Now that the polls are closed and the 47th president has been elected, we’re reviewing some valuable insights shared by Peter Mallouk and Charlie Bilello on their recent episode of Signal or Noise. We’re also welcoming back to the show Creative Planning Partner and Estate Planning Attorney Chrissy Knopke to discuss year-end estate planning essentials. Plus, is it actually possible to balance asset accumulation, enjoy life, be charitable and still be prepared for a retirement with increased longevity? Find out on this week’s episode!
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 John Hagensen, and ahead on this episode, taxes, government spending and deficits, the economy and inflation, immigration, deregulation in energy, tariffs, foreign policy and wars, and finally, the Federal Reserve. Also, this week’s one simple task, listener questions and a fantastic interview with estate planning attorney Chrissy Knopke. Now join me as I help you rethink your money. The dust has begun settling on the election. The market is absorbing that information as are we as a society.
Creative Planning President Peter Mallouk and Chief Market Strategist Charlie Bilello gave their thoughts on the impact of the election and most importantly for you, what happens next? So much of every election and certainly the campaigns focus intently on taxes and that’s where I want to begin today. If you’re old enough, you remember, this isn’t new. Read my lips. This has been going on for decades, the political yo-yoing of tax regimes and proposed changes. There are a lot of opinions on what happens with taxes now over the next two years, maybe over the next four years. Let’s hear from Peter on his thoughts that he shared this week on his podcast, Signal or Noise.
Peter Mallouk, Soundbite: Let’s talk big picture taxes because there’s a lot of proposals. You’ve listed them out here, but let’s talk about the big picture taxes. This is going to surprise people. Under Bush, under Obama, so we’re talking about 16 years now between those two, under Trump, under Biden, across all of them, income tax rates moved less than 3%. So, the impact on income taxes of all the campaign promises across all the Democrats and Republicans across income taxes, talking about almost no movement whatsoever, no change in anybody’s life around income taxes for all the talk from both parties. Let’s talk about the next biggest tax, which is capital gains tax. The main tax people pay is income. The second one they pay is capital gains.
You sell a stock, you sell a business, you sell property, it’s gone up in price. When you sell it, the gain is taxed at a different rate. It’s called the capital gains tax. Under Bush, under Obama, under Biden, under previous Trump administration, the capital gains tax has not moved at all. It stayed exactly the same. No one paid more, no one paid less. These are the two biggest taxes that exist. So, all this stuff that Trump and Harris were talking about, this is all on the periphery. I’m not saying it’s meaningless. I’m saying this idea that the world has completely changed tax-wise, it’s just not true. All the conversation around both parties all the time, you don’t really see the radical change that people expect to see.
So, when we look at the proposals that Trump made, and what’s interesting is the proposals across both parties, were very similar. These things like not taxing tips and so on. A lot of these main policies were very, very similar. The difference between the two parties and the tax proposals is a rounding error. So, when I look at what some of the things that Trump is proposing about lowering the corporate tax rate or not taxing tips or deduction for auto loan interest or raising the child tax credit, which we heard Vance talk about, raising that credit to $5,000, I think there’s a high probability these things are going to happen and I think they will be offset probably somewhere else. I think for the majority of our listeners, the impact is going to be not significant.
Now, the corporate income tax going from 21% to 15 is not directly significant to people. It will impact stock prices. Obviously, corporations that pay 6% less in taxes, you have 6% more in profits. But I would not be surprised if they make up for this somewhere else with a change in a capital gains rate or something else where this becomes a little more neutral. So, look, these candidates were extremely different on social issues. They’re extremely different on other issues and they’re a little bit different on economic issues but not as radically different I think as most people think.
Charlie Bilello, Soundbite: The most bipartisan thing, Peter, would be a thing that I actually don’t even agree with, and we had talked about it previously, which would be this idea of exempting tips and social security and overtime pay from taxes because to me, that’s picking and choosing who shouldn’t pay taxes and why shouldn’t everybody get that benefit? Why only if you work in a job that gets tips or why only people who are receiving social security benefits or people who work overtime, why only those people should not pay that tax? That makes absolutely no sense to me.
Peter: To me, this proposal by the Trump administration immediately followed by Harris. Both of them had the same proposal on exempting tips. Let’s just pick this one out. This is an incredibly unfair one. So, you have someone who’s working at say Wendy’s. You don’t get any tips. Let’s say you’re making $18 an hour at Wendy’s. Under the Trump proposal and what Harris matched, that person making $18 an hour is going to pay taxes. Instead, you’re working at a drive-in type place like Sonic. Meal costs the same, but someone sitting in their car. Sonic pays their people a little bit less because they get tips. So, the person working at Sonic doesn’t pay taxes on their tip. The person working at Wendy’s does pay taxes. This is unfair.
Just lower all of their taxes and be done with it and be fair about it. So, to me, this was a campaign gimmick. Both parties had it. I don’t see how they implement… I mean I guess there’s been a lot of unfair things passed historically under Republicans and maybe they’re going to pass it, but what you’ll wind up having is maybe a change in the way business. A lot of people will pay people less, encourage tipping or classify part of compensation. There’s going to be a lot of stuff, games that will be played if this thing passes.
John: Again, that was Creative Planning President Peter Mallouk and Chief Market Strategist Charlie Bilello. We’ll see what happens with taxes, but we are much less likely to see the current tax rates expire in 2026 now as they are still presently to do. There is no guarantee, but that seems much less likely as a result of this election. There’s no way to untether the tax conversation without also assessing it within the broader context of our government spending and massive deficits. Here are what Peter and Charlie had to say on the deficit and government spending moving forward.
Peter: I think what you’ll see is so much of the deficit is the built-in increases for all these departments and I think you can make a lot of progress just by saying there’s a freeze. I think they’re going to go beyond that and I think we’re going to see a lot of these departments see severe cuts. Part of it’s philosophical. Democrats want there to be more federal power and Republicans want there to be more state power. It’s just a philosophical way of looking at things. So, philosophically, you don’t care as much as a conservative about the Department of Education because you believe it should be handled at the state level anyway.
Charlie: That’s when they’ve talked about potentially a limiting. I don’t see that happening, but that’s 300 billion right there. You could cut something.
Peter: Yeah, I think what we’re going to see is, hey, your increases are 4% a year. They’re 2% or they’re 0% for a while and certain departments, we’re going to cut severely. I just can’t see him going after social security and Medicare because he’s promised on the record multiple times not to do it. He has promised on the record not to do. He’s been accused that he will do it because it’s the only way to accomplish the things he said he was going to accomplish and because his voter base very heavily is in that group. So, I think that’s just going to be-
Charlie: He was president for four years and he didn’t touch it. He didn’t talk about it. We know it’s the third rail of politics.
Peter: Yeah, neither party is touching that.
Charlie: So I like the idea. I’m hopeful. I don’t know how Elon Musk has any time for it, but if you were to go in there and look at and say, “This is glaringly waste. This is fraud,” who’s not in favor of eliminating fraud? That’s it.
Peter: Well, I think we’re going to see a lot of very interesting things. Every now and then under both administrations, we get to see the ridiculous spending that happens inside of these groups.
Charlie: The idea that some people are suggesting that he can go in like he did with Twitter and cut 80%. I have no doubt some of these departments could be cut and we would be just fine, but the politics of that is very, very difficult. It’s going to be a huge effort to cut anything I think from anywhere. So, we’ll see.
Peter: I will say I do think if we are going to see it, I think we’re going to see it very early. If they’re going to do it, they’re going to have to do it right away while they have some momentum. So, I think we’re going to see this unfold in early 2025 if it’s going to happen at all.
John: At the end of the day, decreased tax rates will hopefully lead to increased output without holding inflation high. Beyond that, government spending will have to go down ultimately to curb it. Transitioning over to the topic of the economy, unemployment is quite low. Growth is pretty good. Current inflation isn’t very high, but inflation is cumulative. Peter Mallouk shared his thoughts on this as well.
Peter: We’ve talked about this endlessly. I feel like I’ve been talking about it for two years. Look at it in two parts. One is who’s to blame for the inflation? Is it Biden? Is it post-COVID policy? It’s the Federal Reserve. Let’s call that irrelevant for our discussion today. So, when we look at the voter, what did the voter care about? The number one thing in the exit poll was this issue, to your point. To me, the issue with this recovery is I like to call it a K-shaped recovery. The media calls it a V-shaped, right? You had COVID. Everything went down and then everything went up. But when we say everything, we mean stocks went up. If you owned a business, the value went up. If you owned a home, the value went up. If you own real estate, you were renting apartment complex, it went up.
So, if you own assets, yes, they went down in value and then they went up a lot. So, you’re like, “Hey, there was a recovery. I can feel it. I can see it.” Most of our listeners can feel it and see it. Most Creative Planning clients can feel it and see it, but most Americans did not. I think this is the big disconnect. Most Americans don’t own a lot of stocks or no stocks. They don’t own a business. They don’t own rental real estate. Their home is not worth a lot or they don’t own a home. Their wages, we know this, their wages did not keep up with inflation. So, for the average person working in America, they went to the grocery store and stuff cost a lot more.
We could argue about whether it was 40% more or 60% more, but it’s a lot more, highest spike in inflation in decades and their wages did not go up as much. So, they are suffering. They just are. That’s the reality of it. So, it’s a K-shaped recovery. People who have money, great. Your assets went down, then they went up a lot and you’re probably richer than ever before. Everyone else, what you had went down and your income never recovered. So, now the cost of everything is up and you don’t have the money to spend on it.
So, yes, it is true what the Biden administration was saying, which is inflation is decelerating. In other words, yeah, it went up 40% or 50%, everything costs 40 or 50% more, but now inflation isn’t 8% a year anymore. It’s only 3%. So, it’s back to normal. Well, the average American doesn’t care. Everything still costs more than their earnings. So, they went to the ballot box and the number one exit poll issue was, look, I need someone who can solve this.
Charlie: That’s the question, Peter. Tell me how they can solve it and how much control does the President or the House or the Senate have on inflation?
Peter: Yeah, Harris was saying it’s solved. It’s back to 2 or 3% and I’m going to continue to solve it and Trump is saying it’s a mess and I’m going to fix it. The reality is neither of them had a lot of influence over this number because this has to do with how much money is in the system and the Federal Reserve policy. Yes, it was contributed to with all the stimulus and everything else that happened under the Trump administration, another way of it that you can argue isn’t necessary or not under the Biden administration, but most of this is around policy, around the Federal Reserve. I think regardless of who was in office, how inflation is going to be for the next year would probably be about the same.
John: Well, I think we’d all agree there’s a big difference between legal and illegal immigration. This was a major topic. During the campaigns, according to President-elect Trump, there is no desire to decrease legal immigration, but what impact does an aggressive plan to deport illegal immigrants have? Creative Planning President Peter Mallouk shared his thoughts on Signal or Noise with Charlie Bilello.
Peter: You’ve had about a million people coming in legally over the last 10, 15 years. Very little change across either party. You did hear in this election both parties talking about increasing legal immigration and both parties talking about stopping illegal immigration. That was really interesting to see them all match up on this. But to the point of just economics, the argument of the economic impact of illegal immigration is people that are coming in illegally largely are taking jobs that theoretically other Americans don’t want. I mean there’s a long list of them on farms and lots of other things.
So, is it inflationary to stop illegal immigration? The answer to that, just the economic answer to it is yes, because if you don’t have the illegal immigrants coming in and taking those jobs, then you’ve got to get Americans to take them. Now some people say, “Well, no American will take them.” That’s 100% untrue. So, very simple economic supply and demand is if you increase the compensation, eventually, someone will take it.
Charlie: Yes, the American won’t take it at the same wage.
Peter: 100% correct. So, if you are running a farm and you’ve got illegal immigrants doing something for $15 an hour and there’s no longer illegal immigrants, let’s just say tomorrow they’re not here, not going to happen, but just for the economic example, then they’ve got to get their farm running. So, they might have to pay $22 instead of $15 and then Americans will take them. At some point, they will take them. Now that means the cost of stuff coming off that farm is going to be more. So, yes, illegal immigration drives prices down. It doesn’t mean American business owner doesn’t have to pay more for the American to do it, and so it would be inflationary to get rid of this.
Now, the counter-argument to that that someone who’s into enforcing the border would say, “Well, there are other costs to a society if we haven’t screened people for all these reasons or they’re not coming through the normal process or they put more pressure on social services.” So it becomes a very muddled question. There is no question that an illegal immigrant drives down the labor cost, which just deflationary for what Americans will buy the goods for. There’s also no question they’re more likely to use social services, which puts more pressure on the economics. So, it’s a very, very muddled question.
I think enforcing the border if that’s really what’s going to happen here is going to be mildly inflationary, but I don’t really think on the campaign trail that’s what this was about. I think on the campaign trail, it was very much saying, “Hey, you’ve got legal immigrants that want to come to the United States. Why don’t we let more legal immigrants come in than illegal immigrants? It’s a national security issue. Why aren’t we checking everything and all of that?” I think when you look at the polls, Americans were more motivated by that, which is why Trump said this was a big issue for him. Harris said she would run a different policy than Biden and more likely enforce the border because we’re talking about the economics, but it really wasn’t seen through an economic lens.
John: Another topic discussed was deregulation and the impact that may have on the economy. What’s Peter’s take? Have a listen.
Peter: I think we’re going to see a very big shift, and I think we already saw a shift with the Supreme Court. So, basically, we have these three parties of government that we’re all aware of, but over time, we developed all of these agencies that regulate different industries and they create their own laws. We call them regulations instead of laws. Basically, the Supreme Court had a ruling a year or two ago that basically said, “Look, this has gotten carried away.” The whole reason the Constitution exists and created Congress is for Congress to pass laws. So, there’s just been too much power.
These groups shouldn’t be creating up rules as they go. So, there’s already this major trend that has nothing to do with Trump or Harris moving towards a deregulatory environment. Now Trump is very anti-overregulation. So, I think we’re going to see a lot of movement here where we’re going to see much less ability for organizations to create rules on their own without Congress being involved or the executive branch being involved in any way. I think this is a trend that’s going to be very, very real.
John: We are the largest producer now of oil and natural gas for the United States and tariffs were a big topic. Here are Peter’s thoughts on tariffs in general and what impact they may have on you.
Peter: I’m going to just use a totally different example to get into tariffs. Some people when they think about Walmart, well, Walmart was bad for America because it killed all the small businesses in all the small towns and came in and then all the money goes to Walmart. But some people look at Walmart and go, “Well, Walmart’s wonderful because only 1% or 2% of the people in that town owned a small business and everyone was paying more for the goods from that small business. Now they go to Walmart and they’re paying 20%, 30% less.” So it’s like a huge tax break for everyone in the town. Everyone’s just paying less money to get the same stuff from Walmart. That to me is like if you look at Walmart, Walmart was deflationary, right?
Everything costs less if you go to one big Walmart, instead of 15 local businesses. So, was it good for people because it lowered the cost of the average working American in a small town or a big city or was it bad because it put out some places out of business to do that? It depends on the lens you want to view it, and that’s how I see tariffs. If you look at an iPhone and some of the parts are coming from China, is iPhone making those parts in China because they love China and hate America? No, they’re doing it because they’re trying to make the iPhone for the lowest cost possible. So, if some of those parts can be made for less in China, they’re going to make them in China and you will pay less for the phone than if all those parts were made in America.
So, what Trump is saying is, well, I’m going to tax the parts that come from China at 60%. Well, guess what? That part is going to cost 60% more and your phone is going to cost more. It’s inflationary. We know that. So, yeah, the American company that can make that same part is now going to sell it, but the reason Apple wasn’t using them in the first place is they cost substantially more. So, when you tax these things coming in, we either have to pay more for the product coming in or that product doesn’t come in and we pay more for the product being made in the United States. It’s 100% inflationary. So, if you are looking at this as a liberal, you go, “This is a terrible policy.”
If you’re looking at it as a conservative, the only way you can make any sense of it is, Charlie, the way you’re saying it, which is that Trump isn’t really serious about actually having tariffs. What he wants to do is convince the Chinese and other countries that he will impose this tariff and extract something in exchange for removing the tariff. So, starting out with, “Hey, I’m going to tax stuff from China at 60% more and stuff coming from other places at 10 or 20% more,” but then going to them and going, “Look, I’ll forget about all of that, but you’ve got to let more American goods into your country.”
If he accomplishes that, then everybody in America wins. That’s wonderful. If we really wind up in a world with tariffs, everybody loses. So, it’s really the lens you want to view this in and where it’s going.
John: Let’s look at foreign policy and wars because that was certainly a hot button during the campaigns and it’s costing us a lot of money. Let’s hear from Peter on his thoughts.
Peter: Boy, there’s so much that goes in all of these wars and what the real agendas are behind them. The thing I’m least interested in these wars is the economic element, but look, that’s what our job is here is to talk about that component. If you just take the money that we’ve spent on these two major wars now where it’s US weapons and US tanks and US planes and US bullets being fought in these wars, if you just took the money that we’ve spent in the last couple of years in this war, you could have eliminated all homelessness paid for everybody in America to have healthcare and paid for everybody in America to go to school. All of those things just with what we’ve paid in war support for these wars. So, it’s economically insane.
Now, people have their whole ideas about what these wars are really about and are they worth it and all of that stuff. I do think Ukraine-Russia is going to come to a conclusion, so we’ll see, but who knows? Economically though, obviously, the two major issues are Ukraine-Russia, Israel-Hamas. These are a massive burden of the US taxpayer could argue whether it’s worth it or not, and I think that we’ll get to a point where the bullets stopped flying pretty quickly here.
John: Finally, let’s look at the Federal Reserve. Charlie and Peter discussed this as well.
Charlie: Let’s quickly talk about the Fed here. Trump, obviously, I think a lot of this is just blustering and he likes to just say what he says and he did this during the last administration. Nothing really changed. He wants lower interest rates, I think, is in general the policy, but is he going to remove Powell? I doubt it. Powell is saying he’s not going to leave even if he’s asked to. To me, the bigger issue with the Federal Reserve is there should be accountability. They’re not beyond reproach, and I think both parties should want to have more control in terms of saying, “Should we let this body really get more and more powerful?”, which is what’s gone on over the last 20 years.
So, if I had my way, I think Congress should start limiting their power saying, you can’t just unilaterally print money and buy mortgage bonds, for example. You have to get our approval if you want to do that in the future. What do you think about something like that? Do you think that this is overblown in terms of this or just the media likes this conflict? It’s interesting.
Peter: Powell’s not going anywhere. Trump’s not going to try to remove him. The Fed caused most of the problems we saw under the latter part of the Trump administration and throughout most of the Biden administration, but I think we’re finally at a place where we started the podcast where inflation is decelerating and somewhat under control. I mean the mistakes have been made and then we’ve gotten to as good a spot as we can possibly be right now. I don’t think this is high on his priority list. I don’t think anything’s happening here.
John: Well, great stuff, insightful information. That was Creative Planning President Peter Mallouk, joined by Creative Planning Chief Market Strategist Charlie Bilello. If you’d like to watch their entire hour as they discuss this post-election world, which includes charts and visuals as well, you can find that at creativeplanning.com or by searching Signal or Noise on YouTube. Today, we’re diving into estate planning as we close out the year.
I’m here with Chrissy Knopke, an estate planning attorney at Creative Planning, frequent guest of the show with over a decade experience helping clients protect their legacy with customized strategies. Chrissy has a law degree from the University of Missouri, Kansas City, a bachelor’s degree from the University of Arizona. My wife, the ASU Sun Devil, is not going to be happy about that, Chrissy. Just like a lot of you listening, she’s a busy parent to two kids. Chrissy, welcome to the show.
Chrissy Knopke: Thank you for having me, John.
John: Absolutely. Well, let’s kick it off here with a simple one. Let’s throw a softball over to you. What’s the one estate planning move you think people should be considering as they head toward year end?
Chrissy: Gifting and that’s a broad use of the term, but there’s lots of ways to gift. But you should be looking at what should I be doing to reduce down my estate and gifting before year end and whether that’s to family members or that’s to charities.
John: Do you think that only applies to people over the exemption limits right now, which would be 13 mil plus or 26 if they’re a married couple, or do you think maybe someone listening who’s the multimillionaire next store that has a $3 million net worth but still wants to get some money to their kids or grandkids? Should that person also be considering gifting?
Chrissy: Absolutely. So, I do not think that it’s just for ultra-high net worth clients that are worried about reducing down their estate for estate tax purposes. It’s beneficial. They allow you to have these annual exclusion amounts so that you can gift out of your estate, get that over to your kids or other people that you want to help, and then it can grow outside of your estate for their needs.
John: The estate exemption amount is a political yo-yo. We know as of right now it’s set to sunset even with Trump’s victory as of now at the end of 2025. So, it may at some point become valuable as your net worth grows and potentially there’s a little bit of emerging as the estate exemption decreases where you look back maybe 20 years from now and go, “That was pretty smart in 2024, even though it didn’t seem like something that was necessary at the time.”
Chrissy: Definitely. So, obviously, it is a yo-yo. We do know under current law, unless it gets changed, that it is to sunset at the end of 2025, going into 2026. It’s going to be cut in half. So, if that law stays in place, that’s a significant change to the estate tax exemption level. In my career, it’s been pretty low. I’ve seen it as low as a million dollars to today’s all time high of 13.6. So, we never really know where it’s going to be. So, if you have the ability to gift and you want to gift, it’s a great strategy.
John: Yeah, it’s great. I had a buddy in high school at Seattle Christian that I played basketball with. He had a wealthy aunt that he had met a couple of times in his life that lived on the East Coast all the way across the country. We joked about it because he had a classic Ford pickup truck from the 1960s and he would get these things. We’d be like, “Oh, it’s that time of year, it’d be around the holidays.” He would get his gift that she was giving to him and about 35 other family members that were receiving that. I know she paid for his college too.
So, that can be a huge blessing to those around you and an easy way to not even have to file a gift tax return. So, speaking of taxes, they’re always a big focus this time of year. Are there any estate-related tax strategies that you recommend people should act on before December 31st?
Chrissy: So maximize your charitable donations, so whether doing that in a donor advice fund or with appreciated stock. Work with your tax advisor, with your financial planner to really maximize those donations before year end. That’s a great strategy, front loading a 529 plan. So, you can up to five years frontload a 529 plan for someone that you want to provide some educational expenses for. Not even associated with the 529 plan.
So, outside of the annual exclusion amount, which I don’t even know if we talked about it, but for 2024, it’s $18,000 per person. If you’re married, you can give any donee with no limit to the amount of donees $36,000. So, on top of that, you can pay medical expenses and education expenses as long as they’re paid to the institution. So, those are great ways to reduce down your estate gift and give somebody those items.
John: Well, and to piggyback on two of the points that you just made, because that standard deduction doubled in 2018 under the Trump tax reform, a lot of people, we know that charitable giving went down because people weren’t able to capture that deduction because they weren’t itemizing anymore. So, a donor advice fund or a wait a bunch donations to be able to take advantage of that in the short term and then gift it at the intervals that you still would like to out of that fund can be a really nice tool.
On the 529 route, those have become so much more flexible with some of the provisions where portions of it that are unused can go into a Roth account, even if it’s been held for, I believe it’s 15 years for those beneficiaries. So, you don’t have to worry quite as much anymore about, well, if I put money into that 529 and they don’t use it, it’s going to be penalized and I’m going to have no use for it and I’m going to regret that I put it in there. A lot more flexibility, which I think was smart, was put in place for that very reason so that you didn’t have to be reluctant or concerned-
Chrissy: Absolutely.
John: … by adding to the 529. That’s a sneaky one. I like that one, Chrissy. I hadn’t thought about that, but that’s a good end of year tip. Speaking of the end of the year, we know it’s busy. Everybody’s got a bunch of family over for Thanksgiving and then you have the holidays and then it’s New Year’s. You’re ready to rock and roll with your New Year’s resolutions and you’re out at the gym for the first five days until you lose the motivation.
Chrissy: Please stay in there. Yeah.
John: Exactly. So, in this busy season, what’s a mistake that you see often made this time of year?
Chrissy: Yeah, so I think the biggest mistake that we see is just people call to action too late. So, they know they need to gift. They want to gift. They have a charity or they have a family member that they want to give to, but life gets in the way just like it does for everybody and it’s too late and now they’re in the next tax year doing it.
John: Yeah, it’s February 1st and they’re like, “We want to fund all of these donations.” Oh, well, you’re about a month late on this one.
Chrissy: Exactly. Well, now we can do it for 2025.
John: Exactly. That’s funny. Yeah, absolutely true. I see that as well. A lot of folks think estate planning is only for the ultra-wealthy. They just don’t even hear the term estate planning or you’re at a cocktail party or a barbecue and you’re like, “I’m an estate planning attorney.” They’re like, “Oh, yeah, I don’t need you.” I think that is sometimes the perception. What do you say to someone who thinks they don’t need an estate plan?
Chrissy: So this one gets me every time. So, I literally tell friends, family, anybody who will listen, that anyone over the age of 18 needs an estate plan, whether they have assets or not. So, people always think estate planning is for the wealthy and it’s not. It’s for people who are 18 years of age or older. If you’re 18, you have to think that estate planning also encompasses those things that happen to us when we’re alive but incapacitated. So, if we’re in a car accident, who’s making medical and financial decisions?
So really I say anyone over the age of 18 should talk to an attorney, get some basic estate planning done. There’s very inexpensive ways to make sure you’re protected even if you don’t have a large net worth. So, there’s things you can do with beneficiary deeding to make sure your real estate doesn’t go into probate or putting those powers of attorney in place, or if you have a minor child but you don’t have $10 million, you want to ensure there’s guardianship. So, really I’ve never met anyone over the age of 18 that doesn’t need an estate plan.
John: A really good tip. So, Chrissy, how often should people actually be updating their estate plans? So they’re over 18. They listen to you. They say, “All right, I need the estate plan.” Is the year end a good time to review this? How frequently do you think this needs to be done?
Chrissy: I don’t want to put anything else on everybody’s year end plate, but I would say annually you should be taking a look at, “Okay, who are the players in my estate plan? Are they still the people that I want involved?” If not, then it’s a call to action, get your attorney involved, make some changes. I do say probably every three to five years, there should be a deeper dive to make sure that your assets have maybe grown, you’ve moved states, people in your life have changed. There’s a deeper dive in there to decide, “Oh, is this plan still the best for my family and for what I want to accomplish at the end of my life?”
John: Well, I think you’re mentioning maintenance. I think the other component on top of that, if something significant in your life is occurring, if you have a child, if you’re disinheriting a family member, if you’ve moved states, you’re divorced, you’re married-
Chrissy: Life events.
John: … all of those are reasons intuitively.
Chrissy: Yeah. So, I always say life events, births, deaths, change of states, change of job, all of those things signify okay, I should probably reevaluate and make some changes.
John: Yeah, I mean I get a lot of questions regularly as a wealth manager here at Creative Planning, but then also for this radio show related to divorce. 50% of Americans go through a divorce. That’s a huge financial shift, and that would be one of those life events that would dictate big changes. I think sometimes people are thinking about just the overall assets.
Think about your estate plan, it’s going to shift dramatically and make sure you get that ex-spouse little tip here off of your beneficiary designations because we’ve all heard the horror stories where 20 years later, your current spouse isn’t receiving the million dollar 401k because your ex-wife or ex-husband is still on the account. That doesn’t leave a lasting impression like the one that you’re looking for, I think, right? So checking those beneficiaries as well. Trust can be a huge tool in estate planning, Chrissy.
Chrissy: Definitely.
John: How can they play a role? Because this is another thing with people that are not ultra affluent. They’ll say, “Well, I don’t think I have enough money for a trust.” I mean, they might agree with you, okay, I’m over 18, I need to get into plan in general, but I don’t need a trust, Chrissy.
Chrissy: So it used to be tied to a dollar amount. We used to use trust just for that federal tax exemption level. Now we use trust in states where we can’t put a beneficiary on real estate. Because if you can’t put a beneficiary on real estate and something happens to you, that house is going to be tied up in probate. There’s going to be a lot more expenses associated with the probate process. Then if you created a trust, which at Creative Planning is in the $3,000 to $5,000 range, covers you for your lifetime. So, we use it in those states. Oftentimes the biggest reason I use them is when we have minor kids.
So, you may just be starting out. You may be growing your net worth and you’re not there yet, but you have minor kids and you have a significant insurance policy or retirement plan. If you pass away, all of a sudden, an 18-year-old’s going to get a couple million dollars and probably just blow straight through it. Where a trust, you’d be able to make provisions of who’s going to manage those funds and what ages make sense for that child to have more control over those funds. We’ve all heard the horror stories of a trust fund baby and how they blew through their money. They bought a Corvette, they went to Vegas. A trust is a way to essentially make sure that does not happen.
John: I’ve seen it firsthand. Seven series BMW pulling up with the kids rolling out of it before there was even dirt on the coffin. So, definitely want to make sure that they’re blessed by those assets and not a hindrance to their success or personal development.
Chrissy: Exactly.
John: Chrissy, this has been fantastic. Thanks for sharing these insights. I think our listeners are going to walk away with a much clearer idea of what they should be thinking about as they close out the year here related to their estate planning. So, thanks for coming on the show.
Chrissy: Thank you for having me.
John: Time for this week’s one simple task and that is to ask your financial advisor about your estate plan. I know you probably saw this one coming after the emphasis with estate planning attorney Chrissy Knopke earlier in the show, but estate plans are like the smoke detectors of your financial house. You don’t think about them much, but when you need them, they better be working. They’re annoying when they beep at you, which always happens to be in the middle of the night at the highest ceiling point of your house. Tell me about it. But as Chrissy mentioned, an estate plan isn’t just for the ultra-wealthy. It’s for anyone who wants to make sure their wishes are honored and their loved ones are taken care of.
So, here’s where to start. Maybe you’re wondering, do I need to update my estate plan? Is it adequate? I would tell you first and foremost, speak to your advisor. Go through your estate plan. If they don’t talk to your estate planning attorney, they don’t know your attorney, they don’t integrate your estate plan, maybe you consider getting another financial advisor, but check with them on a few initial items. Number one, your beneficiaries. Make sure your beneficiaries are up-to-date. There are countless cases where ex-spouses receive seven-figure tax-free payouts because their ex never took them off as their beneficiary. By the way, those generally will supersede anything else you have in your estate plan.
Second, review your will and your trust if you have one. Life changes fast, marriage, divorce, new kids, grandkids. Your will should reflect those changes. If you have someone listed who’s no longer either able or willing or has passed away to handle either your financial or medical care, it’s time for a change obviously. Make sure the people listed for either of those or both of them, they’re someone that you trust completely because that’s the one that impacts you while you are still alive, not just once you’re gone.
Finally, consider your digital assets. In today’s world, you probably have a lot of online accounts. Who’s going to handle your email, your social media, your financial accounts, your iTunes purchases? If something happens to you, it’s worth thinking about. All right, it’s time for one of my favorite parts of the show, listener questions. Britt, who do we have up first?
Britt Von Roden: Our first question today is from our friend Bob from Connect 24. Today, John, he wants to know how to navigate the following. On the one hand, we are urged to not just save and accumulate assets that will ultimately go to our heirs to spend, but to also enjoy life, spend on things that bring us joy and to give to loved ones and causes we care about all while we are alive. But on the other hand, we are bombarded with cautions about increasing longevity and the prospect of outliving our savings. So, again, John, the question from Bob today is how do we navigate this?
John: Bob, thank you for the question. This is the classic tug of war between spending today and saving for tomorrow. It reminds me of that old saying, it’s not the years in your life that count, but the life in your years. But how do you balance that practically? I mean that sounds great on a coffee mug, but it’s like how, right? Your question’s a good one. It starts with having a plan. It’s really hard to even know if you’re tilted too far one way or the other if you’re not regularly adjusting and updating and reviewing a written documented dynamic plan. Are my projections showing that I’m going to even pass away with more money and have more at age 99?
Wow, am I draining this thing down a little bit quickly and if I live too long, maybe I do run out of money. So, you really want to understand your withdrawal rate and you want to check it regularly. In my opinion, yes, I’m biased, but you want a certified financial planner who does that for a number of people just like you to uncover any potential blind spots that you may just not be aware of because you don’t have any do-overs. You got to get this right, which is by the way, why so many people die with way more money than they ever intended to. It’s not because their goal was to make their kids rich. In fact, in a lot of cases they’re saying, “My kids are doing better than me. They don’t need anything. They’re telling me to spend this,” but they don’t want to run out of money.
So, inevitably, if they pass away in their late 70s or early 80s and they’ve got a plan built to withstand all the way until 99, they have a lot of money that goes to someone. So, you have a plan and you review it regularly. Then it’s also important to know the answers to certain questions, which by the way may change as life evolves. But are you someone who wants to pass a certain number to the next generation or to charities, or are you okay with the check to the morgue bouncing? Because those two people spend rates and how they balance this looks very different.
Don’t forget, having a good financial plan allows for small course corrections along the way. So, you don’t have to make these big dramatic, massive changes. You follow the plan and it adapts over time as your situation, as your returns and as your desires change. Thank you for that question, Bob. Let’s go bridge to the question on cognitive decline in retirement.
Britt: Sure thing. That question is from Marie in Louisiana and she shares that her father-in-law’s cognitive decline cost him thousands of dollars in retirement savings through some bad investments. So, she’s wondering today, John, if there is something they could be doing to protect this from happening?
John: Well, Marie, I’m sorry to hear about your father-in-law’s experience. This can be one of the toughest parts of aging. I’ve dealt with this personally as well in my family, seeing a loved one cognitively decline, them wanting to hold onto their independence, but you not wanting to overstep, but also wanting to protect them and be conscientious of the decisions they’re making because you love them and you want to make sure that they’re not being exploited or that they’re not making decisions that you feel like they wouldn’t have made when they were a bit sharper. So, this can be a very delicate balance and communication is so important. A lot of that depends upon the relationship you had over the past several years.
I don’t know what your family dynamic is, but one important step, the blocking and tackling is to have a durable power of attorney in place. Giving someone a trusted individual the authority to make decisions in the event that your father-in-law cannot. Once they’re impaired, they can’t designate that. So, hopefully this is already in place. Another useful tool is to assign a trusted contact to the accounts, and this is different than a power of attorney in the sense that they don’t have the same legal authority, but this is really important by the way, if your father-in-law is not married, so he’s single, because the trusted contact allows for the financial advisor to legally contact someone in their life.
If their client’s non-responsive or seems to be acting erratically and they’re trying to figure out what’s going on, it’s someone in their life that they’ve already said in advance, “Hey, if you notice anything, contact this person. They don’t need to know every single account and how much my net worth is and what I’m doing with all of my investments, but they’re someone that I trust. If you think something weird is going on, please contact them and they may be able to provide more context.” I mean, here’s a quick example of how this works. We had a client, older gentleman, single, who started withdrawing large sums of money out of his account, totally not characteristic of what he had done in the past, but it’s his money, it’s his account.
There was no doctor’s note on record that said, “Trigger the power of attorney. This person can’t make decisions for themselves,” but it was suspicious. Now, fortunately, he had listed his daughter as a trusted contact and we were able to reach out to her and it turned out he was being scammed. He had mentally declined. We were able to help stop the transactions before he lost money. That’s where it can be really useful because she was able to call her dad, get more of an understanding of what was going on, and it saved him a lot of money.
The scammers out there are sophisticated in some cases and really good. I can’t stress enough how important having open conversations with aging family members about these types of issues, how important it is. The sooner you address it, the better you can protect their financial wellbeing. All right. Let’s go to our final question, Britt.
Britt: Our final question today, John, is from Eli in Chicago who is working on estate planning with his parents and is curious if a life insurance payout triggers estate taxes.
John: Eli, you’re not going to like the answer, but you might actually. The answer is yes, but the reason I said you might is because the only scenario where it triggers estate tax is if it were to exceed the current exemption limit of $13.61 million per person. That threshold is expected to rise with inflation adjustments in 2025. But for most people, you inherit an estate, you have some real estate, some investment accounts. Even if there is some life insurance that’s included, I mean, do all of those things total up to $14 million? In most cases, not. Now, if your family’s estate is above the limit, there are strategies today to get money out of the account, use up part of that exemption.
I’ve had people ask me, “Well, if I send $5 million to an irrevocable trust to get it out of my estate, but it reduces my $13.61 by $5 million, what am I accomplishing?” You’re accomplishing a lot because if that $5 million grows to $25 million, the $20 million of growth all happened outside of the estate and was not subjected to estate taxes. Now the downside for the person that sends that $5 million to the irrevocable trust is it’s not their money anymore. So, you have to have liquidity. You have to understand your income needs. You have to be very committed that you’re never going to wish that you had that money. But for people with large estates, this is a phenomenal time due to these very high estate tax exemptions. If you’re married, double the $13.61.
So, there’s a lot of room for a lot of people. My quick tip though is to make sure that you’re working with a good estate planning attorney who has experience with larger estates, who’s helped set up irrevocable life insurance trusts or just irrevocable trust. Maybe you don’t need life insurance in it, maybe you do, depending upon liquidity. The rules can be complex. You don’t want to mess them up, and the last thing you want to do is leave your loved ones with a hefty tax bill because of a small oversight that could have been avoided with some proper planning.
Here’s the simple truth. If you want to be rich, you want to know the secret? Be kind. There’s a quote I love by Zig Ziglar, you can have everything in life you want if you’ll just help enough other people get what they want. It’s easy to get caught up in the idea that wealth is only about money, but the richest lives are often filled with strong relationships, generosity, and goodwill. Kindness is a lot like compound interest. The more you invest in it, the more it grows and the more it pays dividends throughout your life. I heard a story of Andrew Carnegie, one of the wealthiest men of his time. He spent his later years so notably giving away his fortune, funding libraries and schools because he understood that true wealth isn’t about what you have, but what you give back.
Be a friend of the brokenhearted. Be a shoulder for those in need to cry on. Encourage not only your friends but those who you don’t always agree with because genuine kindness will bring fulfillment and contentment and peace far beyond what any dollar amount on your net worth statement will ever provide. Remember, we are the wealthiest society in the history of planet Earth. Let’s make our money of 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. 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 31st, 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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