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Shaping Your Legacy Through Your Finances

Published on July 8, 2024

John Hagensen
MSFS, CFP®, CFS, CTS, CIS, CES

Do you ever wonder if you could be doing more to create your legacy? Making a lasting impact and leaving behind a meaningful legacy is a challenging endeavor, yet it’s a pursuit worth striving for. Join us this week for our 100th episode, where we talk about impact, influence, leaving a legacy and how your money relates to it all. Plus, catch my interview with estate planning guru Chrissy Knopke.Episode Notes

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen: Welcome to the Rethink Your Money Podcast presented by Creative Planning. I’m your host, John Hagensen, and on this week’s episode, we are celebrating. Yes, that’s right. We’re marking our 100th episode milestone. Thank you for being a loyal listener. And as a token of my appreciation, I have a jam-packed lineup for you. We’re talking about impact, influence, leaving a legacy and how your money relates to it all. Now, join me as I help you rethink your money. We think of July 4, 1776 as a day representing our independence, America’s revolutionary Charter of Freedom and specifically the document upon which our nation’s founding principles were established. But July 4th wasn’t in fact the day that independence was declared.

It also wasn’t the day the declaration was officially signed. So, what did happen on July 4, 1776? The holiday commemorates the adoption of the Declaration of Independence by delegates from the 13 colonies. That’s what happened on the 4th of July. What an incredible country we live in. For all of our service men and women who have fought hard for that independence, I sincerely say thank you for the sacrifice that you’ve made.

John Adams wrote these words to his wife, Abigail, describing the way that he had hoped future Americans would celebrate their independence. He said, “I’m apt to believe that it will be celebrated, by succeeding generations, as the great anniversary festival. It ought to be solemnized with pomp and parade with shews, games, sports, guns, bells, bonfires, and illuminations from one end of this continent to the other from this time forward forevermore.”

My children and I dressed up. We were in a parade. We watched fireworks, we ate burgers and dogs, of course, just as I believe John Adams had envisioned. Junior year of high school, you likely learned US history and that context helps provide an understanding and appreciation for how far we have come as a nation, the progress that we’ve made. When it comes to financial planning, specifically retirement planning, there’s also a history, but it happens to be one that is much younger and less understood than that of the United States.

Just a few decades ago, most people’s approach to their financial future was fairly simple. Work, save a bit, retire likely with a pension, die a couple years later. But as lifespans have increased and the multitude of financial products have diversified and the dissemination of information oftentimes confusing information has magnified, so has the need for a more structured approach to your financial plan. It wasn’t until really the late sixties that a group of financial professionals formed what is now known as the Financial Planning Association.

The introduction of new retirement savings vehicles also significantly shaped financial planning strategies. Just as we should know, US history, this history is important in understanding how to forge the path ahead. The 401k plan was adopted in 1978. Roth IRAs, not until 1997, named by the way after Senator William Roth who initiated the bill. Meanwhile, index funds, they were first introduced by Vanguard in 1976 and ETFs, which gained popularity in the 1990s. Those revolutionized the opportunity for investors to broadly diversify, lower their costs, not have to chase their tail, looking for the “best money managers,” and I’m putting that in air quotes.

Here’s the kicker. We are living longer, but we haven’t been at this longevity game for very long. If Stanford trained Medical Doctor Peter Attia and other longevity researchers are correct, you may not have the 248 years of lifespan that the United States has had so far, but maybe 125, 135, that may just be in the cards. Just imagine for a moment, it’s hard to even conceptualize this, but you’re born in the year 1900, just a little over 100 years ago. Your life expectancy was about 47 years.

Fast forward to today, we’re talking about average life expectancies in the eighties, and that dramatic increase means you have to plan for potentially 30 or more years that you are alive. You need your money to work for you and you are not working. That’s a lot of living and a lot of planning, but here’s the rub. Many financial strategies have simply not adapted quick enough. They haven’t caught up to this shift. Many of the retirement plans and financial products that you rely on today were designed for a time when people retired at 65 years old and might only need to support themselves for a couple of years.

You see, previously, it made sense to go heavy in bonds and CDs and carry extra cash that was sensible when your time horizon was less than five years. Imagine you knew you only had a few years to live, you’re likely not going to benefit from taking on extra risk, seeking to achieve a little higher rate of return. Who cares? You’re not going to benefit from compounding, and that is one of the biggest mistakes that I see for those approaching and early into retirement, and it may be counterintuitive. It’s not that they are too aggressive that they take on far too much risk. No, it’s the opposite.

They’re far too conservative. They’re investing per a world that no longer exists. It’s outdated. Are your investment strategies current for the realities of today? As the old saying goes, “Give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime.” When it comes to your finances, there’s absolutely no greater legacy that you can leave your children and your grandchildren than the gift of financial literacy. The common question that I’m asked by those who are going to be okay, their plan works is how do I most effectively help those whom I love? Future generations, how do I provide a legacy?

America has an incredible legacy. No nation has ever made the impact on technology and medicine and entertainment, commerce and prosperity than these United States of America. Here are three tips to promote financial literacy and leave that legacy while your kids are young. First, start early with very simple lessons. Just this morning, we drove past a cyber-truck. My kids are enamored with these cyber trucks and my daughter asked me if I wanted one. And I used it as an opportunity to share how many people in America borrow for consumption and for depreciating assets like a car. So, I explained what does that mean.

When you drive the cyber truck off the lot, it’s worth less money. Now it’s a bad example because there’s very few of them made and there’s a long waitlist, and maybe you actually could sell it for a premium, but you get the idea on the lesson. Whereby contrast, when you borrow to purchase a home, you lock in your interest rate for 30 years and have an asset that historically has appreciated over time. Those two borrowing circumstances are very different. It was an easy practical opportunity to talk about debt and how negatively impactful expensive cars you can’t afford are. You can begin with basic concepts just as I shared.

Maybe it’s saving, spending, giving, use piggy banks or savings jars to help them visualize their money growing, show them how to split an allowance into different categories. That’s what we have. Saving, spending, giving. They put a certain percentage in each. Remember, more is caught than taught. So, number two is lead by example. Your children and your grandchildren are watching you, so be transparent about your financial habits. Of course, age-appropriate, such as budgeting, saving, making, spending decisions. Involve them in small decisions like grocery shopping or planning a family outing within a budget.

I talk all the time with my kids about margins. They’ll say, “Well, why can’t I get a soda?” Number one, it’s really unhealthy. Number two, I explain exactly how much that fountain drink costs, Chick-fil-A, and how much they charge us. Kids’ eyes light up. They’re like, “Wow, it’s a really good business.” Yeah, it really is. If you can avoid drinks at restaurants, you save a lot of money. Now, as I say that, the downside is every once in a while, I want the value meal. And they see my diet Coke and they’re like, “Dad, diet Coke.” They’re gouging. You remember how expensive those are? Remember how unhealthy it is Mom? Mom, Mom, dad’s drinking a diet coke.”

My kids actually tattle on me about soda. It’s not alcohol. They tattle on me about soda. It’s like I don’t know what legacy I’m leaving, teaching them bad habits of overpaying for unhealthy soda. But number three, use stories and games. There are plenty of age-appropriate books and games designed to teach kids about money. Books like Money Ninja, obviously Monopoly can make learning finance fun and engaging and the concepts will stick. Maybe you have teenagers, and so those suggestions aren’t quite as applicable. Here are three of those as well.

Number one, encourage budgeting and saving. This could be as simple as creating a budget spreadsheet using a free resource like mint.com, helping them set up a bank account and budget along the way. Number two, discuss credit and debt. This is the killer in our society. There’s a reason the credit card companies send a credit card a week to freshmen in college. Many are not educated. They see this plastic card as their gateway to fun, whether they have the money or not, and they’ll figure it out later. Nothing, and I mean nothing will stunt your young adult children’s financial future like unnecessary debt.

And number three, provide investing basics. What is a stock? What is a bond? What are expectations of those from a risk and a return standpoint? When are each appropriate? What are tax-efficient vehicles to save? What is a company match? What is inflation? What’s a Roth IRA? How does that differ from a deferred account? In this brave new world, which will continue to expand from a longevity standpoint for your future generations, create a legacy that arms them with financial literacy because after all, that’s timeless.

My special guest today is attorney Chrissy Knopke. Chrissy, welcome back to the show. Estate planning involves not only the personal assets that we often think of, but for business owners, it also includes those business assets. How does succession planning play a role in a broader estate planning strategy?

Chrissy Knopke: This is something that a lot of our clients forget to even address when they’re coming and talking to us about their estate plan. It’s really easy to think of your net worth and dividing it amongst two, four, five kids and just saying, “Hey, everything gets split equally when we pass away.” But oftentimes, we forget that our oldest son helps us run our business. He’s put a lot of sweat equity into that. What does that look like if we pass away? Is he going to have to share the business now with siblings and essentially make decisions with siblings that know nothing about the business? Does it get bought out?

So, there’s a lot of things that really need to be thought through when there’s a family-owned business and what that looks like for the next generation.

John: It can certainly become very complicated in particular when the business itself is valued at, in some cases more than the entire remaining estate, but only one of maybe two, three, four kids is involved in that business. What have you seen works well in those scenarios?

Chrissy: Oftentimes, we will do some planning based around giving the other siblings that aren’t part of the business shares in that company, but not voting shares, so they’re still not in charge. The one that always run the business is the person who’s actually still making the decisions running the day-to-day or even putting a process in place where before that person even inherits the bulk of the business, there’s a buyout. So, they’re paying, hey, they’re getting 75% of the business, because they put a lot of sweat equity in. And that other 25%, they’re going to buy out but they don’t have cash when it happens. So, there might be like a 10-year buyout plan.

So, those are all things that we really have to think through, but there’s a lot of options out there. But usually, a buyout or non-voting shares works pretty well.

John: No one wants half of what they worked for their entire life to go to an ex-spouse of one of their kids. How do they protect against that?

Chrissy: In most states, if someone inherits an asset from their parents or anyone really, just any inheritance from an uncle, whoever, if they keep that asset separate for the rest of their lives, that asset is usually protected from divorce, but most people don’t know that. And so, they get a million dollars. They’re happily married. They have no reason to believe they’re ever going to be divorced, and they go buy a house. And they title that house jointly. Or, they go move it into their bank account where they essentially have titled that bank account as a joint asset. And then, two, three years go by, they file for divorce and guess what? That’s a joint asset now. It was commingled.

And so, what we can do to protect that is put it in a trust where essentially that asset flows through that trust. Things that are bought, houses that are bought are always in the name of that trust and that keeps it protected from a divorce. It is just that child’s asset, not the child’s spouse. Something else to consider in the same vein is if you’re just giving assets to your kids when you pass away through a beneficiary designation or outright in their name, if they get sued, they get in a car accident, they get sued, that is now their asset.

It is totally able to fulfill a judgment if one is rendered against them, student loan debt, all of those types of things. And so, if it’s in a trust and we create that trust properly, we can certainly protect it against divorces and third-party creditors.

John: By creating the trust, not only does it solve the financial implications that you discussed, but it makes it easier for your child because sometimes when you’re married, that can become a very awkward conversation within a marriage to say, “Well, I’m not going to move this into our bank account and I’m not going to put this over here. And I’m titling all of this in my name and you really can’t touch this even though we’re married because it’s my inheritance.” In a good healthy marriage, that can be weird.

Chrissy: Very weird.

John: And so, by the parents just creating this trust in the plan to begin with, it takes that conversation the table, that awkward conversation. It’s like, “Hey, this is how mom and dad had it set up.”

Chrissy: Blame mom and dad, and they’re in their grave so it doesn’t matter anymore.

John: We blame mom and dad for everything. That’s what’s paying for therapy all across the country, so there’s just another thing just added to the list. Hey, mom and dad, I know it’s awkward they did this, but they wanted it in this trust. There’s nothing I can do about it.

Chrissy: Exactly. They didn’t give me a choice. It is what it is.

John: Chrissy, how about state laws changing when you move?

Chrissy: Right before I logged in here to do this radio show with you, I sent an email to a client who had no idea that when they created their trust in Massachusetts that moving to Tennessee, they may need some updates. And so, when you move states, there’s different property laws and a lot of times there’s different state estate tax laws. A lot of the states have abolished their estate tax law, and so if you pass away with $30 million in that state, there’s no estate tax owed to the state. There’s always a federal estate tax.

John: Chrissy, if I could jump in there for a second. I think the key here is if you happen to be in one of those states like Washington State, where I’m originally from and I have a lot of family or Minnesota, not only do they have an estate tax, but it’s significantly lower than we have on the federal side. And it can be a couple million dollars, which could significantly impact your estate plan.

Chrissy: Yeah, Massachusetts is a million dollar estate tax.

John: Wow, a million. Yeah, that’s crazy.

Chrissy: And so, it is worth a conversation if you’re moving to a state with an estate tax. A lot of clients don’t know it exists and they don’t think about it, and so it’s always worth a conversation if you are moving states. A lot of people retire in Florida and they take their New York trust, their Kansas trust, their Georgia trust down to Florida. And yeah, it is valid, but Florida has a very specific homestead exemption law. It’s a great law, it’s a great exemption and you want to take advantage of it.

Well, if you don’t have a very specific clause in your trust, when you move your real estate into that trust, you’re not eligible for the homestead exemption and it’s a really easy fix. It’s amending your trust to add that little paragraph of language, but if you don’t even think about it, you don’t know, and then you get the letter back from the state saying, “Oh, you’re not eligible because your house is in a trust and your trust doesn’t qualify.” And you think, okay, “That’s the end of it. I can’t do anything about it.”

John: That’s really interesting. I was not aware of that in Florida. It’s worth certainly talking to an attorney once you arrive in a new state.

Chrissy: Or even before. Alabama has a transfer tax, so if you go and buy a house in Alabama from Kansas and you’re thinking, “You know what? We’re excited. We’re so happy to go move to Alabama.” They go buy the house and they say, “It’s so much work right now. We’ll just move it into the trust later.” Well, there’s a transfer tax. And so, if they had had a conversation as soon as they knew they were moving, we could have said, “Nope, you have to do the paperwork and buy it in the trust because there’s going to be a transfer tax afterwards.”

John: This is why you and your team have a job. This stuff’s complicated. This is great, and that’s why it’s almost always more expensive trying to do these things on your own. There’s a lot of nuances.

Chrissy: And fixing them later. I always say, “The bell’s been rung. We can’t go back and do it the right way right now.” So, it’s going to be a little bit more costly. It was worth phone call.

John: Yeah, absolutely. Let’s move on to family heirlooms. People think about the money they’re going to receive, a lot of times, it’s like who’s getting the season tickets to the chief’s game that we’ve had for 30 years? It’s the painting above mom and dad’s bed that’s worth almost nothing, but every kid wants it and they’re fighting over it. How do you suggest families go about those items?

Chrissy: I can’t tell you how many estates where the family comes in and there is disagreements about a wedding ring, a picture. Mom told me I’m supposed to get this. It always stays with the oldest child. These types of things happen. It’s really easy to split an account however many ways it needs to be split, but it’s not easy to split a ring. And so, that is worth having a conversation and having it written in the estate plan, what you want done. What often happens is these conversations and arguments happen because the family never thought about it and everybody just assumes what mom and dad wanted.

When if mom and dad would’ve just had a very clear conversation or a written plan saying, “Hey, this is my intention,” it’s easier to have that conversation and think through that and say, “Hey guys, at Thanksgiving this year, was there anything in this house that you really wanted?” Most people, it’ll become really obvious. Well, I want this or I want that. Our owner of Creative Planning, Peter Mallouk always says, “It’s also really cool to give this stuff while you’re alive and see how happy it makes them.” That’s not always the option, but sometimes that is something that works as well too.

John: I love it. And if my parents are listening, I will take the 50-yard line Seahawks tickets.

Chrissy: I’m taking my kids’ tickets.

John: If you want to give them while you’re alive. I know I live in Arizona, but I’ll do that. I’ll go for it. If you want to just do that, listen to Peter on that. Do it while you’re alive.

Chrissy: I can tell you right now that there would probably be a disagreement in my family about our chief’s tickets. They’ve been in the family for 60 years and everybody’s going to want them.

John: I love it. It’s so good. A couple more topics I want to get to before I let you go. How about alternative beneficiaries? Someone’s deceased. How do we get it to someone else?

Chrissy: A lot of clients I meet with will say, “Okay, well, obviously, everything goes to my kids.” Well, what if your children are not alive and they say, “Well, I don’t know.” They’re never going to have children. Or maybe it is going to their children, but having a conversation around that. And so, a lot of people don’t. They just put that beneficiary down on a beneficiary form, say it’s going to my kids, and if their kids aren’t there, they don’t really think beyond that.

Today, I had a client who really wanted it to go to her son’s wife if he was gone, and so we essentially created documents that said if they were still married at the time he passed away and she survived him, she would get the assets. So, detailed planning and that to ensure the right person is getting those assets. It could be even-

John: And that’s a big one. Sometimes it could be let’s give it down through the bloodline, so to speak to the grandkids.

Chrissy: I would say that’s more common than not is it’s going to stay in the bloodline because again, 50% of marriages end in divorce. So, if we give it to that spouse, they get divorced, and then they get remarried later. Now, they might not do their estate plan correctly and those assets go to that new spouses.

John: But that’s why this is so customized. The lesson in this is when you speak with a great attorney and you’re able to share what’s on your mind, what’s on your heart, you and your team are able to ask good questions. You can customize an estate plan all the way down to the very minute detail of season tickets. How do you properly deal with a blended family?

Chrissy: Yeah, I’m going to tell you right off the bat, it’s not easy.

John: No, it’s not.

Chrissy: It is a very detailed conversation of what the overall desires are of both people. And I have seen this conversation go sideways more often than not because the first time the family is talking about it, the husband and wife is sitting in an office with me. And they have very, very different ideas of what they want. What I’ve seen recently working is I’m going to have this separate, I’m going to have this separate, and then this is our joint stuff. Some say our family is so blended, we’ve been together so long. There is no difference between your kids, my kids, and so we’re treating them all equally.

John: It would be great if it was like the movie The Notebook and you died holding hands on a twin-sized bed at the exact same time in a nursing home. But you and I know, most spouses, one dies before the other. And so, they may have a great plan together, but once one spouse passes away, the surviving spouse, if the right trusts are not set up, they can turn around the next day and say, “Well, my stepchildren aren’t getting anything anymore.” And they start gifting money to their biological kids and they start buying houses and cars and paying for college education for those grandkids. And that’s where I’ve seen families fracture because the children and grandchildren of the deceased spouse-

Chrissy: Get left out.

John: … are like, “Wait a second. We’re getting nothing. This isn’t what dad wanted. This isn’t what mom wanted. Now we have no legal recourse, whatsoever. We’re not going to get anything.” Meanwhile, the children of the surviving spouse are pulling up for Christmas in a 7 Series BMW, and it’s frustrating them.

Chrissy: I had this just yesterday. I did a review with a client who says, “You know what? We got married later in life. We both have our own kids. Fifty percent of the house is going to my kids when I die and 50% of the house is going to his kids when he dies. “Well, I pull the deed from the county register’s office and it is joint tenants with rights of survivorship.

John: Wow. Yeah, that’s not happening.

Chrissy: The client says, “Well, no, 50% is going to my kids when I die,” and I said, “No, it’s last man standing.” So, if your husband survives, that house is his and he can do whatever he wants with it. And if you survive, that house is yours and you can do whatever you want with it.”

John: These have been great topics, Chrissy. Thank you for your insight as always and for joining me on Rethink Your Money.

Chrissy: Always glad to be here.

John: At the top of the show, I spoke of making an impact and of legacy, oh, and definitely of aging and longevity as well. And along those lines, how about last week’s presidential debate? Did you catch that? Back in July of 1776, what we just celebrated, our independence, life expectancy was 35 years, which was slightly short of being able to run for president. After watching the debate, my ringing question is, how the heck is there not a maximum age for running for president? But you got two guys wheeling out with tennis balls on their walkers screaming at one another about their golf handicaps. I thought I was being pranked or something. What a sight that was.

I about spit out my water when Trump started talking about the club championships that he’s recently won and how healthy he must be to win those. Let’s be real here. I don’t care which way you vote Democrat or Republican, we all know Trump is definitely the guy who takes gimmies from six feet away from the hole, kicks his ball out into the fairway and doesn’t take a penalty stroke. That’s a no-brainer.

And President Biden, he probably wouldn’t even know what golf course he was on. That was a site that I imagine our founding fathers would’ve been quite disappointed in, but this is where we’re at. And if you missed it, they discussed many topics, the economy taxes and the deficit. Trump, of course, talked down the current environment while President Biden argued things are looking up even though more work remains to be done. Trump insisted that the US had the greatest economy in the history of the country.

I’m sure he said, “Just ask anyone, they’ll tell you, everyone loved my economy.” He said that inflation is killing our country, absolutely killing us. Trump’s claim that during his presidency, the US had the greatest economy in the history of the country. By the way, it was a good economy but false by many of the most common metrics used to judge economic performance, but it was a good economy prior to COVID. They talked about taxes with Trump saying that Biden wants to raise your taxes by four times.

President Biden saying that he doesn’t want to raise taxes on anyone under 400,000 and that Trump’s tax cuts benefited the wealthiest of all Americans. And on the deficit, they did what they do best and pointed fingers at one another. Now, they talked about immigration and abortion as well, but those are our topics for another show. But guess what? The US stock market, which is what this show is about, didn’t zoom off the rails and this is the main practical takeaway.

Do not mix your politics in your portfolio. Emotions were running high. You’re the sucker, you’re the loser. Fortunately for you, the market doesn’t see red or blue. It sees green. Yes, one of these two will win. They are two of the most unpopular presidential candidates in the history of our nation, but when that victory emerges, you’ll still take the grandkids to Disneyland. You’ll still go to Chipotle and buy a burrito. You’ll put Nikes on your feet. You’ll go to Amazon. You’ll get a new iPhone. You’ll travel for business. You’ll stay in a hotel, and this is why the market has averaged 10% per year for nearly 100 years.

And the returns over four-year periods of various presidents have no statistical pattern. If you know what you are doing and you have a great plan in place, your candidate losing has no relevance in your investment strategies. If you watch the election closely as a way to monitor your money moves, that is something you should absolutely rethink. There continues to be a record level of cash on the sidelines.

To some extent, this is logical. When you’re making 4% or 5% in a money market versus a quarter of 1% as you were a few years ago, it can be enticing. And it can feel less worth it to go into more volatile investments like the stock market, but holding excess cash on the sidelines as an investment strategy is something you should rethink. In fact, chasing currently high interest rates that risk falling is what I refer to as a cash trap, but Americans have poured money into cash like investments since the Fed began raising interest rates.

This has driven assets and money market funds to a record $6.12 trillion in June according to the Investment Company Institute. If you are sitting on cash beyond what you need for an emergency fund, beyond what you need for a home renovation in eight months, beyond what you need to purchase a car or pay a tuition payment for one of your kids in college. I’m talking about extra cash that you’re shrugging and saying, “Well, I’m getting 4.5%, 5%. I’m just leaving it there for now.” The stock market has averaged about 10% a year for 100 years. It moves up into the right over long periods of time.

And so, if you concede the idea that you’ll be able to time up and down markets, when would be the best time strategically like big picture to allocate cash into more growth-oriented investments? Now, today, and I think the broader point is that if you have a written documented financial plan that accounts for your goals, the answer of how much cash you should sit on or when should it be deployed, those are all answered simply within your plan. You don’t have to wonder as many investors are right now, not everyone needs a financial planner, but everyone needs a financial plan.

It’s interesting how taboo money is as a topic, and families and relationships. I mean, we’ll talk more about what goes on in the bedroom than we will our financial situation. Think about how much you know about some of your closest friends, what they’ve shared with you. Now, think about how little you probably know about the ins and outs of their financial situation, about their history with money.

Creative Planning wealth manager, certified public accountant and certified financial planner, Jessica Culpepper, a multiple-time Barron’s top 100 independent financial advisor including in 2023, was previously a guest of mine on Rethink Your Money and she spoke about how she encourages some of the most wealthy families at Creative Planning to loop in children and other generations about their family’s finances. Have a listen.

Jessica Culpepper [sound bite]: Clients are more willing or ask a lot of questions about should I bring my kids into the planning process to prepare them for what’s to come? I see that a lot with parents who’ve got kids who are in their 20s and 30s, and the one thing I really caution families about, someone can’t unsee something. So, if you’re sitting down with your kids and they’re 25 and you’re like, “Hey guys, we’re worth $30 million.” That child can’t unsee that and that’s going to mean something to them and how they interpret that no one can really predict.

Are they going to be responsible and feel a sense of stewardship and shepherding what their parents have accomplished, or are they going to have a downside where we’re out to dinner with mom and dad and they didn’t offer to pay for that? Gosh, what?” That’s a really tough dynamic, so we want to caution our clients at least disclosing and really thinking hard about showing numbers. What we really like to say is at a minimum, if they do want to involve the next generation, maybe start with an estate planning discussion at a very high level.

If something happens to us, Uncle Ed’s in charge. He understands where everything’s at. We work with Creative Planning and he knows that we’ve got this great binder that’s going to help him figure things out. Creative Planning and Uncle Ed are going to take care of our charitable requests, and we’ve got 10% going to our church because we really care about that. And then, the rest is going to be available to you guys.

Uncle Dan’s going to work with you until you are 35. He’s going to really help you make some decisions. And then, when you’re 35 or 40 or 50, whatever that number is, you really have the full control.

John: I want you to ask yourself something for a moment. How do you grow in any area of life, guidance, mentorship, conversations, reflection, transparency, vulnerability, but with money, you’re often not able to achieve that because it’s so private to everyone around you. And so, some of the dynamics that you benefit from in other aspects of your life, they’re void when it comes to personal finance. My suggestion, as Jessica stated so eloquently, you don’t need to share every detail with every single person, that would be unwise and inappropriate, but have a person or two in your life that you respect and you feel that you can open up to.

And that may be your wealth manager, your CPA, your estate attorney. The common wisdom that you should avoid any intimacy or conversations around money is one that you absolutely should rethink. Well, the US stock market finished the first half of 2024 on a positive note with a rally in some of the world’s largest technology companies propelling the major indexes to multiple all-time highs.

MarketWatch had a great article on if the past is any guide, the good times for US equities, are they to keep rolling into July? Well, since 1928, July has emerged as the best month of the year on average. I bet you didn’t know that. By the way, it’s okay if you didn’t. I’m going to get to it in a moment. It doesn’t matter, but in terms of stock market performance, the S&P 500 has experienced a gain of 1.7% in July and finished the month higher more than 60% of the time.

Meanwhile, if you look at the Dow, it’s delivered an average monthly advance of 1.4% in July, also making it the best month of the year for the blue-chip index dating all the way back to pre-1900. Such historical strength inevitably stirs talk of a summer stock rally. But according to experts, and I wish this was simulcast, you could see how sarcastically I’m using that word. You should be aware of the hype, as it has historically been the beginning of the NASDAQ’s worst four months of the year, and it’s only been the sixth-best-performing NASDAQ month since 1971.

Oh my word, lions and tigers and bears. Oh my. Give me a break. Does anyone actually care about this? Does anyone actually believe that any of this is relevant? Do some people still read these articles and think, “Wow, I should go all in because July has been the best month historically.” Or actually, no, no, no. Opposite. “I should go all out.” Because if you look at the last 50 years and you look at tech stocks in particular, it’s been the beginning of this third of the year that doesn’t do very well. Maybe I should get more defensive. Can we just stop?

In 2024, don’t we have enough information now to know how ridiculous this is? Look at all the analyst market expectations going into 2023. It’s going to be a pretty bad year in the market. Minimal growth down here in the market, it finishes up around 20%. They’re so wrong so often and not just a little bit wrong. Like hey, we thought it was going to go up 10% and it went up 12. They’re like, “We thought it was going to be down and it went up over 20.” Or we said it was going to be incredible and the market finished down.

You see, you will be a better investor when you accept what mature investors already have. The markets and the economy are unknowable. They’re not unknown, they’re unknowable. There are too many variables, millions of them simultaneously impacting the markets, many of which are completely unpredictable, which is why basing any investment decisions on what you’ve worked a lifetime to save per what some financial advisor up the road from you tells you they think is going to happen with the market is insane.

Don’t walk out of their office. Run. Don’t read an article like this for anything other than a laugh and entertainment. A little over half of all stock market days finish up in value. About 70% of all calendar years finish up. There’s a typical correction of around 14% peak to trough during a normal year. About every five years, you’ll have a bear market. Once or twice a decade, you’ll have a terrible crash.

Over five-year periods, you’re up about 90% of the time. Over 10-year periods, a diversified portfolio in the stock market is up over 95% of the time. Past performance, no guarantee of future results. Ignore the noise, especially the so-called experts and economists who happen to be really adept at intelligently explaining why their previous predictions were wrong.

It’s time for this week’s one simple task where I help you make incremental improvements 52 times throughout the year, and if you would like to reference the previous tasks from 2024 as well as supporting resources, you can find those on the radio page of our website at creativeplanning.com/radio. Today’s tip, implement an asset protection strategy by starting with insurance. I know insurance is longer than a four-letter word, but it hits the same way, doesn’t it?

No. I’m not suggesting that you go buy expensive whole life insurance or being over-insured unnecessarily so that some agent can make big fat commissions. I’m not suggesting that, but regardless of your net worth, it is important within the context of a well-built financial plan to consider your risk management. And in fact, once you are in a good position like you’ve saved enough to support your objectives, a big threat is the unexpected.

While some asset protection strategies are specifically designed to meet the needs of the ultra-wealthy, most strategies are important for the rest of us as they help protect against potential creditors, litigation and taxes. Here’s what I want you to do this week. Review what you’re currently using for insurance and determine which of the following provides an appropriate combination for your specific situation. Life insurance, not permanent, just term, inexpensive life insurance. Do you need some, who would be harmed in the event that you passed financially? How much would they be harmed?

A good certified financial planner will run an insurance needs analysis as we do at Creative Planning and quantify the value of your life not from the important aspects of the value of your life because it’s probably invaluable when you consider your spouse and kids. I’m not talking about that. Monetarily, how valuable are you for those around you? Homeowners or renters insurance, disability insurance, auto insurance, umbrella insurance. Put a pin in that. I’ll come back to it in a moment.

Health insurance, maybe malpractice insurance, E&O insurance depending upon what type of business you are in. And I will post an article titled Asset Protection Isn’t Just for the Wealthy to the radio page of our website if you’d like to read more on the specifics, but the takeaway for today is review this. Take it seriously. Don’t gloss over simply because it’s insurance. And along those lines, it’s time for listener questions to read those.

One of my producers, Britt is here. Let’s go to Derek and he had a question along these same lines of insurance.

Britt: Good eye, John. Yes, he did. Derek out of Arizona is wondering about umbrella insurance. He’s not sure if this is something he should be considering and would appreciate your thoughts.

John: Derek, I just listed in my simple task umbrella insurance as one of those risk management tools. It’s an often affordable way to extend liability protection, which will offer you peace of mind by covering significant in many cases, unexpected claims. Here’s how the basics work. You have supplemental coverage which will extend your liability beyond your home auto, those types of policies and will activate after those limits have been reached. Hence, the word umbrella. It’s overarching. It covers other policies with broad protection.

And it also comes to aid for a wide range of scenarios including bodily injury, property damage, personal liability, for example, libel or slander, and the premiums are affordable. Typically costs around $150 to $300 per year for the first $1 million of coverage. Now, you asked, is this something you need? How much of it would you need?

Obviously, the certified financial planner in me says go have an entire plan built out and determine exactly how much you need. That’s the best solution, but generally speaking, you’ll evaluate your assets just to ensure that the coverage matches or exceeds your net worth because you’re looking to protect all of your assets, or at least most of them, depending upon how aggressive you want to be with the policy.

But again, leverage is really good, so probably worth, making sure rain’s not hitting your shoulders. The umbrella is large enough. You want to assess your risks. Do you have teenage drivers? Do you have rental properties? Are you in a more or less risky situation than the average person and then consider future earnings. Appreciate that question, Derek. Who do we have up next, Britt.

Britt: Up next, we have Sarah from New York. Sarah and her husband were discussing vacation plans. She shares that she likes to go all out, but her husband doesn’t want to spend as much and allocate less of their budget. Now they’re both wondering, John, what is the typical family budget percentage for travel?

John: Yes, Sarah, thank you for the question. A good financial plan should account for planned expenses like vacations as well as unexpected, like the inevitable events of home repairs, auto maintenance, because when those occur, notice I didn’t say if. When they occur, it can’t compromise the solvency of your plan. There needs to be enough wiggle room for those items you don’t know exactly what they’ll be or how much they’ll be, but you know that they’re going to occur. Vacation spending, it’s a little bit different but is equal to about 2% of most US households total budgets from an annual standpoint. However, only some households report these costs.

And you and I both know practically from those that you’re around, family members, friends, people’s idea of vacations are really different. One is, I’m going to tent camp in the woods for three days. Another is give me white robes and massages at a five-star resort after flying first class. Those are going to have pretty different costs, which is another reminder as to why personal finance is far more personal than it is finance.

But when it comes to pleasure trips, the real question should be about what collectively you and your spouse want to do with your money and agreeing that spending that money because you’re in a place to do it is perfectly okay. For some, it takes actually documenting that in the plan as a budget item for a specific amount. I suggest you do that. If it’s a priority, let’s put that in the plan.

Let’s make sure that that’s accounted for because one of the benefits of that is that it doesn’t feel like maybe we shouldn’t spend this because it’s extra, but rather this has been calculated in all of our projections. The key with your money is to try to balance enjoying it today while being responsible for your future needs. And if you have questions and you’d like me to answer those either on the air or personally to you offline, submit those questions by emailing radio at creativeplanning.com.

I finished binging on the Netflix series, King of Collectibles. The show features a gentleman named Ken Goldin, who’s been in the sports memorabilia and auction house business for decades, as well as his savvy team. On one show, Mr. Goldin flies to Phoenix, Arizona and meets at Chase Field with the owner of the Arizona Diamondbacks. The reason for this was because he wanted to view his baseball card collection. And it was one impressive collection. He pulled out a Honus Wagner card that is in the highest grade condition of any Honus card known to exist.

Now, the backstory on Honus Wagner is that he played in the early 1900s was against supporting the tobacco industry who were responsible for producing baseball cards. So, he pulled his cards, making them one of the most rare, hard-to-find baseball cards on Earth. As Goldin gazed at the beauty of this card, the magnitude of what he was looking at, an estimated $50-plus million dollar card, he asked, “Well, I wouldn’t be doing my job if I didn’t, at least question whether you plan to auction this or consign it at any point.” Obviously, it’d be a huge payday for Goldin.

The Diamondbacks owner said something that really made an impact. He said, “When my son was 12 years old, and I showed him this card,” by the way, along with an almost mint condition, Mickey Mantle rookie and several others that total probably a quarter of a billion dollars, maybe more. And he continued, “I told my son how rare and special these were, how much research I went into finding these cards.” He said, “My son looked at me and he said, dad, I promise you I will never ever sell these cards.” The gentleman looked back at Ken Goldin and said, “So, there’s your answer. These are never being sold.”

Now, on the surface, it may seem absolutely bananas to have 250 or 500 million or whatever they account for dollars worth of baseball cards, but it’s not about that. For him, it’s about the connection and the memories that these cards bring their family versus the actual underlying value, and obviously that’s easy for a multi-billionaire to say. Yeah, you and I aren’t billionaires, but that doesn’t mean that there aren’t takeaways for us. Having material items because you can just because it’s like, “I can afford this.”

It’s one thing, but having material items because they actually mean something is entirely different. Wealth isn’t what’s your net worth? There are a lot of people with high net worths that are impoverished in my opinion, and there are a lot of folks with meager balance sheets who are living very wealthy lives. Use your money to foster connections and relationships, genuine intimacy with those whom you love, and secondly, give now.

Share your wealth with those whom you love today because them receiving a quarter of an investment account when they’re 65 years old and a piece of the home value when it sells because you passed away in your 80s or 90s, sure, it might help them financially. It may give them a little bit of a boost for their retirement, but it likely won’t have the impact as you planning a vacation while you’re alive or passing down an heirloom jewelry that’s meaningful to you or a baby grand piano that you used to play songs on together while you’re alive. You see your money is nothing more than a tool. It doesn’t have inherent value.

It has indirect value. And when you put it to good use today by fostering relationships and giving it with a warm hand rather than a cold one, that’s when you’ll experience the joy that it truly can bring. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.

Disclaimer: The preceding program is furnished by Creative Planning, an SEC-registered investment advisory firm. Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment tax or legal advice.

Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on the show, will be profitable or equal any historical performance levels. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning tax and legal are separate entities that must be engaged independently.

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