A Wiser Retirement®

219. Do you have a wealth preservation plan?

• Wiser Wealth Management • Episode 219

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On this episode of A Wiser Retirement™, Casey Smith is joined by Missie Beach, CFP®, CDFA®, to discuss wealth preservation plans and various asset protection strategies. Wealth preservation is more than just preparing for retirement; it involves a strategic approach to safeguarding your assets for future generations while maintaining a comfortable lifestyle today.

Related Podcast Episodes:
- Ep 145: Dying without Estate Planning: Do you hate your family?
- Ep 175: Passing Down Generational Wealth

Related YouTube Videos:
- Prevent Family Conflict with Legacy Planning
- Using an Online Estate Planning Service vs Using a Local Attorney
- Meaningful Ways to Leave a Financial Legacy for Your Heirs

Related Blog:
- Legacy Planning vs Estate Planning: Understanding the Difference

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- About Wiser Wealth Management
- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
- Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, post-divorce financial planning, and more!

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This podcast was produced by Wiser Wealth Management. Thanks for listening!

Preserving Family Wealth Through Financial Planning

Speaker 1

you have to teach next generation, you have to tell your story. This is how we got here, this is what we have, this is what we did, this is what we sacrificed to get here. Um, just so that they understand that this stuff just didn't magically appear, right?

Speaker 3

Yeah, and I think a lot of clients fall into that false sense of security Like, oh, my kids are grown now, like I don't need to redo my estate documents, and I say, well, that's precisely why you do need to. Now you have a better sense of who they are as adults, how they manage money. So maybe look at your documents, see how your assets pass to them and, you know, let's look at these milestone ages.

Speaker 1

Welcome to a Wiser Retirement Podcast, where we believe the best financial advice should always be conflict-free. I'm your host, casey Smith, guiding you to financial freedom. Today is my co-host, missy Beach the world's best financial planner.

Speaker 3

That's a little much, but hello, Casey.

Speaker 1

Hi, missy. So we are coming off. We are recording this just off the end of Masters weekend, so we have at least I do my sunburned arms and my yellow shirt. It was interesting Masters this year, did you watch?

Speaker 3

I watched some yes.

Speaker 1

I was on hole 12. I really thought that we were going to have a close masters really, and didn't happen no, it wasn't much of a battle, it was pretty, it all kind of it always seems to like change right there at uh 11, 12 and 13 um, but uh yeah it was. It was a great weather, a little windy on uh on friday, but, oh yeah, big winds friday, but was great weather, a little windy on Friday.

Speaker 3

Oh yeah, big winds Friday.

Speaker 1

But great weather. I feel like summer can come now.

Speaker 3

Oh, that was like the intro.

Speaker 1

That's the intro.

Speaker 3

Let it happen.

Speaker 1

It's going to Augusta All right?

Speaker 3

well, hopefully the pollen will go away now and we can usher summer in.

Speaker 1

Yes, I, um yeah, I I took some allergy meds, cause every year I come home and then next Monday I'm like sick Cause just oh really, I'm not outside that much A gust of pollen.

Speaker 3

You should get out more.

Speaker 1

I know I probably should, but, uh, I don't like all the all the pollen. It's not the pollen you see Before you see yellow. I think that's when it gets really bad.

Speaker 3

Sneaky pollen Watch out.

Speaker 1

All right, so let's get started. We're going to talk about how to have a wealth preservation plan today, and I think we have some really good points for our listeners. So much of what we talk about is building wealth but, yet what we really do is preserve wealth as help people, preserve wealth as planners.

Speaker 3

Absolutely. Why build it if you're not going to keep it?

Speaker 1

And most people don't come to a wealth management firm if they don't have anything right, exactly. So I'll actually talk a little bit about what we actually do in a lot of our planning meetings. So obviously, the most important step number one is to create a financial plan to protect family wealth. Right, I mean, you got to have a plan.

Speaker 3

Must be intentional.

Speaker 1

Yes, correct, which is the whole theme of this podcast, which is, I assume, why you mentioned that, missy. But yeah, you have to have a financial plan put together, which is why every one of our clients has a financial plan and we update that.

Importance of Financial Planning and Diversification

Speaker 3

We spend more time on the planning than we probably do in asset performance reviews.

Speaker 1

But the planning part is very important. So a financial plan is made up of a lot of different things. It's not just assets. And this is where I get so frustrated with our industry and that they think people think they have a financial plan and clients will come to our firm and they say I already have a plan. Here it is, and I'm like this is just a really expensive time value money calculation. There's really no planning done here other than yeah, congratulations, you have enough money to provide income for yourself. But that's literally all they did.

Speaker 3

Yeah, is that enough income? For how long?

Speaker 1

Yeah, was inflation taken into account? I mean, you have so many questions that go with that, and what's so frustrating for consumers is the fact that a lot of them have some of the same software that we have. They just don't know how to use it. Scary Isn't?

Speaker 3

that crazy, isn't that crazy?

Speaker 1

I mean, I've literally have had people come to me hand me a piece of paper that's clearly the software that we use from another advisor and I'm like, wow, this is crazy.

Speaker 3

And then we use the exact same tool and give them a totally different picture. That's the scary thing about calculators you can have anything you want to come out of it. Come out of it. Yeah, you can manipulate any results.

Speaker 1

It's just a tool. If I went out and had to start digging ditches, I'd be it'd be going very slow, but if a person who digs ditches every single day yeah. Use that exact same tool, there'd be a totally different result, right?

Speaker 3

Oh absolutely.

Speaker 1

There's no difference in that and and financial tools that we that we use.

Speaker 3

Oh true, Well, think about it. If you go online with your 401k calculator to get, you can manipulate that thing and be like. Oh yeah, I'm fine for retirement Sure.

Speaker 1

Using a 12% rate of return Exactly. You just manipulate it until you get the outcome that you want and go on with your day, feeling, oh, I'm fine, so that's the danger. Excess is really generational wealth that you're building.

Speaker 1

And they might start off small, but by the time you get 20, 25, 30 years into retirement, that excess could be much bigger, and so it's very important. We talk a lot about legacy planning in our prior podcast, but it's very important that you do things to preserve that wealth, that you do things to preserve that that wealth. So that kind of breaks us down to number two which is saving for emergencies and large purchases?

Speaker 3

Oh, absolutely, and that's the biggest thing, to start with, after you've paid off all debt, because that's one thing that we didn't mention and we're just assuming is taken care of in this situation. So, once you've paid off all your debt, yes, then we go into the emergency savings and so, really, three to six months of core living expenses like no extravagant travel, clothing, purchases, going out to eat, just your core living expenses Sock away in a cash account that's actually earning interest now. So I think, if you're a wiser client, word's gotten out that that needs to be an online high yield savings account.

Speaker 1

And the reason why you do that is if you were in a situation where you needed money, you never want to have to go to a your retirement accounts If you're not retired yet to your brokerage account? Yeah, so what if? What if you've lost your job or or kind of going through a hard time at the exact same time that there's a big financial sell-off? Now, maybe not as bad as a way, but maybe, just like 2022, you're now have being forced to liquidate money, possibly at losses which will never recoup.

Speaker 1

And so that's where it's important to have cash reserves, and the good news is the cash reserves, you get paid for it now.

Speaker 1

So you should be getting four to 5% 5.5% in some cases on your cash, and I think this is a pretty common question. A lot of people ask in our planning meetings how much should they keep at their local bank, and I typically tell them $20,000 to $30,000. If they have to have $100,000 in reserve, $20,000 to $30,000 might be at the local bank, not earning much, but you can get to it instantly.

Speaker 3

Yeah, exactly that's the thing your online savings account is going to be a couple days away in terms of a transfer back to your local account. Yeah, so keep that in mind. So you don't want to leave yourself cash poor if you need it today, correct.

Speaker 1

So, and then some people tend to get too much money in their cash accounts, I know, and so this is where you have to have a. You have to know what your big expenses are coming up. So if there's a car purchase coming up, then yes, you're letting that cash drift higher to either pay cash for the car or put down more money on the car.

Speaker 2

Absolutely so the lower payment.

Speaker 1

If you know that there's a roof coming or HVAC, you know the big life ticket items. Those are all things that that you allow cash to build from. So an example would be for most clients, $50,000 in savings is enough and for a hundred thousand dollars anything over a hundred thousand dollars. We put that into what we call opportunity money.

Speaker 1

Money that's not necessarily for retirement, but it's money that you have in excess that could be in the market. It's not going to be spending it in the next five years that kind of thing, and some families are different. Some families are between $200,000 and $300,000 in cash for good reason. Some families are between $10,000 and $50,000.

Speaker 3

It depends on what stage of life that you're in. Yeah, your annual living expenses, how many drivers you have in the house and how many car purchases you have on the horizon, right, how much you're going to spend in remodeling. You know your backyard when your appliances are going to burn out? I mean, yeah, you know how much you have in the pipeline, correct, you know how much you have in the pipeline, correct. But the biggest mistake people are falling into this day and age is cash is paying interest, and so they think, oh, I'm just going to hoard some cash now, but you're really losing purchasing power by hoarding cash instead of putting it in the market if you really don't need it right now.

Speaker 1

Correct.

Speaker 3

So don't fall into that falsehood.

Speaker 1

Yeah, there's a you know, that are paying down debt.

Speaker 3

Oh yeah.

Speaker 1

You had a great point in one of our planning sessions yesterday that people are they have three and a half percent mortgages, they have enough money in savings to pay off the mortgage, but they think they're making more money on their 5% money market but they're not after tax.

Speaker 3

They're not your tax.

Speaker 1

Yeah, so a lot of these people are in the highest tax bracket. If you're paying 37% tax on the income from a 5% yield, you are actually losing money versus a three and a half percent mortgage.

Speaker 3

I know, yeah, think about it.

Speaker 1

A lot of times it's better to just pay off the debt.

Speaker 3

Bite the bullet and pay it off.

Speaker 1

Right, so anyway, that's important to protecting family wealth having cash reserves so you don't have to go selling your real estate or your portfolios, uh, things of that nature.

Speaker 1

Uh, other thing is diversifying your portfolio. Um, you know, I I got uh asked to have a lunch with a gentleman um at our, at our club Um, this has probably been a year or two ago and nice young man uh worked hard, corporate America and finally gotten uh. Uh got in a nice corner office, we'll say, and was making good income came from nothing really and how he put it and invested a bunch of money into the QQQ leverage fund.

Speaker 1

So basically it was like 3X NASDAQ, right, so he'd gone from like $3 million in a brokerage account down to $2 million. He was really nervous. This was in 22.

Speaker 3

Oh yeah, the big down year, the big down year Leverage fund.

Speaker 1

And basically I said well, you didn't know better, but leverage funds are very volatile, but leveraged funds are very volatile, and so what I would do is take this out and invest in a normal, just a normal investment portfolio at this point.

Speaker 3

Diversification.

Speaker 1

Yeah, you need to diversify the holdings Because literally he had everything in this one fund.

Speaker 1

Now the good news is that one fund owns a bunch of right, a bunch of individual securities from the nasdaq, but it's it's borrowed money, uh, at this point, so it it what gets you sometimes, what gets you to where you are. So a better example might be people who buy individual stocks. Um, the new one would be nvidia. So nvidia got, has done very well, uh, and if, if I think it's it's time, not because it's at a all-time high, necessarily, but but, and not because it won't go higher, uh, but because this got you here. You created wealth. If it falls apart for some reason, then you're just right back to where you started. Why not take the gain, some of the gains, off the table, diversify that into the overall market like the s&p 500? I'm not saying go to cash or go to bonds, even but just keep it in a diversified portfolio.

Speaker 1

So what got you here may not be the same strategy that you need to have to continue. And then diversifying a portfolio could also mean not having less in stocks and bonds. Maybe it's better to have a third of your money or a third of your wealth in real estate. It doesn't have to be rentals, it could be second or third properties, but just diversify your holdings.

Speaker 3

Yes, but I would say that's more at higher net worth levels.

Speaker 1

Yes, If you have $10 million and you're, you're living on $150,000 a year, $200,000 a year you probably don't need to have a hundred percent of that in stocks?

Speaker 3

Oh yeah, exactly. But if you're like the million, $2 million net worth really.

Speaker 1

No, that would. That would make sense.

Speaker 3

Long-term asset classes are your best bet.

Speaker 1

Yeah, the real estate part wouldn't make sense, because now you're going to have a loan, yeah, and so you're not really not that the loan's bad, but uh, you could, you could. You could have some things. Cramp your style if um if you don't rent it out for some reason and you're stuck with that mortgage and you have to cover that mortgage.

Speaker 3

Yeah no-transcript.

Speaker 3

Although I think there's some areas that prices are coming back down to. That we're helping a lot of clients recently is concentrated company positions, because a lot of companies are into the restricted stock grants which vest on an annual basis, and so we try to tell our clients, like you're already invested so heavily in your company they're paying your salary, all your benefits, your medical insurance, matching your 401k, some group term, you name it You're getting so much from this company you don't want to double down and now hold shares in that same company.

Speaker 3

You know, granted, sometimes there's holding requirements that you must maintain. But if you can get out of your company stock, it's time to get out of your company stock and thank them for that award, but then move that to a diversified holding right.

Speaker 1

We've used those awards over the years to pay off a lot of houses tuition is another great annual use for it for private school or college I see that applies to everybody except our spacex clients, right? I wouldn't be selling that at all.

Speaker 3

We do have one.

Speaker 1

I would not. I would not be selling SpaceX, I'd be holding that Nothing, nothing but up there. Plus that's private. So it's a lot harder to liquidate?

Speaker 3

Yeah, good point.

Speaker 1

It's not on the open market.

Speaker 4

Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson and might not be the best choice for you as a consumer. To learn more about the various types of annuities, the negatives of owning them and better investment alternatives, we have a free ebook on our website just for you To download our ebook. Buyer, beware, why Do they Keep Trying to Sell you that Annuity? Simply click the link in the episode notes or visit wiserinvestorcom slash guides. Now let's get back to the episode.

Speaker 1

But yes, and there's actually ways we're doing this now with direct indexing, where we can take that individual position. If it's in a brokerage account, we can add cash to it from the client, obviously cast to have additional cash or things we can liquidate to cash, and then we can move that into a custom index built around it so for instance, the largest holding in the S&P would be Apple.

Speaker 1

So if you had a lot of Apple stock you would just build. You build a custom index without Apple stock in it. So now you get a diversified, not doubling up on Apple inside the ETF. So that's a big game changer. And then you can do tax loss harvesting at more like a micro level, which allows you to sell off some of that Apple for no capital gains over time. Exactly Maybe about 6% of it a year or so.

Speaker 3

Yeah, oh, it takes time. Exactly, maybe about 6% of it a year or so.

Speaker 1

Yeah, oh, it takes time it takes time to do all that, but those are all things that uh, I guess as part tax strategy, um, for wealthy people to help preserve wealth and not have to pay the income tax. Exactly, cause you just have to have patience for that with the process.

Speaker 3

You're going to need it down the road, so might as well mitigate those long-term capital gains.

Speaker 1

And if you have a tremendous amount in a position, um, you can also, uh, buy puts so you could take, you could take a option strategy not like not not the ones you see at midnight on CNBC advertising some some crazy strategy but but you buy it, you just buy insurance basically. So if it drops below this price, then you can eliminate it. Uh we did that with a company that had, or a family that had, a lot of Boeing stock.

Speaker 1

So, after the second max crash we were like, um, something's not right to lose two airplanes that close to each other and the investigations weren't even done on the first one yet, and I think we were able to sell a Boeing at $380 a share a year later, when it was trading around one 80 because of the put.

Speaker 3

Yeah, so a put is your right to sell a share at a certain price.

Speaker 1

You're buying it. It's like buying an insurance policy on a stock, smart which which helped protect their their wealth. If it had gone to zero, they probably been still been okay, but it still protected their wealth we've done it. We've done it with uh home depot, with a few clients and less worry about that one. But uh, the the puts were a little cheaper because the market wasn't worried about it either yeah, exactly those are things, those are strategies you can look at to help preserve that, that position.

Speaker 1

We did it with apple a really long time ago for a gentleman who's now passed away but he needed that money to in order in order to pay for nursing home.

Speaker 3

And so if his.

Speaker 1

If Apple had just fallen apart, his, his livelihood or his wellbeing would have been at risk. So unfortunately, his ability to pay the premium was very small. Oh, okay, so we ended up having to sell a call on the other side.

Speaker 3

Yeah, okay.

Speaker 1

So I said it like 30% higher, but he got called away. It went up by 30% in a six month time span. This is a long time ago, but it got. It got called away. But but the fact that it got called away, there was enough premium there that it covered the tax bill and all that. So there's lots of advanced strategies you can be using to help mitigate the risk of individual securities.

Speaker 3

I'm just kind of anchoring on the Boeing put, Like how expensive do you think Boeing puts are in this right now?

Speaker 1

Oh, I know I haven't looked in a while because we don't have anybody else in that position. But yes, um, yeah, I know, right, yeah, they just keep having things pop up, it seems like, or pop out as, long as it's not people yeah.

Speaker 1

That'd be different. Yeah, boeing might become something else at that point at this, at this stage. Um, another, another way to protect a family, protect family wealth, is insurance. You know everyone goes ugh insurance, right. It's funny because when I was researching this topic to see, hmm, what else is out there, annuities kept popping up. And I will say this is my disclosure that annuities are not good wealth vehicles. When those gains are passed past the next generation, they're fully taxable as income. You don't get a step up in basis. It does allow you to never make money again. I mean because the salespeople who sell them like to say you know, you're guaranteed you know whatever. And I was like, well, you're guaranteed never to make money.

Speaker 3

That's what it tells me You're just capped.

Speaker 1

There are some ancient products or ancient annuities that we've seen pass through here that you can't buy anymore. That really weren't that bad.

Speaker 3

No, that are like 25, 30 years old.

Speaker 1

But that was really a long time ago. And if they had put the money in the S&P 500, they still would have done way better. Yeah, but they weren't. Uh, for what it is they, I would say that they weren't worse off necessarily no, and they usually have expensive riders that clients have bought on them.

Speaker 3

So it's like the you know confluence of all these factors that make these things good.

Speaker 1

Even the insurance company realized it was a little too good of a deal so they don't even offer those anymore. So if you have one should be analyzed to say this is a good idea. Not a good idea to keep this. But as far as our discussion today with wealth preservation, a lot of it has. You know, life insurance serves a purpose. It replaces income. So if you're still in your wealth building phase and you want to make sure that the family gets to the finish line, life insurance is a way to make sure that that happens.

Tax Planning Strategies for Wealth Preservation

Speaker 1

Whole life insurance is a permanent policy so it doesn't expire at a certain age. A whole life can be used at times to help preserve wealth. For example, if you have a special needs child and you want to be able to live your best retired life but also know that there's X amount of dollars for this person that you might still be caring for as an adult, then that sometimes is a good strategy. If you have the resources to purchase the policy because it won't be cheap, correct, but it could give you the peace of mind that you're looking for. Whole life also could be used to cover estate taxes.

Speaker 3

Which we could be getting back into, who knows?

Speaker 1

We'll find out about what.

Speaker 3

Year and a half.

Speaker 1

Yeah.

Speaker 3

I mean they'll sunset in a year and a half, so we'll see. Really depends on how the next election goes right.

Speaker 1

Because we wouldn't get past the two-year mark before it sunsets again. Correct yeah, so it really depends on who's in power this next election cycle. So what we're talking about is 1231.25,. We revert back to the 2016 tax brackets.

Speaker 3

Yes.

Speaker 1

Which I think are about 5% to 8% higher than where you are now pretty much across the board for the most part.

Speaker 3

Yeah Well, at the top, 37% goes up to what? 39.6%?

Speaker 1

Yeah, but the mid and the bottom change, those get crushed kind of yeah.

Speaker 3

Mm-hmm, that's, that's wrong.

Speaker 1

I know, isn't it, especially with all this inflation. So you would think that they would modify it to at least where the bottom stays, where it is that would be the right thing to do. Just increase the tap but my part of me thinks that they're going to fight so much about it that it will revert back to the original oh yeah, they'll fight, that's a given, yeah true.

Speaker 1

So investing in insurance um, I hate that phrase, but purchasing insurance, I'll say yeah it could be an opportunity to help preserve things, but you never should talk to the insurance salesperson about it. You should be talking to an independent advisor who does not sell the product to see if this would make sense. Then you you go to the person who sells it to make the decision.

Speaker 3

A broker who sells multiple carriers.

Speaker 1

Yes, correct, don't buy something that has the same name of the company in the insurance.

Speaker 1

Ding ding ding Be tax smart to preserve wealth. Okay, so we already touched on this a little bit where, if you have wealth inside a brokerage account, you really should be looking at transitioning into direct indexing now, because you have the opportunity to create your own tax credits and also build your own indexes. So we have whole podcasts that we can reference on that in the show notes. But the important part is understanding that you can use the capital gains or capital losses to your benefit to reduce your taxes.

Speaker 1

Other one, too, is looking down the road at Roth conversions. So we're starting to do this for wealthier clients, knowing what's coming up with some potential tax changes. But if you have family members that are going to be in a higher tax bracket once they receive, once you pass away then your tax bill, it might be better to pay your tax bill now. Also, too, you have to remember if you have millions of dollars inside an IRA, the first year you take an RMD which would be 73 or age 75, depending on your birth year you're paying probably about three and a half percent that first year of what the balance is as your requirement of distribution. But if you forecast out, you go out 15 years, that three and a half percent is like what five it's number oh yeah, down the road, because every year that that number grows.

Speaker 1

So what we like to do in our, in our tax planning is we'll look at where you start and then where do you finish up in your 80s so it could be you go from a 24 to a 37 or 35 percent bracket, so maybe it's better to convert some now at 22 to 24, so that you have you can pay less later.

Speaker 3

Absolutely, and you know, casey, another time where it makes really good sense to do this is if you have a couple with a big age difference, and so the one spouse might die, you know, a decade or a decade and a half before the second spouse. So when the second spouse inherits that IRA, she or he's going to be taxed at single tax rates. So that vaults it up. That RMD is now like at the 37% tax rate, so getting more out of the IRA earlier with a Roth conversion just makes even more sense with that big age gap.

Speaker 1

Yeah, that's a very good point. Also, too, is charitable giving strategy. A lot of people are still giving to their churches and other organizations out of their checkbook after they hit the RMD age, and you can even do it before then 70 and a half, you can still do charitable contributions. But think about this If you're required to pull $30,000 out of your IRA, every year you give $20,000 to a charitable organization every year, or multiple organizations, you could give it out of your IRA. Instead, it wouldn't count as taxable income.

Speaker 3

No tax.

Speaker 1

No tax, so you're saving. Ordinary tax wouldn't count as taxable income.

Speaker 3

No tax, no tax.

Speaker 1

So you're saving, but so you ordinary tax, right. So you end up with the same amount of money in the end. Because you're not writing it out of your checkbook and you don't, you don't get the deduction on the tax return. It's just that the money never came to you, so it didn't get taxed. So if you're in the 37% bracket, that's saving 37%, so it requires some paperwork. So this is something that you would not do in a monthly basis, but maybe a couple of times a year. One time a year is what we prefer.

Speaker 3

Yeah, cause it has to be the first money that comes out of the IRA each year.

Speaker 1

Correct.

Speaker 3

Like you can't take a monthly to your own account and then do the charitable. You've got to do the charitable first, right?

Speaker 1

Well, if you do it, if you do it the way you're talking about, what's the negative consequences of that? Because if you give it first, you're still going to pay the income tax and then it's just the end, right?

Speaker 3

right, but technically I think the qcd qualified charitable distribution has to be the first money out each year okay irs code I wonder how they police that yeah, exactly it's like when you miss your rmd.

Speaker 1

I've always wondered how they police missing an rmd, but I guess they do somehow. Big brothers watching yeah interesting um, so yes, uh, also where you're saving. So it could be that it's better to put money more into Roth than it is to pre-tax, but I would say it's all family dependent. Every family has a little different strategies. I wouldn't say that there's any one piece of advice I could give all of our listeners that apply to all of them.

Speaker 3

True. Another strategy is if you're not 70 and a half yet and so you can't give money from your IRA to get money out of there, you can give appreciated securities. Yep, that's correct, that Apple stock. We get the full tax deduction for that market value and then you don't have to pay the capital gains on that and the charity gets the full value, so it's a win-win. So we have to let everybody know never be giving cash. You always have an appreciated security or something in your ira.

Speaker 3

So think twice before you're ever writing a check or swiping your card to give to a charity uh, another, another, uh.

Speaker 1

angle two on this is, um, just forecasting out your, your income, where you're pulling money from, because, uh, a lot, most brokers just say you know we're going to send you X amount of dollars but they say talk to your tax person.

Speaker 4

They're not actually doing any tax planning.

Estate Planning and Wealth Protection

Speaker 1

So you have to do some tax planning as far as your your wealth preservation strategy to understand where you're pulling money from. Another thing I thought about, too, is second homes, some people you have to pay capital gains tax on the sale of those. And occasionally people run into people who sold a home and bought another second home and they have to pay capital gains tax on the first home and all they had to do was a 1035 exchange.

Speaker 1

Yeah, Right, so you could sell, I'm sorry, sorry, uh, yes, thank you 31 exchange, so you could have done a exchange and from like, kind, yeah, and be able to purchase um the next home and roll the capital gains into that home. Uh, there's a process for that.

Speaker 3

Right, so so you, in a limited timeframe, in a limited timeframe?

Speaker 1

Yes, but there's there's companies who specialize that, attorneys who specialize in that.

Speaker 1

Another one, too, is the sale of a business. So you're selling your business, assuming that you're not selling the stock of the company. So sometimes people are, but most of the time you're selling the assets and the company just kind of disappears. If that were to happen, you have the opportunity to use that money to purchase a home, right, so you could buy an investment property that you're using as your second home. Maybe it's on the Airbnb rental, enough to qualify for that, but you you could do a 1031 exchange from your business sale to buy a property. So if you're selling your business for $30 million, you could pick up a $4 million beach house right, and not have to pay tax on the $4 million, cause usually the people who are buying you want you to roll up. They want you to reinvest in their company going forward, and sometimes it's required and sometimes it's not Now, if you're selling.

Speaker 1

Usually the people who are buying you want you to roll up. They want you to reinvest in their company going forward, and sometimes it's required and sometimes it's not. Now, if you're selling stock, you can't pull quite pull that off it has to be like cash, like kind, yeah, yeah um, all right. So there's lots of tax strategies, all which are very legal and all require some forethought oh yeah, it's not something that you're in the middle of doing this.

Speaker 3

The transaction.

Speaker 1

And now you need to do it. You need to be thinking about this a good six months to a year before you even take any action with a business sale, maybe, maybe two years before Estate planning. So this is also very important and how you transition your assets to the next generation, and I I, I can't help it but think about. You know all of our episodes on legacy planning, but you have to teach next generation, you have to tell your story. This is how we got here, this is what we have, this is what we did, this is what we sacrificed to get here, just so that they understand that this stuff just didn't magically appear right, yeah.

Speaker 3

And I think a lot of clients fall into that false sense of security. Like, oh, my kids are grown now, like I don't need to redo my estate documents. And I say, well, that's precisely why you do need to. Now you have a better sense of who they are as adults, how they manage money. So maybe look at your documents, see how your assets pass to them. And you know, let's look at these milestone ages Like, oh, you know, like two out of three of your kids have already blown by all the milestone ages. They're going to get all your millions outright. Is that a good thing? And they're like, well, yeah, maybe not.

Speaker 1

Yeah.

Speaker 3

So you have to readdress all these things.

Speaker 1

Yeah, and then probably review those documents every every few years. Also, if you have, if you move.

Speaker 3

Oh yeah.

Speaker 1

You need to redo the will power chain medical directive for the state that you actually live in. If you're spending a lot of time out of state, you should have documents for both.

Speaker 3

Not a will, but the power of attorney.

Speaker 1

medical directive for both states should be in place. And then, if your estate is more complicated, meaning that you have rental properties, second third homes, at some point someone needs to map that out and say this home is in this LLC. If something happens to me, what happens to the LLC?

Speaker 3

Does the?

Speaker 1

LLC go through probate, or have you in the bylaws, have you created a process for the member dying? So there's a lot of things that can get really complicated, but they need to be laid out because most of these estate planning attorneys are just working through creating documents. I don't know how much advice they're actually giving.

Speaker 3

Yeah, like how it all coordinates together.

Speaker 1

You're young, in their twenties, just had a baby. It's easy. You can go and find an attorney who just does these things every day, just cranks them out. But sometimes you need the attorney that costs a little more money, who's pausing and talking you through the process or listening to you. That's part of our jobs as quarterbacks for the family, as advisors, is to make sure that all the other professionals are doing what they're supposed to be doing. But sometimes I have to take my whiteboard in my office and I just have to draw it all out and then you see the holes and you go, oh, and then you call the attorney and go hey what are we going to do about this?

Speaker 1

And it's just, they didn't even realize it.

Speaker 3

No, yeah, we have to tell the clients. These are the things to be thinking about before you go meet with the attorney. So try to get the brains going and think of all the people that you're going to name. Think about the things that the attorney is going to present you with to decide upon.

Speaker 1

You know I as we kind of wrap up here, I have a great book which we'll link in our show notes, but it's called the psychology of monies by Morgan Housel.

Speaker 1

He's become uh, become uh, a famous writer, uh in the in our space, uh, but he had a interview, or he. He quotes an interview from Charlie uh and Warren uh, warren Buffett and kind of came up with these uh, survival mindsets. Real-world outcomes really come down to these three things. I'll just read the first one. You can buy the book and read the other two.

Speaker 1

But one is this is more than I want big returns. I want to be financially unbreakable. If I'm unbreakable, I actually think I'll get the biggest returns because I'll be able to stick around long enough for compounding to work wonders. So that that to me, um, it kind of summarizes up how do you protect wealth? Is that you have a good segment, um, of your estate that is secure and you know that you never have to tap into these other resources? Yes, and then it allows all these other resources to grow and flourish, right, and then, as you know, some people have a lot more money and they will use a bit of leverage to in parts of their portfolio to be able to do other things. It could be real estate, it could be. No one that I know is borrowing money to invest. I don't know anybody actually does that, no Other than complete fools.

Speaker 3

Other than those.

Speaker 1

But real estate is a common example of that, especially income generating real estate. So just understand that what got you here? Then there's a whole nother level that takes you to the next. You know a whole nother steps to take you to the next level. And how you got here is not maybe not the same way as you keep growing your wealth.

Speaker 3

Right.

Speaker 1

And there's a different things that you can do. Whole life insurance and annuities are not going to be your first stop, but but maybe there's some, some case for insurance possibly. But I think more importantly, it's just understanding. These are my, this is my monthly need. This is how I'm going to secure my monthly need. This is my backup plan, my emergency reserve, and then everything else can grow and compound and build legacy for the next generation.

Speaker 3

Absolutely.

Speaker 1

All right, missy great conversation. Thanks for talking.

Speaker 3

Thanks.

Speaker 1

Casey, you can learn more about uh, this, these topics. Uh, episode 145, dying without an estate plan. Do you hate your family? That was the one, uh, I did with Brad a while ago. Uh, passing down generational wealth episode 175. Uh, that's a really good episode. To uh videos reference we have a YouTube channel. Hey, we hit a thousand subscribers on YouTube. On our last podcast I think, I said, hey, like and subscribe, and people did so. Thanks for doing that. Past the thousand mark. That's big for a, for a little firm like ours, that's right. So we also own a wiser retirement. On the YouTube channel we have a couple of video short videos prevent family conflict with legacyict, with Legacy Planning, online Estate Planning Service versus Local Attorney and Meaningful Ways to Leave a Financial Legacy to your Heirs. Those are all things that are in the show notes. This is episode 219. Thanks for listening. We'll see you guys next week.

Speaker 2

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out.

Speaker 2

This episode was produced by Edward Resendez. This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles, or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investment advisor with SEC. The host and or guest may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guest of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.