Charlie Gipple, CFP, CLU, ChFC

A client of mine has been going crazy as she is the power of attorney for one of her family members, as well as a trustee of the revocable trust for that family member. She has been running all over the place getting affairs in order and is stressed!

This client asked for my help to go into one of the major banks (where the money is) with her to speak with a “personal banker/financial advisor” about simplifying and consolidating a bunch of the accounts, as well as making sure that everything is in the name of the trust. I volunteered to help, since estate planning is one of my specialties. Plus, I know this institution will make her life hell if I am not there to wade through the technicalities for her. I knew the odds of the personal banker understanding trust and POA issues is right up there with the odds of me being drafted to the NBA.

I figured the personal banker would not be enthused with having me there, because I am a competitor! But hey, it’s not about him, it is about my client. Plus, if everything goes smoothly, I don’t need to say a word…

The Meeting
The personal banker we met with was a young kid and, sure enough, was absolutely clueless about anything having to do with power of attorneys, springing power of attorneys, trustees on revocable trusts, successor trustees after death has happened, etc. Again, I knew this would be the case before I even walked into the bank. I’ve seen it a million times where banks hire young kids to deal with major league stuff, estate planning for example!

At first, I kept quiet. My client started out discussing details about how she needed to change the titling of the accounts to the trust as well as to make sure her POA is on file, etc. The banker then stated that this client I was with was merely the successor trustee and currently had no power to do anything—at least until death of the grantor—with any of the accounts at the bank. So, I had to educate him by pulling up the trust on my phone and telling him the successor trustee thing was for after the death of the grantor when the revocable trust becomes irrevocable. However, this person is currently one of three trustees of the revocable trust and can act independent of the other two trustees, per the first few lines of the trust documents. Eventually, I had to educate him that the trustee does indeed have the authority. (Note: That is how revocable trusts work. They become irrevocable upon death! He did not know this.)

He also initially stated that he needed the notarized signature of the grantor, who is currently in the nursing home. I said, “That’s not correct, do we drag her out of the nursing home to go to a bank to get a notary?” He said, “They probably have a notary in the nursing home.” I was trying to not internally combust. At this point, he still does not know what I do for a living because I did not pull the “do you know what I do?” card… Yet…

He even questioned the power of attorney, asking if the person/principal was incapacitated yet. I had to tell him that it didn’t matter because this was not a “springing power of attorney“ and was actually effective right now. He wasn’t going to allow her to act as POA for that individual as well unless we could prove incapacitation. (Note: Springing Power of Attorneys only become effective at incapacitation. (This was not a Springing POA and already in effect! He did not know the difference.)

With him questioning her power as the trustee and also her power as the POA—even though the documents were right there in front of him—he was effectively “vetoing” any power that she legally had to help her family member. As I dug into the details, which were above his head, he threw out the line about “We are not allowed to give legal advice.” That is when I “officially” introduced myself and what I do for a living. I then told him, “Actually from a legal standpoint, the trust and Power of Attorney documents in front of you are crystal clear. The legal situation is clear, so there is no “legal advice” needed. However, you are telling us that from a policies and procedures standpoint, this bank will not accept the legal documents.”

This is when he swallowed his pride and called the document attorneys at the bank to confirm what I was teaching him. They confirmed. He wouldn’t have done this if I did not push back on him. He initially, until I got more vocal, said “Sorry, there is nothing you can do.” If I were not there giving an estate planning dissertation to him he would’ve had my client walk out helpless. I should send the bank a bill for my time training their employee…

The point is, this made me sick and ashamed that consumers have to go through what she would have gone through without my help. Time and time again I have seen these banks pull the “We cannot give legal advice” ripcord because they are scared to death of being sued. They will even say this when it is not legal advice they are giving but their ego refuses to be proven wrong. So, again, they pull that ripcord and send the frustrated client on their way! You may have witnessed this before too.

Dealing with life savings of retirees is major league stuff where decisions are made based on millions of dollars. Nothing wrong with being “a kid” but this is not amateur hour.

At the end, and after two hours, the bank did what they were supposed to do from a legal standpoint and my client did what she needed to do. If he knew about estate planning it would have been a 30-minute meeting. He was a nice kid, and I was patient for a long time, but when misinformation creates undue hardship on my client some “tough love” was needed.

Unfortunately, people feel that these big banks must have world-class people because, after all, they are big banks with big buildings and big advertising. Well, many times it is kids that are not CFPs, CFAs, CLUs, ChFCs, etc., and have less than a decade of experience. Granted, there are some very capable professionals in banks and maybe you—the reader—are one of them. However, my opinion is that for the young kids getting that “job” at the bank, they are often given tasks like estate planning issues which are above their heads. Plus, banks try to do everything and specialize in nothing, which leaves the personal bankers knowledge an inch deep and a mile wide. This is a large contrast to how independent financial professionals work.

In 1933, congress passed the Glass-Steagall Act which basically kept separate the banking functions and investment functions. Hence, for the longest time, banks were only allowed to do what banks did best—lending money and taking deposits. They weren’t allowed to do the investment/retirement planning functions that they try to do today. Then, in 1999, with the passage of the Gramm-Leach-Bliley Act, the walls separating banking from investments came down. Now you have banks doing everything from loaning you money, to selling you credit cards, to investing your retirement portfolio. Specializing in nothing and generalizing in everything. Well, my experience is a good example of how our clients might be better served if the Glass-Steagall Act or something like it was still in effect.

After everybody being “locked down” a few years ago, educational seminars are back and stronger than ever. And make no mistake, seminars are a powerful prospecting tool…the most powerful, at least in my opinion. With a seminar, you have an hour of uninterrupted time where you can build credibility with your audience by showing your knowledge on various topics. Furthermore, and most importantly, if you are a likable and engaging presenter there is an emotional connection that happens over an hour-long period between the audience and the presenter. This connection cannot easily happen with other forms of prospecting/marketing.

Understanding the power of seminars, years back when I started my IMO I tested various seminar systems that other IMOs and seminar vendors had offered. I was on a mission to find the best seminar system out there so I could offer that to the agents that worked with my company. After testing several seminar systems and spending a ton of money, I did get results. Again, seminars work! However, I had observed some flaws in almost every system out there that I felt could be improved upon. After all, nobody is perfect, and no “system” is perfect. But I thought there were areas where the systems could become “more perfect.” So, I eventually told myself “Self, if I want to be 100 percent bought into a seminar system that I offer my agents, I just need to create it myself so that those flaws do not exist.” After a couple of years of development, tens of thousands of dollars spent testing, scores of seminars, and losing every strand of my hair on my head, I feel that I cracked the code.

Through that process I feel that I gained a lot of information that can pass on to the financial professionals that want to conduct seminars. This article is going to address one of about twenty or so of those “improvement areas.” The other nineteen areas are beyond the scope of this article.

The improvement area that I want to focus on is extremely important for agents that want to run a good business. It has to do with money! That is, the expense of the seminars versus return on investment. After all, most of us are not 501c (nonprofit) organizations!

Paying for seminars
At the time almost all seminar systems got consumers to the meetings by direct mail. For example, with one of the seminar systems that I tested they told me that the cost per mailer was $.50. Very normal cost. They also told me that I should do around 6,000 mailers per seminar, which would be an expense of $3,000. Furthermore, I was told that I should sign up for at least three seminars to “smooth out” the results, so it more resembles long-term true statistical experience. Although $9,000 is a big expenditure, as a student of math and statistics I understand the “law of large numbers.” I also respected the statistics that they had regarding past results. For instance, based on 6,000 mailers and their quoted .66 percent registration rate, we should have around forty registrants (.66 percent times 6,000 mailers) for each seminar. Understanding that $9,000 is merely one decent indexed annuity sale, I wrote a $9,000 check for all three seminars!

Although the true registration rate was indeed less than what they projected, I did get a decent return on my $9,000 investment. However, I was bothered by the fact that there was something archaic about writing a check for $9,000, printing out pallets of mailers that may or may not work, then hoping and praying that they do work. Whether it works or not, you are out $9,000! That is you, the agent! The seminar vendors will never lose money with the typical setup. (Note: I am not bashing direct mail, because there are great direct mail vendors and systems that have made a ton of agents a ton of money! But there are better methods.)

A couple of points regarding the topics of return on investment and seminar expenditures:

1. ROI (Return on Investment) is what matters most. Mr. Obvious here! Whether the seminar costs $1,000 or $9,000, it does not matter to me as long as the ROI is there. I know agents that will happily fork out $9k over $1k if the system that requires $9k has a better ROI. I am one of those people.
2. What ROI guarantees are there? As I learned to a certain extent, having the seminar vendor quote ROI numbers is a moot point unless there is some sort of guarantee around it or some option to bail out if the return on investment is not happening. Although I discuss in number one that people will happily pay $9,000 if the ROI is there, the anxiety is far more intense when agents are shoveling out $9,000 versus $1,000. The problem is, with direct mail, once those 18,000 mailers are printed the expense has to be borne by somebody and that turkey is already cooked (mailers printed) regardless of what the ROI is eventually. That is the reason that seminar vendors generally do not have some sort of a guarantee or a bail out. I do know some vendors that have guarantees, but those guarantees come at a huge expense. Again, it seems to me that printing out tens of thousands of mailers and hoping and praying that they work is kind of an archaic process in this day and age.

There are better ways to get better ROIs which do not require a massive expenditure and that provide the option for the agent to “bail out” before spending a ton of money if the results are not on track.

Through the use of social media marketing, it is not about printing a ton of expensive material and hoping and praying that it works. Social media marketing is a pay as you go system. For instance, within the first $100 that is spent on the social media campaign I can identify if it is going to be successful or not. Everything from the text to the landing pages to the videos to the colors to the algorithm is proven. However, what I am saying in that last sentence is just words in the eyes of many folks. So, because of the way social media marketing works, the agent can rest assured that if for some reason it is not successful, the agent has the option of bailing out, adjusting the seminar location, or adjusting the messaging.

The punchline is this: In this day and age, if somebody has a tested and proven social media system, you do not have to write massive checks and hope and pray that you get results.

Again, I spent a lot of money on testing to get the right formula so the agents do not have to. For much of the formula, if I told you too much I would have to, well, you know… The point is, if a system is tested and refined, you can get in front of people for as little as $20-$30 per qualified registrant. That’s right!

For a seminar, a marketing budget of as little as $1,000 can be sufficient in many cases. That can get you in front of 30 to 50 registrants. Of course, results vary based on the seminar topic. Our number one topic gets registrants for $20-$25 per household. Furthermore, with social media, after we have spent only $100 or so in marketing, an astute social media experienced eyeball can identify if that campaign is going to work or not in that geographic area. If it is not working, wouldn’t it be nice if the seminar vendor called you, the agent, and said, “Here are the results so far and you’ve spent $100, do you want to continue, adjust the location, or do you want the rest of your money back?”

With an expenditure as small as $1,000 that is effectively risk free to the agent, it is definitely a different take on seminar systems. As I told somebody last week, “Don’t take the low cost as being a Thrift Shop cheap system. I almost feel petty, and as if I am devaluing the process when I use $1,000 as an example. However, with technology today, a lot of things have gotten cheaper and higher quality. Have you bought a television lately? They are cheaper than ever and are smarter than a mainframe computer was 20 years ago. Technology is a beautiful thing.” In the seminar world, today’s TV is social media. The TV from 20 years ago is direct mail. Of course, I understand that not everybody is on social media and there is power in getting a physical mailer in your mailbox!

What I just explained is significantly different than spending $9,000 and crossing your fingers. To me, when it comes to seminar systems and the capabilities that we have with social media, the future is extremely exciting versus agents having to bear an expense that may or may not work.

We have not even discussed consumer webinars, which have grown in popularity as well.

Both of my kids play basketball at least 300 days a year. If it’s not the time of year for school basketball, then they are participating in AAU clubs. If they are not doing AAU or school ball, they are in the gym by themselves. For those of you that have (or had) young athletes, you know the amount of transporting kids, coordinating tournament schedules, etc., that happens. And everything is always evolving: What shirts they should wear at a certain tournament, who is bringing snacks, who is sponsoring what event, etc. With that, sometimes it’s so overwhelming that I just declare mental bankruptcy. That is, I erase all the minutia from my mind and tell my wife, “I will just go where you tell me to go.”

That is analogous to what has happened with many agents over the last five years or so when it comes to inherited IRAs, as well as inherited non-qualified annuities that have deferred gain. We had The Secure Act of 2019 that squashed the “Stretch IRA” in many situations, then we had the uncertainty around RMDs and the 10-year rule that the IRS keeps going back-and-forth on, now you have secure 2.0, and the list goes on. I have found that many financial professionals that work with annuities have just declared mental bankruptcy and figure they would navigate this bridge once they approach it and once the dust settles. Needless to say, that may not be a great strategy. So, I will briefly simplify the options below.

What is a Stretch?
I will oversimplify what a stretch IRA is first. Quite simply if one has $1 million in IRA money and passes away, for the beneficiary to cash out that entire $1 million in the first year, it’s not inconceivable to lose $400,000 right off the top. Hence, the inherited $1 million immediately goes to $600,000. Conversely, with a Stretch IRA option that existed prior to 2020, you can stretch that tax liability out over the beneficiary’s lifetime by just taking annual required distributions (based on a table). If you think of the way that compounding works, if the beneficiary’s required distributions in the early years are only three or four percent (based off the table) of the total value but yet the annuity is growing at five, six or seven percent, the beneficiary’s $1 million is not being reduced, it is getting larger and larger up to a point. So, over a 30-, 40-, or 50-year lifetime, that $1 million could very easily generate $2 million to $5 million in additional wealth to that beneficiary by “stretching” the tax liability. In 2019 Congress decided this option would no longer be available for many beneficiaries of IRAs when death happened in 2020 or later. So, let’s explain what the options are today.

Non-Qualified Stretch: What Changed?
Let’s forget IRA money for a second. If one passes away with a non-qualified annuity that has a significant amount of accumulated interest in it, what is taxable to the beneficiary? Well, if the beneficiary just cashed it out, the entire gain would be taxable in that year. However, congress has allowed for the gain to be “stretched” by utilizing the same life expectancy table as the Stretch IRA. What happened to this option with the recent legislation? Nothing. This still exists for most beneficiaries of that annuity today!

Many agents come to me as they are working with the beneficiary of a non-qualified annuity where the original owner just died. They often ask if they can move the inherited non-qualified money to another carrier. The answer is yes. Just note that as far as doing a 1035 of a non-qualified stretch IRA–after death has happened–not all companies accept it. Ask your IMO who does and who does not.

Stretch IRAs with Death Before January 1,2020: What Changed?
For “Decedent IRAs” where death happened prior to January 1, 2020, and the beneficiaries are currently “stretching” the IRA, nothing has changed. Basically, this money is “grandfathered in” and can continue to be stretched. However, again, not all companies accept Stretch IRAs to be transferred into them, regardless of when death happened. Some do, however.

Decedent IRAs with Death on or After January 1, 2020: What Changed?
This is where the changes happened. The Secure Act introduced us to two classes of beneficiaries: Eligible Designated Beneficiaries and Non-Eligible Designated Beneficiaries.

Class 1: Eligible Designated Beneficiaries which are designated beneficiaries of the IRA that are also:

• A spouse, or,
• A disabled beneficiary, or,
• A child who has not yet reached age 21, or,
• A chronically ill beneficiary, or,
• A beneficiary who is not more than 10 years younger than the owner.

For this group, the Stretch IRA option still exists. However, for the spouse, he/she will usually leverage the additional option that the spouse has always had, to take it over as her/his own IRA (Spousal Continuance). So, for the spouse, the Stretch IRA is rarely used.

There is also an exception for the minor child who hasn’t reached age 21 yet. This exception says that once he/she hits age 21 then he/she must continue those RMDs, with a catch! He/she must completely empty the IRA by December 31 of the 10th year after he/she turns age 21. In other words, once he/she hits age 21, they are subject to “The 10-Year Rule.”

(Note: Money passing on to siblings often can be “stretched.” That is because oftentimes the sibling is not more than 10 years younger than the deceased.)

Class 2: Non-Eligible Beneficiaries which are designated beneficiaries of the IRA that are basically everybody else not on the previous list. For example, a 50-year-old son or daughter that has been named as a beneficiary.

For these folks, if the original owner died on or after January 1, 2020, then they are subject to the “10-Year Rule.” Again, if the original owner died prior to January 1, 2020, then they could have chosen the stretch. The 10-year rule says that they must cash out the entire balance of the IRA by December 31 of the 10th year after death. No more stretching over life.

Here is a question and a source of confusion that the IRS has gone back and forth on: For our Non-Eligible Designated Beneficiary, do they have to take Required Minimum Distributions in years 1 through 9? It depends. It depends on if the original owner was taking their required minimum distributions. If the answer is yes, then the answer is “yes, you have to take RMDs in years one through nine.” The RMD for the original owner must be satisfied in the year of death. But, thereafter, the RMDs are based on the beneficiary’s life expectancy reduced by one for each year that goes by. In short, if the owner was required to take RMDs, then the beneficiary will be required to as well, until they fully liquidate the account by the end of year 10. As Ed Slott says, “If the original owner had to turn on the RMD spigot, then that RMD spigot must continue, even after death.”

In the example, if the original owner had not yet been taking their RMDs, then no RMD is due from the beneficiary. However, of course the beneficiary would still need to liquidate the entire account by the end of the 10th year.

What about transferring the Decedent IRA that is subject to the 10-year rule to another annuity company? Can you do this? Yes you can but, as you might guess, some companies accept Decedent IRAs subject to the 10-year rule, and some don’t. For those that do accept it, they oftentimes will only allow it for certain products (with less than 10 surrender periods). Again, speak with your IMO.

What about Inherited Roth IRAs?
The 10-year rule applies. What does not apply is the RMDs between year one and nine for the beneficiary. This is because the original owner of the Roth IRA would never be subject to RMDs with a Roth.

This article is not all-encompassing as I did not get into recent RMD relief, estates as benes, the lump sum options, trusts as benes, etc. However, this should give you a fairly decent roadmap. If you would like a chart that lays this out “at a glance,” let me know.