Make It Last – Ep 28 – 4 Things Missing From Your Estate Plan and 1 Investment to Steer Clear Of

This week, Victor discusses four things missing from your estate plan and 1 investment that you probably have in your portfolio (especially if you’re working with one of those large investment firms.

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

For more information, visit Medina Law Group or Private Client Capital Group.

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Make It Last – Ep 28 – 4 Things Missing From Your Estate Plan and 1 Investment to Steer Clear Of

Click below to read the full transcript…

Announcer:  Welcome to “Make It Last,” helping you keep your legal ducks in a row and your nest egg secure, with your host Victor Medina, an estate planning and elder law attorney, and certified financial planner.

Victor Medina:  Everybody, welcome back to Make It Last. I am your host Victor Medina. Welcome back to another episode. I am excited to be with you today. I’ve got a great show lined up for you. I hope you are going to learn a lot from it.

I’m going to talk to you a little bit today about some things that may be missing from your estate plan, four things we’ve come across that are often missing from the estate plan. Basically, giving opportunity to review that and make sure that that’s not happening to you.

The other thing that I wanted to talk about was some proprietary investment issues. I am going to cover both of those things today. A lot of people that come in, they’ve got a review of their portfolio and it turns out that they’ve got some proprietary investments. I’m going to illustrate how and why that’s not great and what you should do about it.

I will share with you a little personal information. I just got back from celebrating my brother’s wedding. My brother got married to a wonderful woman named Beth Hanson.

They’re on their honeymoon in Italy right now. They had a fantastic wedding on the beach just outside of Charleston, South Carolina, where he lives. I’ll tell you something I really loved about that, two things really, my son, who is 14 and really into photography and stuff, was asked to be a videographer.

He ended up being the videographer for the wedding. I’m interested to see what that footage looks like. He ended up renting a lens and everything for it. More than anything else, he took it seriously and my brother paid him. He was like, “Welcome to adulthood.”

I let him know immediately how he should be investing that and told him a little bit about taxes, which he didn’t appreciate, but I did have him as a captive audience for the 14 hours that we drove back from Charleston back home in New Jersey. The second thing was just the food.

The food was out of this world. I don’t know if you ever get a chance to go down to Charleston. I’ve talked a lot about my brother who is down there working for this hospitality group called 82 Queen.

They run a few restaurants and whatnot. Two of the ones that they run, which were fantastic, one is 82 Queen Street and we had some high‑end fish, just outstanding.

That was at the rehearsal dinner. Someone who has known my brother for a while and I’ve gotten to meet personally, Anthony runs the Swig & Swine, which is a barbecue place. I just went to town on the brisket. It’s a good thing that I was on the beach and I could walk some of it off because I tell you…too much, too much.

Anyway, happy to celebrate my brother’s wedding, looking forward to great things with him and his new wife. Hoping they start a family soon because as it turns out, there are only boys that we’ve had in our family.

I’ve got three, my sister’s going to have her second, and I’m sure that my brothers are getting a few daughters. Anyway, enough about my personal stuff.

Let’s jump right into the topics for today. The first topic I want to cover in this first segment has to do with four things that are often overlooked when people create their estate plan.

Most people cover the basics. They’ll name an executor. They’ll figure out where their stuff is supposed to go. They may even remember to do a power of attorney or an advanced healthcare directive.

People overlook these common things, most of the time, because they’re not thinking fully or clearly about their estate planning account ‑‑ what it’s going to touch, all the different things that it might impact.

One of the first ones that we’ve seen pretty often is actually naming alternate beneficiaries. Most trusts or wills include one primary beneficiary. Maybe, even the children in equal shares. They will cover that.

Hasn’t thought through what would happen for a backup in the event that that beneficiary died before the client did. Now this happens more and more as clients get older and their children get older with them.

Sometimes, they’ll outlive their children. Their will needs to include or the trust needs to include some provisions about what’s supposed to happen if that person’s there.

Now maybe that you want your child’s share to go to their children, your grandchildren from that child. That’s pretty common. What if they don’t have any? Should it go to the person’s spouse? Should it be split amongst your other children?

Thinking through a few backup contingency plans is something that you should be doing. In fact, you can review your plan now and look and say, “OK, have I only gone one deep?” or, “Have I gone a little bit further than that, in case it’s unclear?”

A related thing, in terms of alternate beneficiaries, is trying to think it through whether or not they’re capable of inheriting it. They might be too young, and you may want a trust for their benefit.

They may have an inability, or they may be unable to manage the assets properly. They may need help with that. Thinking about how it’s received to them or left to them is important for how you create this distribution to these beneficiaries.

If your intent in the document isn’t clear, then it can be difficult to overcome, often requiring involvement with the court. Naming beneficiaries, naming backups to the beneficiaries, and thinking through what happens if those people are not available, is an important one.

The next one that is often overlooked is dealing with digital assets. More and more people acquire digital assets. These digital assets can include anything from websites that you own to social media accounts and things like that. I can’t keep up, my children have got accounts in services I didn’t know existed and I don’t know what they’re used for.

In fact, right now, the one that my son’s on a lot is Snapchat. I know it’s got the funny filters with the nose face and things like that. I asked him, “How do you use this? Do you use it sending it to a lot of people?”

I don’t know. I do have an Instagram account. Apparently, that makes me hipper than my mom who only has a Facebook account. The progression of hipness in adulthood, only Facebook, that’s the super‑old people.

Facebook and Instagram hip, but not really at my son’s level. Add Snapchat, then all of a sudden, you’re the coolest kid in the world.

Anyway, you want to make provisions in your estate plan for how to deal with that, including account numbers and passwords, probably shouldn’t be in the documents themselves, but they should be available to them.

We often encourage, especially our seniors, to use this software program like LastPass or 1Password that would put all of those together and share that one password with whoever their executor is going to be so that they can help manage all that stuff when the person passes away. That’s next one, providing for digital assets.

After that, something that’s often overlooked is a personal property memorandum. That’s a lot to say, evidently, since I couldn’t say it. Personal property memorandum is often what we refer to in our office as the special stuff list.

It’s the thing that you create that designates where your stuff is supposed to go. I’ll tell you something, folks, people often fight over the craziest personal possessions ‑‑ plates, silverware set, a picture that’s hung on the wall. They get angrier over that than they do about money. They fight over the least valuable items, the grandfather clock or whatever.

One of the things you can put in your estate plan is this special stuff list. This special stuff list, essentially, lists out what it is, the thing that you want to give, and who it’s supposed to go to.

The reason why it’s a separate document is, well first, it would be difficult to incorporate that into a will. It would seem like a laundry list. Also, your special stuff changes and your desire for the special stuff to go someplace often changes over time.

Most states include specific documents that can be read by incorporation to your will, so you can have the special stull list or this personal property memorandum, you that basically sign and date, and whatever is the most recent version of that is what is read with the estate plan.

It’s a good way of making sure that you avoid problems and fights because you’ll fairly clearly lay out where you wanted your stuff to go. We definitely recommend having a personal property memorandum.

The fourth thing that’s often overlooked in an estate plan is trustee and guardian designations. Many times people are doing planning when their children are already adults, so they don’t need guardians for them.

It may be important for you to name a trustee over the money that goes to your grandchildren. It may be that you don’t want whoever is the next living relative to be managing that money. You might think, “I don’t need a trustee for my inheritance. My kids are all old enough. They can manage their own money.”

When you start to think, going back to the very first recommendation that we made about naming an alternate beneficiary, if some of that money ends up in the hands of your minor grandchildren, you might have very clear ideas about who you want to help manage that.

It could be an uncle or an aunt, somebody within your family and not necessarily the next of kin, whoever’s being that person’s guardian. You want to think about that as well and, of course, a competent estate planning attorney is going to assist you with that.

Victor:  Those are the four things that you often overlook in your will. You want to look at alternate beneficiaries, providing for digital assets, the personal property memorandum, and your trustee or guardian designations. Take a look at your plan and see how you shake out on that.

Now, when we come back, I’m going to talk to you about proprietary assets. I’ll explain what they are, and then I’ll talk to you why you should steer clear of them and how you can steer clear of them. Stick with us when we come back after this break.


Victor:  Welcome back. I wanted to talk to you about proprietary assets, and then I realized the moment that I say word proprietary assets, you probably have no idea what I’m talking about.

I want to lay out a little bit of what they are and why you should steer clear of them because they do appear often in our client’s portfolios when we review things.

Whenever I start working with a new family, one of the first orders of business is to get a clear picture of what assets they have so we can determine how to preserve these statin, secure lifelong income, the tedious and boring stuff that goes into retirement income planning that I’ve covered in other shows.

This in and of itself can be an eye‑opening experience for most of our families because they determine whether or not they have enough resources to fulfill their needs and their goals as well as anything that they’re going to do with their legacy. This process also becomes very eye opening whenever we discover that their portfolio includes a significant portion of proprietary assets.

Now, as I’ve said most investors don’t even realize that they are in the assets because they don’t know what they are and what they represent.

Before you can fully grasp the reason for the concern, I want to hit another topic that I’ve done before, which is clarify the distinction between different types of professionals that all like to call themselves financial advisors. We’ll just do a quick history lesson on financial legislation going back to 1933.

There was a law enacted to prohibit banks and investment firms, insurance companies from combining their operations. The belief was that the separation of the financial industries along with several other provisions of the 1933 Act would deliver economic stability at a very challenging time. Remember, we had the Great Depression in ’29.

After decades or so of wanting a piece of the business in these other industries, the financial banking and insurance industries finally got their wish.

In 1999, there was another law that was passed, the Financial Services Modernization Act of 1999. It repealed the cross industry prohibitions of the Act of 1933. What it meant was that banks, investment firms, and insurance companies could get involved in each other’s businesses.

What does this mean for the financial services consumer? The client? In short, a little bit of chaos, and a ton of confusion because banks started selling insurance, mutual funds, annuities, and other investment products, and insurance companies started offering bonds, and CDs, and saving accounts, and mutual funds and loans. Investment firms, they started selling insurance, and money markets, and CDs.

This wild, wild west, environment produced a ton of this jack of all trades, master of none, financial professionals that were cross selling amongst their industries and consumers easily got bombarded with all of these financial solutions everywhere they turned.

They would go to their local bank and their bank would be trying to sell them insurance and investments. They created branches inside of their. I guess it’s called their private client branch. “You’re gonna come in, you’re gonna come talk to us and we’re gonna be able to handle all of your stuff.”

Everybody in the industry, everybody was calling themselves a financial advisor. It didn’t really matter whether or not there was somebody who held all of the licenses. They were able to do that if they only held an insurance license, or a broker’s license to sell commissionable investments like securities and things like that.

Now, the next thing that you understand is that this financial free‑for‑all ended up setting the stage for this surge of proprietary products.

On the surface, these proprietary products appear to be appropriate for investing but they represent some serious risks to the financial strength and the flexibility of your portfolio, and at the heart of the issue is the way that you acquire them and from whom.

A proprietary product is in essence like a house brand. When you’re offered the proprietary product, you know a few important things. You know that you’re likely working with an investment salesperson rather than an independent advisor. This person, their main source of income is from commissions on the sale of those investments.

Secondly, you know that you may not have been offered the best solution for you, just the best one that they could offer because it’s on a menu of things that are available to them and then not everything else are available. It could appear to be the same kind of thing as working with a financial, independent person, a fiduciary, but it’s not. How can I illustrate this?

Those regular listeners knows that I’ve been shopping for a car. I think I’ve finally settled on one, not in the nick of time since my lease is up in November 4th or so. If you walk into a dealership, and it’s a Ford dealership, and describe what you want in a car, the engine, the color, the electronic goodies, what brand of car do you think they were going to show you?

It doesn’t matter that the world of cars that serve, your needs could include a Ford, a Honda, a BMW, and a Porsche. The only thing that the salesperson can offer you is a Ford. They make them, and then they sell them.

You might think that example isn’t all that helpful because in fact, I know that those car manufactures only sell what they are. If I want to cross shop, I know I have to cross shop.

Let’s assume for a second that you go shopping for a new television, which I also have to do. Not before football season is over, because I need a bigger TV. If you go to the large change stores, you go to a Best Buy, they might sell a house brand but also sell all of the main name brands.

The company not only makes the TVs but sells them as well, underneath that slightly different umbrella. Their profit margin on their own brand is much higher than if you buy the name brands that they offer. What you don’t know is that the salesperson earns a higher commission and other perks for selling the house brand TV instead of the name brands.

When you ask the salesperson which TV they recommend, what do you think is going to happen? You might get the TV that was a better deal for the salesperson than it was for you. These scenarios are very similar to what happens when you are offered a proprietary investment product.

Chances are highly likely that the advisor who is recommending the proprietary product is being offered some extra incentive or pressure to sell it to you.

How could that ever be in your best interest or how could you ever get comfortable that they could get around that conflict even if the investment appears to be doing well and considered to be a suitable match for your investment objectives and yada, yada.

How do you ever really know if it was the best option for you?

The thing about it is there is nothing in legal about this rigged system. Your trusted salesperson is not obligated to tell you about this arrangement. You have this conflict of interest and inappropriate selection, and you never have to be advised of it.

Similarly, if you buy from that menu, or if you’re working with a salesperson that can only offer from that menu, your flexibility and investment options is smaller. One of the benefits of working with an independent financial advisor is that you will have the world of investments that are available to you.

Victor:  If you only work with somebody that’s part of a large bank or a large investment firm, they’re going to sell you the stuff that is proprietary and the stuff that they make more money on. You’re not necessarily getting recommendations on better things for you. There’s no other way to put it.

That’s the introduction to it. Let’s talk about how to identify them, how to steer clear of them, and how to make sure that they’re not in your portfolio. We’re going to do that when we come back on Make It Last. Stick with us, when we come back from this break.


Victor:  Welcome back. We’ve been talking about proprietary investment products, proprietary assets, and talked a little bit about the history of financial regulation, what brought us here. When I left you, I was talking about how investments in proprietary products reduce your flexibility and your options in investments.

One of the ways that it does that is in your liquidation options, your ability to transfer that. If you choose to move your accounts to another firm, you can’t take your proprietary assets with you. That means that you’re either bound to that firm or you’re going to have to liquidate the assets.

Another way to illustrate that is when we custody our assets, we custody them with Schwab. Trump is a pretty broad‑spectrum custodian. They do high‑level client services. They’re the right custodian for us to be working with. The idea is that they can hold a lot of stuff. They work with a lot of independent advisors.

When we meet with the client and we fill out the paperwork to transfer their investments over to us so that we can sell them and then start investing in our platform, what we recommend, often what happens is that the proprietary assets are refused by Schwab.

They can’t hold them because they are not assets that they’re allowed to hold. They don’t have the rights to do that because they’re proprietary assets to the person that put them in place. We’ll identify those on the transfer form because they won’t come over and we’ll have to have the client liquidate them there and then move them over.

It happens more frequently than you think that these assets, which look like they are just assets that anyone can own any time, is a mutual fund that’s registered. It’s something that I could buy whenever I want. It turns out that you can’t, so they got you.

This goes back to the idea of the type of financial advisor having to do with whether or not you’re going to see proprietary products in your investment portfolio. Here’s often where the most informed investors are defined by the type of advisor that they employ to help them manage their financial portfolio.

People who are aware of this and this practice end up working with independent financial advisors because they know about the risk that comes with somebody who is attached or under the umbrella of one of these larger organizations.

To make matters worse, as I said, there’s no financial regulations at all about what you do to call yourself a financial advisor. You can call yourself financial advisor, retirement planner, wealth manager, investment professional. This goes on and on, and the consumers think that the terms are interchangeable, but not all advisors are the same or alike.

When you are confronted with this variety of titles that advisors use, the first challenge is to try to decipher their distinctive financial responsibilities. Even in my entity, I’m a registered investment advisor, and RIA terms can be unclear.

Registration refers only to the formal process of registering with a regulatory agency and it doesn’t indicate any level of skill. Just because I’m an RIA, it doesn’t mean anything. The idea that I’m registered doesn’t mean anything.

Even that is confusing. Most people are in a situation where they’re getting paid a commission or get paid extra for selling proprietary products. Agents, registered representatives, brokers, they are restricted in what they can offer to potential clients by their employers or their dealers. That’s where the term broker dealer comes from.

As I said, they’re often very incentivized to sell investment products pushed by their parent company as the deal of the month. It might surprise you to learn that the interior of these places have Friday meetings that these rah‑rah meetings about what they’re going to be selling and who they’re going to be selling it to.

Instead of offering you the best thing, they could be offering other thing the best pays for that quarter or that month. This practice is pervasive across the largest names in the industry and the names that you know, the household names, the trusted names. They all engage in this practice as they rev up their salespeople and go out and close, close, close.

To be honest, I didn’t know much about this practice when I was just doing legal work. I found it curious that all my clients from this one super large investment company held the same mutual funds over and over and over. Different advisor, different life situation, same funds.

It was only after I learned about proprietary assets that I came to understand why so many of these portfolios looked the same. The practice of offering proprietary assets is very different from how most registered investment advisors, RIAs, conduct business. The RIAs have to be registered with the SEC.

They have a formal fiduciary obligation to their clients, and they are fundamentally and legally obligated to provide advice that is appropriate for the client and always act in the client’s best interest.

As I said to you before, the registration has no indication of skill but the statutory law under which they’re governed, this does say that they have to be acting in their client’s best interest. RIAs frequently work on a fee basis. I charge a fee for assets under management on the investments that I recommend rather than earning commissions based on the investment products that are placed.

When you recommend investment products, they’re managed third parties rather than things that were created by an employer. The independent people can draw from an entire universe at investment selecting only those things that are best for the client.

RIAs are more likely to function as independent with complete responsibility to help their clients select the best options to match their investment needs and risk tolerance. When their fees are tied to the amount of assets they’re entrusted with rather than the amount of transactions that they recommend, that means the financial future is tied together.

My clients do better and I do better. When you make more money, I make more money. When you make less money, I make less money. I’m incentivized to make sure that I’m putting you in the best things and not just in a transactional relationship that somehow pays me more because these are proprietary investments that I’m recommending.

These proprietary assets, they present a variety of disadvantages that can restrict your portfolios flexibility. They also could have been recommended from a “financial advisors” received extra incentives to convince you that their house brand was the right choice over the best choice amongst all third party options.

They’re often an indicator that you are working with an advisor who might be making recommendations based more on what’s in their best interest instead of yours. Reviewing your portfolio with somebody who is independent might give you an opportunity to unearth what these proprietary assets are.

I think of no better way than to have some form of a review with somebody who’s independent, who’d be able to look at what you have and say, “Look, these investments, they are restricted,” and they are things that are only within your advisor’s house brand of what they can sell. They are the TV with the greatest amount of profit margin.

They may not be the best thing for you and having that second independent look will give you the answers that you need. You make sure not to work with the advisor that gives you that independent recommendation but at least seeking that with somebody…I was paying for it, right? You want to pay for it. Now, that you’re hiring somebody to do something for you.

Going through that whole exercise is often a way of unearthing when you have these proprietary assets inside of your investments. Quite frankly, when you might need to make a change and to make a change of advisors as well is making a change of investments.

As I said, only when you get to the crossness that I’m at now, where I’m able to see how the same clients have the same investment over and over and over again. I can almost tell what the deal of the month was based on when they’re holding it, and what they bought, and when they bought it, that these changes came on it, and event.

Take a look at the proprietary assets, see if you get that issue, see if you might have something to work around in there.

Definitely, have your portfolio reviewed by somebody who is independent and can give you, “Look, this is the best thing for you,” as opposed to, “This is the stuff that I’m being incentivized to sell this week.”

Anyway, I hope you learned something this week. Thanks so much for joining us. Again, I want to give a heartfelt congratulations to my brother Devon and his wife Beth Rizzo on their happy marriage back Charleston weekend.

It was wonderful to celebrate with them. As a reminder, if you ever find yourself in Charleston area, go visit the restaurants of 82 Queen.

I don’t get anything from it, except that I really enjoy their food. My favorite of those is the Swig & Swine, in West Ashley, South Carolina, some of the best brisket and quite frankly Turkey and the sausage, best that I’ve had in quite some time.

Anyway, if you like what you hear, please jump on to iTunes and leave a review. The more positive reviews we get, the higher it comes up on the search results for Apple and the more people will be able to enjoy the show as much as you’re enjoying it.

If you find something here that you find helpful, instructive, and something you want to share with a friend, then hop on to or jump on to the podcast page and iTune and share it with a friend. This stuff about proprietary assets probably would help somebody that you know.

I may be out of words, proprietary assets possibly and probably helping somebody, as much a literation as I can handle.

Anyway, if you find something that you like, share it with a friend and help them get as educated as you are getting by listening to this show and learning about those important retirement topics that are facing your legal and financial choices.

Victor:  This has been Make It Last, helping you keep your legal ducks in a row and your financial nest egg secure. We will catch you next Saturday. Thanks for listening.

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