,000 after taxes to your ex, you would probably have to take out at least $400,000, pay taxes on those and then have $200,000 left. I don't think if you did a home equity line of credit, it would cost you that much. Therefore, you are to do a home equity line of credit. However, I need you to also make sure that if you're going to pay him off, that there is a way that his name is taken off the deed so that this house at that point before you hand over $200,000 to him that this house is in your name and your name alone. Got that girlfriend. Just that simple. All right, KT, guess what time it is. And what's good about quizzy time, everybody, is it's not just can KT get the question right?

KT: Usually not.

Suze: Or wrong, it's do you know the answer to these quiz questions because it's important that you do. Most of the quizzys that I pick, I pick them because it's probable that one day you might be in this situation and you need to know. From Linda. My brother lives in my parents' house in Florida. He took care of them for a few years before they passed away. My two brothers and I are to split the sale three ways when it sells, right? So my brother still lives in the house. He is 78 years old and still in fairly good health. We have to make the assumption, KT, that sometime shortly or whenever, he will be selling the house so that all three kids can divide the money equally. At that time, we also have to make the assumption that the house is currently in all three of their names. We have to make that assumption. Now, what we don't know is, is it in their three names in joint tenancy with right of survivorship or is it in all three of their names in tenants in common? Which means that it goes to their beneficiaries according to their will or trust versus going to the other sibling. So we're going to have to make an assumption here that it's in all three names held in tenants in common. Wait, don't answer yet. She goes on to say, so I did a will and wrote it when it sells and I pass away, my portion will pass on to my two children. Do I have to do a living revocable trust also?

KT: Yes.

Suze: Without even thinking, you said that.

KT: No, I've been thinking about this when you were reading the whole thing. It's like, if you have the trust, your one third portion isn't gonna have to go into probate. She gets it right away. She needs the trust and the will. It's like love and marriage. She needs the trust and the will.

Suze: Why does she need a will?

KT: Well, the will is to specify the contents or art or personal effects in the real estate or whatever one wishes to leave, that isn't necessarily in the trust.

Suze: And why aren't those things in the trust?

KT: A trust is there to specify assets that are titled or bank accounts. Things like that.

Suze: Like real estate, things like that. Right. Not your dishes. Right.

KT: Well, maybe mine really good.

Suze: Maybe her dishes. That's true. So everybody, KT is ding, ding, ding, ding, ding, yay. I'm in such shock. Although that, that was a relatively easy question.

KT: You know why?

Suze: Why?

KT: I am smarter, I'm older and wiser and smarter this week.

Suze: You are, you are smart. That is so true. So everybody, just to be clear on that, the reason that you need both a trust and a will is that a trust will help you avoid probate. And if you happen to own this home, the three of you as tenants in common, which means that your assets go again to those that you leave it to versus automatically going to the other people you own the property with who, by the way, if you owned it in joint tenancy, KT, with right of survivorship, the three of them, she dies, it now will then automatically go without probate to her siblings. But if they die and their will or trust says it goes to their kids, she's just disinherited her own kids. So it's important that it's not joint tenancy with right of survivorship, that it is tenants in common, but you could have a trust be the tenant of that property so that upon death, it goes to her kids without probate. So tenants in common would probably be the best way to set up the trust for a property owner that has quite a few children that want it to go to their children versus going to the other people she happens to own it with. So hopefully you have it set up as tenants in common and hopefully your tenancy is in the name of your living revocable trust, which obviously it's not because your question is asking, should you have a trust? And the answer to that question is absolutely. But you have, you look like you have another question for me.

KT: So she already has a will. Is that legal? Is that binding? Is that, how does that get honored?

Suze: Yeah. Well, what's interesting — and that's actually a great question — because a lot of people think all they have to do is write on a piece of paper where they want everything to go and just leave that piece of paper for everybody to find. Not that easy. First of all, everybody, for a will to be legally binding, it has to meet certain requirements such as you have to be at least 18 years of age, which she is, you have to be of what they call sound mind, meaning that you understand the nature of what you're writing. So somebody could be older than 18, but if they're incapacitated, if they're not mentally stable, whatever it may be, their will isn't going to be considered valid. However, so here she is, she wrote a legal document. Just remember, it's got to be written. Very few jurisdictions honor what's called an oral will, where somebody hears you've said something and therefore they're going to honor it. So a written will is absolutely far more secure. However, she must sign the will. She can't have somebody else sign it for her. She has to sign it herself, but she needs witnesses if she signs it because most states require at least two witnesses who are not beneficiaries of the will and they have to watch you sign the will and then sign it themselves to confirm that they witnessed her signature. You know, KT, how we would redo things and every time we redid it, it was, how did we do the will, then the trust, because the will required two witnesses, they had to sign it, we have to have — it was a mess. All right. And while it's true most states don't require that you notarize the will, KT, but it makes it less likely to be contested. So if I were you, I would have your will notarized. And that's just what you need to know. So really, just signing a piece of paper doesn't necessarily mean that it is going to hold up. What we have, and it needs to be the original document, correct. It needs to be the original document. And if you cross out something on your will and you write something else, it automatically invalidates it. So if you're gonna update your will or do a new will, if I were you, I would rip up the old one and just do this process all over again with the new one. And that's what I would do. But you did pretty good, my little smart, 72-year-old. How does it feel?

KT: You don't have to say that.

Suze: I do. It makes me feel older and wiser because I'm one year — you have one year till your RMDs start. But that's a whole other podcast. Take us out, my dear wise one.

KT: So, Suze, there's only three things everyone needs to remember and that is people first, then money, then things.

Suze: And if they do that, what happens — and they stay safe — they will be what, KT?

KT: Unstoppable!

Suze: You heard it right from the birthday girl. See you soon. Bye-bye.