Latest / The Happiness in Retirement® Hour / Passing the Torch: Creating a Smooth Transition for Your Wealth
Transcript
- Swell AI Transcript: bdelsette P007_AUD.mp3 SPEAKER_00: Now, finally, lack of planning. Oh man, come on, right? Prince didn't have a will. Prince probably didn't do any estate planning. And if you don't have an estate plan, guess what? The government has one for you. The government will decide who gets your assets. That's right. The government has a plan if you die in test state, which means dying without a will. Welcome everyone to this episode of the Happiness in Retirement Program podcast, because the road to retirement should be an adventure, not a survival strategy. Today, we are going to wrap up the theme that we've had going on here for the last three or four weeks. estate planning and asset protection planning. So we've actually covered quite a bit of ground here, especially in the last three episodes. Let's see. The last episode was all about Swedish death planning, which as morbid as it sounds, just simply is a way to simplify your life and leave a legacy of tangible assets that only add meaning for you and your family. while at the same time getting the benefit of uncluttering. Great episode. I love that one. The episode before that talked about qualifying charitable donations and donor advised funds to tax smart ways to help you still get a tax deduction while giving to your favorite charity. And before that, we talked about, of course, the digital afterlife, securing your digital legacy. Well, today we're going to kind of bring it all together and talk more broadly about estate planning and incapacity planning. And today is all about seamless wealth succession. It's all about passing the torch. So if you like this episode, please hit subscribe and or send to your friends or family. Visit us at DelSetti.com or happinessinretirement.com. or reach out to us, Bill at happinessinretirement.com. Over the course of the next few years will be the biggest wealth transfer in history. Literally trillions of dollars are expected to be transferred from one generation to another in the next 20 years. However, in all likelihood, a really big chunk of that is going to be lost to taxes or squandering, or perhaps it's going to go to a family member who you may not want it to go to. It's a big deal. In fact, 72% of the United States population, they don't even have a will. So kudos to you if you're part of that small group of people that do have a will. Uh, which is a very basic document, but this transfer of businesses and homes and investment accounts and IRAs and all this stuff. And there are many, many pitfalls without proper planning, not to mention taxes and family disputes and all of that. So wealth succession is all about ensuring that. Your wealth transfer wishes are honored. Now, before we get into this too much, I want to mention that we are not attorneys at Del Ceti Capital. You should always consult an attorney. We are a financial planning firm. I'm a certified financial planner with I don't know, 25 years, 29 years, 30 years in the business. My team has extensive knowledge in estate planning, so we are definitely qualified to have conversations and actually trained as part of becoming a certified financial planner. in the ins and outs of estate planning. But at the end of the day, we do not practice law and we recommend that you talk to an attorney about your particular situation. So what is wealth transference? It's all about, as I said, making sure that you're which is our honor. At Delcetti Capital, we have what I think is a pretty different approach to wealth planning. And I want to bring this up because in my opinion, it's better to gift wealth while you are living than to necessarily leave a big estate when you die. Now you can't always do that. We can't plan our death. We don't know when we're going to die. Uh, that's why, by the way, of course we should live in the moment and all of this stuff, right. That is popular now, but we can set up a strategy such that you enjoy your wealth while you're able, while you have your mental health and your physical health to the extent possible. So in a perfect world, you know, when you're going to die, your health span equals your lifespan, meaning you live say a hundred healthy years and you die in your sleep with a quarter in your pocket. Now that's not. necessarily feasible, but that would be ideal. A good second approach to that is to gift while you were living to get what we call psychic income. There's more than one way of being affluent. We're going to talk in a future podcast about time affluence, a time, the importance of time and actually planning so that you can spend your time the way you want. That's called time affluence, but there's also psychic income. where psychic affluence, as crazy as that sounds, it's a true economic term that basically means the enjoyment that you get from something, and that something could very well be gifting to your church while you're living, gifting to your kids while you're living, gifting to your kids while they are young enough to enjoy the money. Now, we've got to have parameters around how we do that because the vast majority of people will say, well, I want to enjoy my wealth first, and if there's anything left afterward, great. Okay, got it. But if you have, quote, enough, whatever that means for you in your particular case, then why not set up a strategy using what we call the income guardrails to try to attempt to maximize your enjoyment of your wealth by gifting it, donating it, and enjoying it yourself. Ideally, as you've heard me say time and again, enjoying your money for experiences more so than stuff. Okay. So having said that, what are the pitfalls around, since we can't plan our death, we don't know when we're going to die. What are the pitfalls around creating a smooth transition for your wealth? What can possibly go wrong? Well, A lot of things, of course, right? First, let's talk about family disputes. So this is a big one. This is a big one. I would be willing to bet that if you're listening to this podcast, you have personal experience with this. You have personal experience with this, where perhaps you have been involved in an estate, maybe you've been an executor or executrix or a beneficiary of an estate where maybe a person has felt short changed or someone maybe has been left out of a will. Boy, it's, it's a big one. Family disputes are a big deal and there are a couple of fundamental tenets of, in my opinion, good estate planning. One, avoid conflict, and two, avoid the courts. Okay, so family disputes, so that could be a, that could hold up an estate for years. Number two, taxes. Taxes. OK, so you can lose a big chunk of your estate to death taxes and or income taxes for that matter. Now, you might say, I've heard that the estate tax, you need to be super wealthy in order for that to apply. And that's true for the moment. The estate tax is come and gone. I don't know how many times throughout past history it's been raised and lowered. And I'm certain it will happen again. It's a very easy tax to lower the threshold on. When I got my start, I want to say that the threshold was only $400,000 before your estate was subject to tax. So who knows, but that's a big one. Also income taxes by leaving potentially the quote wrong type of asset behind you could cause more income taxes to be recognized by your family. Now, finally, lack of planning. Oh man, come on, right? Prince didn't have a will. Prince probably didn't do any estate planning. And if you don't have an estate plan, guess what? The government has one for you. The government will decide who gets your assets. That's right. The government has a plan if you die in test state, which means dying without a will. And guess what? It's probably not who you would want to get your assets. So having beneficiary designations and a will and everything in place. Planning is a big deal, but you, you may be shocked at how many people just don't plan for these kinds of things. And part of that may be. uh, due to the morbidity of the subject. As you know, I've literally spent a lot of time these past few weeks putting these episodes together for the estate planning theme. And I have to tell you, it is, it's depressing. It's morbid. We talk about things that nobody really likes to talk about, but it's, it's a huge part of planning. So planning is really important. And that also involves, by the way, planning with your family, having conversations with your family about what you want to have happen if something happens to you. What do you want to have happen? What about maybe setting up your family with financial planners? Now, I'm biased. I am a financial planner, but at my firm, we are setting up not only a succession plan for my business, but we're setting up a succession plan for The families that we work for were helping them setting up their kids for success so having family meetings for instance. How about a family mission statement a while back we talked about franklin covey's mission statement builder and how you can use that to plan your life. to make sure that you have your best chance hitting your goals while the family mission statement builder is all about coming up with a family mission statement together as a family. And part of that would include wealth transference. So it's a big deal. Again, poor planning, um, you know, a huge chunk of wealth that is passed on is gone. It is squandered within one generation. That's right. happens time and again. And there are things you could do to prevent that from happening. So what are some of the things you can do to, uh, to make sure that there is a seamless transfer of wealth as seamless as you can make it? Well, first of all, you have to plan like you're going to die tomorrow, right? Hopefully you're going to live another 50 years or a hundred years, whatever it may be. And you're healthy during that time period. But we have to plan for the worst. So when we talk about asset protection and asset transference planning, we make an assumption that the need is right now. So that means right at this moment, you should have a will. You should have incapacity documents. It's not just about death, by the way. If you're a young, your chances of becoming incapacitated are higher than Are you dying? That's why we preach to our young folks that are working that they should have disability insurance and good disability insurance. In fact, a hundred percent income replacement, a disability insurance, own occupation, disability insurance. But when it comes to asset transference and estate and asset protection planning, then you need to have a power of attorney. and a healthcare proxy. And a power of attorney is simply a form that appoints an agent to make financial decisions for you. You may remember the name Terri Schiavo. Terri Schiavo, I believe it was Florida, this goes back quite a few years, did not have a power of attorney form. She became incapacitated around some pretty mysterious circumstances. Some people think her husband was involved in that. whatever, we don't know, but she didn't have a power of attorney form and she went into a coma. Her parents argued that she would want to be kept on life support for as long as possible. And she also didn't have a healthcare proxy, by the way. So I want to mention the Terri Schiavo case is really about a healthcare proxy, not a power of attorney, but those are both incapacity documents. So in this case, Terri Schiavo did not have a healthcare proxy naming her husband, for her parents to make decisions for her. Should she become incapacitated? Well, her parents said Terry would have wanted to be kept on life support even if there was a ghost of a chance. that she would come out of it. And her husband said no. Terry relayed to me, in fact, that that is not the case, that she wants to be taken off of life support. She wanted that. She conveyed that to me. Long story short, the case went to Supreme Court, the husband fighting against her parents, and she died in the process. Very, very simple document, healthcare proxy and a living will that could have circumvented that situation. So you need to not only plan for death, but plan for incapacity. Have a basic will. Okay. Have a basic will, have a power of attorney, have a healthcare proxy form, all the necessary documents that you need in your respective state. By the way, if you die without a will, guess what? your state has a will for you. Your state will decide what happens that your assets that either A, don't have a beneficiary designation and could have had one or B, that pass via your non-existing will, which is called dying intestate. In that case, there is a will for you and every state has their laws of intestate succession and they decide what happens to your assets. If you have children, by the way, The importance of a will is even more so because that's where you need to name a guardian for your children. That's right. If you and your spouse die in a common accident, for instance, and you don't have a will, then that means the state gets to decide who watches over your children. So it's, it's a big deal. Okay. So have a will and have those incapacity documents in place. Okay. So now let's talk about beneficiary designations for a minute. It's important that if your assets pass via beneficiary designation, that you have those designations in place. Okay. Big deal. So moving on, let's talk about taxes now. So now if you leave IRAs to beneficiaries, they have 10 years. At most, by the way, to liquidate those assets. Now, why is that a big deal? Because it wasn't that long ago that you could do what's called a stretch and stretch out. Those IRAs for many years, meaning you would only recognize a small amount of the income from those IRAs, the beneficiaries every year, and they could stretch out the income tax on those IRAs. Well, not anymore. So planning for income taxes for your heirs. is also important. It used to be that we would leave IRAs most of the time to kids, but we don't necessarily want to do that anymore anymore, especially if they're in a higher tax bracket because they've got to liquidate those IRAs within 10 years. Now, in fact, it usually makes sense to leave assets that get what we call a step up in basis, meaning the tax consequences may be of leaving A home, an investment property or investment accounts, outside of IRAs and Ks and annuities, things like that, they may get a step up in basis, meaning the tax consequence of leaving those assets may be zero. Spend down the IRAs. leave those assets to get what we call a step up in basis. By the way, again, don't try this at home. Very generally speaking here, everyone's case is different. Maybe in your case, it does make sense to leave IRAs and spend down the money that is subject to what we call a step up in basis. Okay, again, some ideas for you here. So tax efficiency, what about death taxes? Okay, you can to some degree avoid death taxes just by simply having language in your will that gives the ability to your surviving spouse to create what we call a credit shelter At the end of the day, all, every American gets to pass outside of your spouse or to a charity, which by the way, there's no tax ever to give to a charity, leave your assets to a charity or to your spouse, but to leave outside of your surviving spouse or charity assets. And we all get an exemption, meaning we pay no income tax or excuse me, estate tax, death tax, up to a certain amount. Okay. So this credit shelter, language in a will gives your spouse, if he or she is living, the ability to disclaim assets that go into this credit shelter trust. So that spouse who has passed away, you are using your credit amount because both husband and wife gets the credit. Maybe you don't want to use it though. Okay. So that's called disclaimer planning. And if you're not married, it's not necessary necessarily that you would do that. Of course. Okay. Then beyond the scope of what we're talking about today, but avoiding income tax and avoiding death tax, doing planning to ensure that whichever family member receives the asset, whether you spend it yourself or leave it to your kids in total, in totality within the family is the least amount of tax. Now, I want to also add that many, many people say to us as planners, Hey, you know what? I don't care what happens to my kids. Uh, with my money, when I die, I should say, I care about what happens to my kids, but Hey, if they happen to pay more in taxes than me, that's okay. I want to minimize taxes for me. And if there's something left over for the kids, that's fine. And if they happen to pay more taxes, so be it. But, um, and that's, that's fine. Other folks say, yeah, I want to minimize taxes for the family and for the next couple of days, including myself. So again, very individualized. Don't try this at home without really thinking it through and talking to professionals, estate planning attorney, financial planner. Okay. That's tax efficiency. We want to plan for income tax and death tax. And then what about family communication, investing in financial literacy? It's a big deal. Creating a family mission statement, getting your family involved. We have many meetings with families at my office. We get the whole family together and we talk about the importance of whatever the family wants, whatever mom and dad wants to happen with this money. And even the importance of looking the kids in the eye and saying, Hey, I don't want you to squander this. Okay. And I want you to work with a certified financial planner. Again, in my humble biased opinion, biased as it may be, I think one of the most important decisions you can ever make in your life is to work with a good planner, to work with a financial planning firm that has your best interests at heart. So communicating with your family, making sure that you have a plan in place. The Franklin Covey mission statement builder is a great tool. I've talked in the past about the mission statement builder on a personal level, meaning it can be used to create a personal mission statement. But if you Google Franklin Covey mission statement builder, there are three options. One is a business mission statement creator. Another is a personal mission statement creator. And the third is a family mission statement creator. Create a family mission statement and make it known, um, you know, and update it from time to time as things change. What about. enrolling your kids in financial planning courses, better yet, maybe introducing them to your financial planner. Again, we love the idea of a multi-generational planning. We do a lot of that and we do it for a couple of reasons. Number one, it inevitably is a big goal of our clients that wherever they lead to their kids, their kids use it in the best way, but also to plan for that generation. as well who they need a financial plan anyway. So you want to get estate planners, excuse me, estate planners, attorneys, financial advisors involved. And, and so you can create a plan. that minimizes death tax, that minimizes income tax to the family and also avoids the courts and avoids conflict. Family meetings, family mission statements, professional guidance from attorneys and CPAs and CFPs. So wrapping up some strategies to consider family meetings, family mission statement, really think about what you want to have happen. Develop a plan. What about annual gifting? Right now you can give $19,000 a piece to your kids, each husband and wife, $19,000 a piece to each of your kids or anyone you want, really. $19,000 is the limit where you don't even have to file a gift tax return. What about charitable giving using donor advised funds or qualifying charitable donations if you're 70 and a half or older? And what about making sure you have just the basic estate planning documents, a will? incapacity documents, power of attorney, healthcare proxy, living will, DNR orders, things like that. Again, avoid conflict and avoid the courts. And so build a plan. This is your call to action to, to get your plan in place. Do it now. Don't wait. You know, we don't know what the future holds. We don't know what tomorrow holds. And by the way, if you have a plan and it's old and maybe you've moved to a different state, Maybe that plan isn't valid anymore. Did you know that plans generally are state-specific? Power of attorney, healthcare proxy, will, living will. They may, in fact, not be valid if you move. Or maybe they were created many years ago and the agents that you named in those documents are no longer valid. Maybe they've died. Maybe, you know, you just aren't talking with them anymore. Please, please, please review your documents with a qualifying professional. Okay? And if you don't have documents, just get it done. So that's it. If you have any questions, please reach out. Thank you for joining me in these past few sessions where we've talked about some pretty, pretty morbid subjects, but things that absolutely are critical to good planning. I'd love to talk to you more about investments and income planning, but get this done first. If you have this asset protection plan and this estate plan in place, then you could focus on the fun stuff. This has been the Happiness in Retirement Program podcast. If you enjoyed it, share it with a friend, family members, hit subscribe, reach out to us at happinessinretirement.com or delsetti.com with a hyphen between the L and the S. We'll see you next time.