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Legacy Planning – What You Need to Know When the Time Comes

“Don’t sell the farm to pay the taxes,” is what I usually tell my clients. Because, if we don’t do the proper planning for the next generation, they might inherit this pile of money, or financial instruments, land, property or whatever, and our goal is to keep it in the family, not sell these entities due to the lack of proper planning.

I feel with the rise in taxes, stock ownership, and the massive wealth creation of the past four or five decades, you have downright financial confusion. Adult children don’t always know what Mom and Dad have, nor do they know the family dynamics. When Mom and Dad pass away, the kids are all of a sudden in this quagmire of “What do I do?” or “I didn’t know they had this,” and, “I don’t know how to sell this.”

My own grandparents and their generation didn’t have to worry about stock options or deferred compensation. In their time, you went to school, you went to work at a job for 40 years, you got a pension, Social Security, and that was it. From their side, legacy planning was “Whose name do I put on the back of the cookie jar?” And then it sat there inside the back of Grandma’s kitchen for years and years.

Tax Planning is Key

I don’t do tax planning. However, we must make sure beneficiaries and heirs get more of the estate than the government and only pay their fair share. Whatever planning, tax strategies or techniques you use must take care of the family. Taxes have always been at the forefront, and I think we always have to make sure we talk about tax avoidance, not tax evasion.

The SECURE Act has brought it to the forefront. I have many clients who have qualified money, like 401(k)s, pension plans and lump sum rollovers. So now, we have to worry about this 10-year distribution, specifically, non-spouse beneficiaries who will get that money and take it all out in 10 years. On our radio show, Jim Meredith calls it “the largest tax grab in the history of mankind.”

Then, you have a whole other layer of taxes; you have children or grandchildren who don’t fully understand finances. Their parents will say: “They’re just not good with money. I’m afraid that all my life’s work is now just going to get paid to taxes, or it’s going to get blown on the new car, the house or a vacation.” Certainly, that is not what the parents’ intent is.

So I make sure the estate plan is there and it fits into the financial plan, the tax plan and the insurance plan. It’s like having that Pittsburgh Steelers playbook of “How I want my money run, and the intentions of my money and net worth, posthumously.”

Tax Planning put to Work

I have long-term clients with grown children and a large working farm with everything that goes with it.  When I sat down with them we talked about estate planning and what we need to have the attorney look at and what the attorney is saying as he’s drafting these documents. I am not an attorney, so we needed to set up a meeting to determine where and how we will want the monies to go. 

We had a family meeting with Mom, Dad and the children. Dad was very forthright with his children. He said, “Listen. I don’t know if you can run all of this if I’m not here anymore. Whether it’s money in my investments, the land or the farm, I trust you will be working on the farm. Remember it’s a business. Some of you are good with money and some are not.”

He was also worried about any internal strife among the children as well. At the advice of the attorney, Dad said he put trusts in place. “Kenny is going to work with the attorney as to where to house certain investments and the farm can still be run,” he said. In a separate meeting, my client included the grandchildren into the family legacy planning mix.

We started by reviewing all of the estate planning documents. Then we restructured some of the life insurance and changed some of the payouts so that the 10-year rule would be taken care of. After that, we felt we were in good shape; unfortunately, Mom had to go into a nursing home.

We had no worries about a lot of what we did up to that point because we restructured assets, had them retitled, had trusts in place, and the ultimate beneficiaries, the children, knew exactly where the investments were even if they didn’t always know the exact amount or value of who is getting what and where the farm was going. 

Planning for Everybody

Mom is happy because she knows the family dynamic is still there, and she even put inside the legacy planning who was going to take care of her dog. All pet bills would be paid.

She was still in the nursing home after two years. We saved $10,000 per month with our planning for her care. And once both parents pass away, I know the children are going to have the income tax replaced on what’s going to have to be pulled out over the years in the IRA monies.

You can think of us like the staff of a three-star Michelin restaurant. We have the menus and we know them front to back. We can even request to the executive chef something specific and unique.

What you want to do in that legacy planning is bring the family together, let them know as much as you want – like where assets are housed, how they’re titled, and what your wishes are – so that you can go back through the menu, figure out if this works for me or it doesn’t. Then you can pick the ones that are specific to you by working with a good attorney, a good financial planner and a good CPA. Together, they will make sure that the next generation is taken care of.

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